Finance History | U.S. Bancorp, 31 December 2010 — Berkshire Held 78.06 Million Shares After the Credit Crisis

At 31 December 2010, Berkshire Hathaway owned 78,060,769 shares of U.S. Bancorp, approximately 4.1 percent of the banking company. Berkshire reported an actual purchase cost and tax basis of US$2.401 billion in 2010 dollars and a year-end market value of US$2.105 billion. The holding therefore stood about US$296 million below cost on the reporting date, an unrealized shortfall rather than a cash loss already booked through a sale. The date matters because banks were still working through the consequences of the financial crisis, including elevated credit costs, tighter regulation and cautious borrowers. U.S. Bancorp described diversified businesses, capital generation and prudent risk management as foundations for participating in an economic recovery. A commercial bank earns a spread by funding loans and securities with deposits and other liabilities, then adds fee income from payment, trust and related services. That model can compound capital when underwriting is sound and funding remains stable, but leverage makes errors in credit judgment consequential. Loss estimates also arrive with delay because borrowers can continue paying for a time before unemployment, weak cash flow or falling collateral produces a default. At year-end 2010, U.S. Bancorp reported US$195.408 billion of loans and US$183.242 billion of deposits in 2010 dollars. Its allowance for credit losses was US$5.264 billion, demonstrating the scale of reserves required against uncertainty in the loan book. Regulatory capital constrained distributions and growth because a bank had to protect depositors and counterparties as well as common shareholders. Berkshire's 4.1 percent interest supplied economic exposure without turning U.S. Bancorp into a controlled subsidiary or placing its deposits on Berkshire's balance sheet. The market value below cost also illustrates how a well-regarded franchise could remain discounted while investors debated the eventual size of credit losses and recovery earnings. For Berkshire, the investment depended less on a single year's reported profit than on underwriting culture, funding resilience and the bank's ability to earn through a full cycle. The photographed Portland tower is a public sidewalk anchor rather than the location of Berkshire's share purchases or bank-accounting decisions. Its reflective facade represents an institution whose true assets were loans, payment relationships and promises recorded far beyond the building. Photo: Cacophony, CC BY 3.0, via Wikimedia Commons.