Back in 2015 Warren Buffett’s Berkshire Hathaway paid $500 million to Insurance Australia Group Ltd (ASX: IAG) to take a 3.7% stake in the insurance giant.
As well as the stake, the deal included an agreement which saw the investment conglomerate receive 20% of IAG’s gross written premiums and pay 20% of its claims.
As a generous dividend payer, this deal was expected to deliver a sizeable income stream which Berkshire Hathaway advised would be invested locally to avoid currency risk.
He told that AFR via a phone interview that: “If you come back in two or three years, you will find we have got four or five Australian equities.”
One area that had caught the eye of Mr Buffett was the banking sector.
He stated: “Banking is something I have looked at. I am comfortable with banks. We have some big positions in US banks. I will certainly be looking at the bank. In looking at banks, I would say there is a good chance that five years from now, we will have bought one or more positions in Australian banks.”
We’re now at the latter stages of this five-year period and, to the best of my knowledge, Mr Buffett has yet to open a position in either Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), or Westpac Banking Corp (ASX: WBC).
Could Warren Buffett make an investment soon?
I think the banks could be a great fit for Mr Buffett and Berkshire Hathaway.
After all, the legendary investor is no stranger to bank investments and has often struck deals when bank shares have been sold off.
Due largely to the Royal Commission and the slowing housing market, Australian banks have fallen heavily over the last 12 months and are trading on significantly lower than average multiples and offer some of the most generous dividends on the local share market.
One famous Buffett quote comes to mind.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
I think this quote is rather fitting for Australian banks right now and would class them all as a buy at current prices.
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James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool Australia owns shares of Insurance Australia Group Limited and National Australia Bank Limited. The Motley Fool Australia has recommended Berkshire Hathaway (B shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.