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

American Express (AXP), one of the largest credit card companies in the world, has long been a favorite of Berkshire Hathaway (BRK-AAnd BRK-B) CEO Warren Buffett.

“You can’t create another American Express,” Buffett said Tell Bloomberg in December. “I could start another shoe store. I could start another business publication. I could do all kinds of things with hundreds of billions of dollars. But I can’t put into people’s heads what they have in mind about American Express.”

As of September 29, 2022, Berkshire detained 151,610,700 AmEx shares, or 20.29% of the total. In the End of 2021AmEx was Berkshire’s largest security by weight and the third largest holding by market capitalization, with a stake of $24.8 billion – which grew to $26.1 billion by September 29, 2022.

In 2022, Berkshire built at least a 20.2% stake in Occidental Petroleum (OXY) And Obtained regulatory approval To buy up to 50% of the oil giant’s common shares. So while AmEx may not be Berkshire’s largest share by weight, the company’s value to Berkshire is clear.

“It’s kind of like the Good Housekeeping seal of approval,” said Stephen Squarey, CEO of American Express. Yahoo Finance newly. “Warren and Berkshire are high-profile investors, and to have him talk about the brand and talk about the company and talk about the direction we’re going in with great enthusiasm.” [is important]. “

In 2020, when the pandemic hit, AmEx stock fell to $66 with lockdowns and travel bans drawn down 39% earnings. But Buffett kept his stake in the company, even when he was Shares of airlines and banks were sold.

AmEx managed to rebound after enduring the economic downturn caused by COVID and reached its highest price in decades at $196 per share in 2022.

That momentum has continued into 2023: AmEx’s latest quarterly results showed a slight lag from the fourth quarter, but the company indicated that it remains positive about its outlook for the remainder of the year.

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

How Buffett He got his share AmEx

Although the AmEx brand has emerged from the pandemic in a position of strength, this has not always been the case.

Buffett’s interest in AmEx began in the 1960s, during The first wave of consumer credit across banks. For American Express, it wasn’t without a bit of controversy.

In 1963, Anthony DeAngelis, founder of the Allied Crude Vegetable Oil Company, used his company’s stock as collateral for loans from more than 50 companies, including AmEx. De Angelis used these loans to raise prices in the soybean oil market and increase the value of Allies.

Eventually, a whistleblower came forward claiming that Allied was misleading AmEx into obtaining more loans by filling oil tanks with water. This proved true and De Angelis filed for bankruptcy and was imprisoned for seven years. The error has become known as “Salad oil scandalConcerns mounted on Wall Street that AmEx must now foot Allied’s bill.

“Every administration trust in the United States panicked,” Buffett said He said about scam. “I remember Continental Bank used to own more than 5% of the company and all of a sudden they saw not only were the trust accounts going to have zero value shares, but they could be valued. They just ran out of stock, of course, and the market got pretty inefficient for a short period of time.”

Buffett jumped at the opportunity to acquire 5% of AmEx for approximately $20 million.

The credit card boom of the 1970s and 1980s made AmEx a major player in the market. By the late 1990s, two-thirds of American households have a credit card. Buffett can now go all out and take his first major stake in the company in 1991 300 million dollars.

Within seven years, Buffett owned more than 50 million shares of the company. Berkshire Hathaway hasn’t bought any shares of American Express since the late 1990s, but its stake in AmEx has continued to increase as a result of share buybacks.

Between 1998 and 2005, Berkshire’s share increased from 11.2% to 12%. In 2020, AXP became Berkshire’s largest holding by percentage.

And although AmEx had a rough start to 2016 financially, Buffett stood by his investment.

“Now we own 20% of American Express,” Buffett said at the 2022 annual meeting of Berkshire Hathaway shareholders. “That was very good. If they overpay for stock and all that — it doesn’t solve every problem — but it’s great to have an asset that you like and they benefit from your ownership.”

AmEx Pandemic Renewal

One of American Express’s greatest assets was its conception as status symbolwhich struggled after undergoing a series of rebranding efforts.

The company has a simple revenue model: Most of its interest revenue is generated from balances and fees Cardholders and merchants. Merchants charge more fees than AmEx competitors such as Visa (Fifth) or Mastercard (Master’s) because AmEx cardholders tends to be Richer and spend more, which will benefit the merchants in the future.

AmEx too Collects revenue From data it collects about cardholders’ spending, which is used to target marketing and make offers to customers. This, in turn, has helped AmEx attract interest from millennial and Gen Z consumers in recent years as the company has evolved from being a traditional luxury credit card provider to a digital payment provider.

American Express has renamed its Platinum Card the “Lifestyle Card” by increasing its fees and MLM at home and dive into it Electronic trade and food delivery services with By increasing rewards. Since the strategic changes took effect, the company has more than doubled its platinum cardholder count, with millennials and Gen Z customers accounting for nearly 60% of the growth of all new consumer cardholders.

And with the lifting of pandemic restrictions, AmEx has grown its global reach with new travel benefits. Show more Bonuses and pointsand new Luxurious lounge at Centurion Airport. The AmEx payment method is now accepted at most websites in more than 178 countries, according to nation.

“This whole concept of the generational relationship is huge for us,” Squirey told Yahoo Finance. “We’re going to continue to adjust our products and add value to our products that don’t just speak to Millennials but speak to Gen Xers and speak to Boomers. Millennials and Gen Zers are our fastest growing segment.” “.

The AmEx CEO also stressed that Buffett “gets it right” as AmEx’s largest shareholder.

“He realized that the AmEx brand was special,” he said. “He told me that all the time. We both agree that the customer base is special. Anyone who has Warren as their largest shareholder would be very happy.”

Tanya is a data reporter at Yahoo Finance. Follow her on Twitter. @tanyakaushal00.

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