Home Finance & Fintech How Warren Buffett’s Berkshire Hathaway came to own 20% of American Express

How Warren Buffett’s Berkshire Hathaway came to own 20% of American Express

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American Express (AXP) is one of the world’s top credit card companies and Berkshire Hathaway (BRK-A, BRK-B) CEO Warren Buffett.

‘We can’t build another American Express,’ says Buffett, said Bloomberg in December. “We could make another shoe store, we could make another business publication, and we could do all sorts of things with hundreds of billions of dollars. I can’t understand what you’re thinking.”

As of September 29, 2022, Berkshire holds 151,610,700 Amex shares or 20.29% of the total. End of 2021 Amex is Berkshire’s largest shareholding and third largest by market capitalization, with a stock value of $24.8 billion, rising to $26.1 billion by September 29, 2022. In 2022, Berkshire will hold at least a 20.2% stake in Occidental Petruleum (oxy) when obtained regulatory approval. So while AmEx may no longer be Berkshire’s largest holding, the company’s value to Berkshire is clear.

“It’s like the seal of approval for good housekeeping,” said Steven Squeri, CEO of American Express. “Warren and Berkshire are iconic investors, and we had him talk about the brand and the company and enthusiastically talk about the direction we’re taking.”

Lockdowns and travel bans pushed Amex shares down to $66 when the 2020 pandemic hit dragged down 39% profit. Buffett, however, retained his stake in the company. Amex was able to bounce back after enduring a COVID-induced recession, reaching its highest price in decades at $196 per share in 2022. That momentum continues into 2023. AmEx’s latest quarterly results showed a slight misstep in the fourth quarter, but the company remained positive about its outlook for the rest of the year.

Warren Buffett attends the Forbes Media Centennial Celebration at Pier 60 in New York City on September 19, 2017. (Photo by Taylor Hill/FilmMagic)

How Buffett acquired his stock Amex

AmEx’s brand has taken a strong position from the pandemic, but that hasn’t always been the case. Buffett’s interest in Amex began in the 1960s. First wave of consumer finance via bank. For American Express, it hasn’t been a bit of a controversy. In 1963, Anthony de Angelis, founder of the Allied Crude Vegetable Oil Company, used his company’s inventory as collateral for loans from more than 50 companies, including Amex. De Angelis used these loans to boost prices in the soybean oil market and increase the value of Allied.

Ultimately, the whistleblower claimed that the Allies were misleading Amex to fill oil tanks with water to get more loans. applied for and was imprisoned for seven years. Injustice came to be known as the “salad oil scandal” and concerns grew on Wall Street as Amex had to pay Allied bills.

‘Every US trust sector panicked,’ says Buffett. “I remember when Continental Bank owned over 5% of the company. Suddenly they saw that the shares in the trust account were not only worth zero, but could be appraised. Of course, the stock had just flowed out, and the market was slightly inefficient for a short period of time.”

Buffett used the opportunity to acquire 5% of Amex for about $20 million.

The credit card boom of the ’70s and ’80s made AmEx a top player in the market. By the late ’90s, two-thirds of American households have a credit card. Buffett was now at full strength and was able to invest his first large stake in the company in 1991. Within seven years, Buffett owned over 50 million shares in the company. Berkshire Hathaway hasn’t bought American Express shares since the late 1990s, but Amex stock continues to climb as a result of share buybacks.

Between 1998 and 2005, Berkshire shares rose from 11.2% to 12%. In 2020, AXP was Berkshire’s largest holding. Despite a rocky start to Amex’s financials in 2016, Buffett backed his investment.

“I now own 20% of American Express,” Buffett said at the 2022 Berkshire Hathaway Annual Shareholders Meeting. , that doesn’t solve all the problems, but it’s nice to own assets that you like and they’re willing to take ownership.”

Amex Pandemic Reform

One of American Express’ greatest assets is status symbol has endured through a series of rebranding efforts.

The company’s revenue model is simple. Most of the revenue comes from interest from balances and fees. From cardholders and merchants. Vendors must use Visa () or MasterCard (MA) for Amex cardholders tend to be getting richer and shopping more will benefit the merchant in the future.

Amex too collects income data collected about cardholder spending and is used for targeted marketing and providing offers to customers. That’s what helped AmEx evolve from a traditional luxury credit card provider to attract the attention of millennial and Gen Z consumers in recent years.

Amex has increased fees and rebranded its Platinum card as a “lifestyle card” with stay-at-home privilege and jump in e-commerce and food delivery service by increasing rewards. Since the strategic change was implemented, the company has doubled the number of platinum cardholders, with millennial and Gen Z customers accounting for about 60% of all new consumer cardholder growth.

And once pandemic restrictions are lifted, AmEx has expanded its global reach with new travel rewards. They offered more rewards, points to the new Luxury lounge at Centurion Airport. The AmEx payment method is now accepted by most websites in over 178 countries. Millennials and Gen Z are the fastest-growing segments we have.

Amex’s CEO also stressed that Buffett is “right” to be Amex’s largest shareholder. “He understands that the Amex brand is special,” he said. “He always says that. We both agree that the customer base is something special. Anyone who has Warren as the number one shareholder would be pretty happy.”

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