Do Hedge Funds Love Wells Fargo & Co (WFC)?

In a recent interview on CNBC, Warren Buffett discussed some of his long positions, including Wells Fargo, which represents Berkshire’s largest 13F holding. During the fourth quarter, Berkshire increased its exposure to the bank by 3% to 479.70 million shares, representing 9.8% of Wells Fargo’s outstanding stock. In the interview, Buffett said that he is very fond of the company and considers that CEO John Stumpf has done a great job running Wells Fargo. In fact, Buffett has been bullish on the bank for more than two decades and back in his 1990 letter to investors he also praised the management, saying: “With Wells Fargo, we think we have obtained the best managers in the business, Carl Reichardt and Paul Hazen.”

Moreover, in an interview to Fortune magazine in 2009, Buffett said:

“[…] In the end banking is a very good business unless you do dumb things. You get your money extraordinarily cheap and you don’t have to do dumb things. But periodically banks do it, and they do it as a flock, like international loans in the 80s. You don’t have to be a rocket scientist when your raw material cost is less than 1-1/2%. So I know that you can have a model that works fine and Wells has come closer to doing that right than any other big bank by some margin. They get their money cheaper than anybody else. We’re the low-cost producer at Geico in auto insurance among big companies. And when you’re the low-cost producer – whether it’s copper, or in banking – it’s huge.

Then on top of that, they’re smart on the asset side. They stayed out of most of the big trouble areas. Now, even if you’re getting 20% down payments on houses, if the other guy did enough dumb things, the house prices can fall to where you get hurt some. But they were not out there doing option ARMs and all these crazy things. They’re going to have plenty of credit losses. But they will have, after a couple of quarters of getting Wachovia the way they want it, $40 billion of pre-provision income.

And they do not have all kinds of time bombs around. Wells will lose some money. There’s no question about that. And they’ll lose more than the normal amount of money. Now, if they were getting their money at a percentage point higher, that would be $10 billion of difference there. But they’ve got the secret to both growth, low-cost deposits and a lot of ancillary income coming in from their customer base.”

With all of this in mind, we’re going to check out the new action surrounding Wells Fargo & Co (NYSE:WFC).