Warren Buffett banks on caution as US lenders face stormy outlook

Warren Buffett is again sending signals to global investors. The Sage of Omaha, now 94 and set to retire as Berkshire Hathaway chief at year’s end, has been systematically offloading his holdings in major American banks. This year alone, Berkshire Hathaway sold roughly $3.2bn in shares across major US financial institutions, including a £1bn divestment from Citigroup and a shedding of more than £2bn in Bank of America stock.

These bold moves coincide with an all-time high for the KBW Nasdaq Bank Index and robust profits at leading Wall Street banks such as Goldman Sachs and Citigroup. Trading revenues have soared amid intense market volatility, particularly as tariffs and shifting US economic policies under Donald Trump drive uncertainty. Yet Buffett’s reputation for anticipating market turns means such decisions rarely pass unnoticed. Analysts note that this step away from banking shares reflects a cautious, even bearish, view on the sector’s immediate prospects.

Jamie Dimon, chief executive at JPMorgan, has also trimmed his exposure, selling over $31.5m in shares this April after a significant £125m sale the previous year—the first since he took the top job in 2005. Collectively, these moves underscore deepening concern at the highest levels of American finance regarding the sector’s resilience.

US inflation climbed to 2.7 percent in June and Trump’s shifting economic policy is widely expected to inject greater volatility into the latter half of the year. The Federal Reserve itself has already revised its GDP forecast for 2025 downward, from 2.1 percent to 1.4 percent. Uncertainty surrounding trade tariffs, together with the President’s public threats to remove Fed chairman Jerome Powell, has only intensified worries about policy stability.

Higher government borrowing costs loom as a critical issue. Increased Treasury yields, driven by inflation expectations, may eventually pressure banks through increased loan defaults and a slowdown in investment banking activities such as mergers and acquisitions. As interest rates climb, borrowing costs follow suit, ultimately hampering consumer spending and triggering a knock-on effect throughout the economy.

Berkshire Hathaway retains significant positions with 16.4 percent of its portfolio in American Express and 10.1 percent in Bank of America, but crucially it is shifting focus towards more defensive sectors. Investments in energy and consumer goods—most notably Occidental Petroleum and Constellation Brands—suggest a bid for resilience as markets navigate an unpredictable landscape.

With volatility at historic highs and economists warning of a “reality check”, the message is clear. US banks, for all their recent windfalls, may not weather the coming storms as easily as the headline numbers suggest. As ever, Buffett’s bets are worth watching—and right now, that means watching his retreat from America’s lenders.