After Bank of America released Q2 results that exceeded expectations, Buffett sold the stocks of the bank he loved most in four years.

According to the SEC statement submitted by Berkshire Hathaway, the company has sold $1.48 billion of Bank of America stocks in the past week. This is also Buffett's first reduction of Bank of America stocks since Q3 2020.

After the reduction, Berkshire Hathaway now holds 0.9989 billion shares of Bank of America stock, priced at over $42.8 billion, the second largest position in the company's investment portfolio.

Why the reduction?

Buffett began buying Bank of America stocks in 2011, and Bank of America subsequently became the second largest holding stock of Berkshire Hathaway, second only to Apple.

During this period, Buffett has repeatedly praised the management of Bank of America. Although he reduced holdings in other banks in previous years, Buffett did not choose to reduce his holdings in Bank of America.

"I really like Brian Moynihan," Buffett said. "I don't want to sell Bank of America's stock, but I did sell the bank stocks I had held for 25 or 30 years. If these banks ask me why I did this, I will tell them: I just think that the bank system's settings regarding the connection between punishment and some important things have problems."

Since the financial crisis, Bank of America has become a first-class financial institution. Under the leadership of Brian Moynihan, it has become more efficient, taken on more responsibilities in lending businesses, and become more diversified.

As for Buffett's reduction of Bank of America this time, there are many speculations in the market.

From a macro perspective, the world is currently facing multiple challenges of high inflation, rising interest rates, and slow economic growth. In order to curb inflation, the Fed chose to raise interest rates consecutively, which has also put pressure on the US banking industry, which has long relied on and expanded under low-interest rate environments.

At the same time, in a high-interest environment, although the lending businesses of many US banks can reap higher interest income, they also face the risks of rising credit costs and increased default risk. Analysts pointed out that Buffett's reduction may be a prediction of potential economic recession risks in the future, as well as an avoidance of uncertainty that the banking sector may face due to changes in interest rate environment.

Bank of America's Q2 financial report exceeded expectations.

It is worth noting that Buffett's reduction occurred one day after Bank of America released its Q2 financial report.

According to the financial report, Bank of America's revenue was $25.38 billion, and the diluted EPS was $0.83; after deducting interest expenses, the income was $25.4 billion, an increase of $2 billion, or 1%. This also reflects the increase in asset management and investment banking fees, sales and trading income, and the decrease in net interest income (NII).

At the same time, net interest income, which is one of Bank of America's largest sources of revenue, fell to $13.7 billion, lower than the expected $13.8 billion.

The balance sheet remains strong, with average deposits increasing by $35 billion compared to Q2 2023, average loans and leases of $1.05 trillion, and increased slightly compared to Q2 2023. The average global sources of liquidity are $909 billion; common stock Tier 1 capital is $198 billion, an increase of $1 billion from Q1 2024; common stock Tier 1 equity ratio is 11.9%, an increase of 6 basis points from Q1 2024, higher than the new regulatory minimum ratio that will take effect from October 1, 2024 by 122 basis points.

According to the financial report, the revenue is expected to be in the range of $25-26.5 billion and net income is expected to be in the range of $6.3-7 billion during Q3 2024.

Editor/Emily