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Leager to reiterate the success of its investment in StoneCo (NASDAQ: STNE), Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) recently invested $ 500 million in another Brazilian fintech start-up called Nubank. In this fool live Video clip, recorded on June 14, Fool.com contributor Matt Frankel, CFP, and Focus on industry Host Jason Moser goes over the details of the investment and what it could mean for Berkshire.
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Jason Moser: Last week we saw, I think, a very remarkable stock, with Berkshire Hathaway, for the most part, making a big investment in the Brazilian leader in fintech, I guess you could say there. It appears to be a leader in the Brazilian fintech space, Nubank. Matt, let’s talk about this for a minute because it feels like Berkshire Hathaway, the company, I mean, it makes you wonder if this is a project led by Buffett or his deputies. But in the end, Berkshire Hathaway is certainly making investments in Brazil, seeing this as one of the pockets of opportunity available today in this new developing fintech space. What do we do with this investment with Berkshire? I think it was about $ 500 million of investment they made in Nubank.
Matt Frankel: Yes, $ 500 million, which would be a big investment for anyone except Berkshire Hathaway. It represents a little less than 0.1% of the total capital of Berkshire, or rather of its total market capitalization. It could be a needle motor if it’s, say, like a 10-bagger, but it’s not a giant investment. But that said, it’s not hard to see why Berkshire might like the financial sector in Brazil. Brazil is a big country, if you are not familiar with it. They have over 200 million people in Brazil and their financial system is not as inclusive as ours. In other words, banking has been dominated for years and years by a few large corporations. Think of our big four banks, if there was no one else in the banking business.
Moser: Wow.
Frankel: As a result, millions of people have been excluded from the traditional financial system. We talked about the unbanked and underbanked population in the United States, it’s much more in Brazil. You’ll see a lot more people without a checking account, a lot more people without 401K or any traditional financial products. In recent years, the Brazilian government has actively encouraged, encouraged and supported these fintech start-ups. You will remember that Berkshire already has a fairly successful track record in this area. They entered StoneCo a few days after the IPO. They are up 160% on this investment to date. It’s rather good. But Nubank, as the name suggests, is a new kind of bank. They offer things like, in addition to traditional cash management accounts, they have loans, they have life insurance products, they have investment products, they offer mobile payment business. They have around 40 million users, mostly in Brazil. They are expanding into Mexico and Colombia. Many large companies start up in Brazil and then expand abroad. I think Free Mercado is another that is slowly growing in the markets of Mexico and Colombia from their main market, Brazil and Argentina. Forty million users is part of a bigger investment cycle. They’re simultaneously raising an additional $ 250 million from other investors, and that’s part of a funding round that’s been going on since January in the bank. He values the bank at $ 30 billion. By doing some quick math, that means Berkshire now owns just under 2% of Nubank.
Moser: Wow.
Frankel: Pretty big business. If this becomes the next Pay Pal or the next one Square, it could be a needle motor for Berkshire. But it looks like you’re just trying to get some exposure. I’m pretty sure it was an investment from Ted or Todd. I would be really surprised if it was Buffett himself.
Moser: Yes. I think you’re probably right, but I feel like even though it’s something they’ve come up with, you feel like it’s something that has to at least go through the front office, is not it ?
Frankel: I mean, these two pretty much have the freedom to operate. Their Potential – Buffett said he didn’t take a stock they own until he read about it in the paper because these guys don’t really need to sort out anything with them. But that said, whether he knew it or not, that’s one thing I should think Buffett would give his approval to. We know he loves the banking industry. He invested in Wells fargo long ago, has since abandoned this investment. Bank of America behind Apple is the largest equity position in the company. He owns a bunch of banks. He loves banking and he loves the whole nature of business. How you use somebody else’s money to make money and things like that. The Brazilian banking system is where ours was a few decades ago. It makes sense that he sees more or that Berkshire in general sees more growth opportunities this way.
Moser: Yeah, I mean, that makes sense from a lot of different points of view out there. I think it was also very interesting that the management of Nubank actually sees that this is really a validation. I mean, that’s actually what the CEO of the company said. He said it’s a huge validation for what they’ve done. I mean you have to believe that it gives them the confidence that what they’re doing is working and the vision they see for the future of fintech in Brazil and really Latin America, I mean it’s really is the case, it seems that Nubank is a company that is really helping to dictate and help shape this.
Frankel: Yes. I mean, Berkshire’s seal of approval, that’s pretty important. Each quarter when their 13F comes out, the shares they bought go up, the shares they’ve sold go down, as if the company hasn’t changed. It’s that they don’t have or no longer have the Buffett seal of approval. Remember, Buffett didn’t own Bank of America until a few years ago, he had a bunch of warrants. When he cashed in these warrants, Brian Moynihan issued a letter saying that we are proud to have Warren Buffett as our largest shareholder. The same as Nubank just did. It’s not just NuBank, a fintech startup that thinks Buffett’s seal of approval was important. Bank of America thinks this is very important. Tim Cook said he’s happy with Buffett as an Apple investor, that’s a big seal of approval to have because like it or not, a lot of people invest based on what Buffett does. A lot of people take inspiration from Buffett and think, “Oh, this must be a real business,” especially with some of these start-ups.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Jason moser owns shares of Apple, PayPal Holdings and Square. Matthew Frankel, CFP owns shares of Apple, Bank of America, Berkshire Hathaway (B shares), Square and Wells Fargo. The Motley Fool owns shares and recommends Apple, Berkshire Hathaway (B shares), Bitcoin, PayPal Holdings, Square and Stoneco LTD. The Motley Fool recommends the following options: long January 2022 $ 75 calls on PayPal Holdings, long January 2023 $ 200 calls on Berkshire Hathaway (B shares), long March 2023 $ 120 calls on Apple, short January 2023 $ 200 put on Berkshire Hathaway (B shares), short calls of $ 265 in January 2023 on Berkshire Hathaway (B shares) and short calls of $ 130 in March 2023 on Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
