Warren Buffett is becoming the go-to guy for financial services firms around the world which find themselves in a spot of bother. Warren Buffett’s investment vehicle Berkshire Hathaway has been linked to a 10 per cent stake in Kotak Mahindra, the third biggest Indian bank by market capitalisation.
Last year the Sage of Omaha rescued Canada’s Home Capital, a stricken mortgage lender. Now his investment vehicle, Berkshire Hathaway, has been linked to a 10 per cent stake in Kotak Mahindra, the third biggest Indian bank by market capitalisation. The bank’s Mumbai-listed shares leapt 8 per cent on Friday, the most in five years.
A deal could be an elegant solution to a tricky stand-off. Uday Kotak, founder and executive vice-chairman, faces a year-end deadline to reduce his near-30 per cent stake in the bank to less than 20.
The timeline has been set by the Reserve Bank of India, which remains determined to see more diversified ownership. Despite Kotak Mahindra’s dizzying valuation – 4.5 times its book value, almost five times the sector average – holding a chunk could appeal to Berkshire, which recently invested in Paytm, India’s leading mobile payments company.
The RBI’s position is dubious. More widely owned banks have not steered clear of trouble; ICICI Bank, the number four by market cap, has just lost its chief executive after a nepotism scandal. More broadly, hard limits on ownership send a strange message to entrepreneurs. Mr Kotak started his company as a non-bank, straight out of business school. When he got a banking licence in 2003, it was with the aim of becoming an Indian JPMorgan Chase or Santander: a global giant, where the dilution of the founder’s stake is a byproduct of growth rather than a regulatory imperative. The RBI changed the rules in 2012.
But no matter. If Mr Kotak would rather not challenge the central bank in court, there could be few better shareholders than Berkshire, which has about half of its $US207 billion equity portfolio in banking, insurance and finance. And it has a history of throwing an arm around chief executives – as at Goldman Sachs or Wells Fargo – when they really need it.