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American Express
1. Origin of Relationship: The 1963-1964 Salad Oil Scandal
Berkshire's relationship with American Express begins during the Buffett Partnership era. In November 1963, American Express was struck by the Salad Oil Scandal (orchestrated by Tony De Angelis of Allied Crude Vegetable Oil). De Angelis had obtained massive warehouse loans from Amex by using oil storage tanks filled almost entirely with water, with only a thin layer of salad oil floating on top to trick inspectors.
When the fraud collapsed, American Express faced sudden liabilities of approximately $150 million, completely wiping out its capital and causing its stock price to drop by more than 50%.
Buffett's "Scuttlebutt" Research
Rather than relying purely on balance sheets, Warren Buffett conducted field research to test if the company's core brand was broken:
- He stood behind the cash register at Ross's Steak House in Omaha and saw that customers were still using their green American Express cards to pay for meals.
- He visited local banks and travel offices and observed that travelers were still purchasing and using Amex Traveler's Checks as cash.
- He went to supermarkets and verified that merchant acceptance was completely unaffected.
Recognizing that the core Consumer Franchise (its moat) remained fully intact despite a "localized excisable cancer" at the parent corporation level, Buffett allocated 40% of the Buffett Partnership's entire capital ($13 million) to buy American Express shares at their absolute bottom. It became one of the most successful trades of his early career.
2. Major Milestones
- 1980: In his shareholder letter, Buffett compared GEICO's 1976 turnaround to Amex in 1964: "Both were one-of-a-kind companies, temporarily reeling from the effects of a fiscal blow that did not destroy their exceptional underlying economics."
- 1991: Berkshire purchased $300 million of American Express Percs (Preferred Equity Redemption Cumulative Stock) in a private placement.
- 1994: The Percs were due to convert into common stock. Despite facing relentless competition from Visa, Buffett decided not to sell the stock after a golf game with Frank Olson (CEO of Hertz), who convinced him of the immense power of the Amex corporate card franchise.
- 1997: The American Express shares surged, resulting in a $3 billion unrealized gain on the original $300 million investment, driven by the outstanding management of CEO Harvey Golub.
3. Strategic Importance
American Express represents one of Berkshire's "Big Four" structural equity holdings. It exemplifies a powerful consumer and corporate franchise with an entrenched competitive moat. The 1994 decision to hold the stock rather than sell the converted Percs highlights Buffett's reliance on "scuttlebutt" (information from business operators like Frank Olson) and his willingness to hold wonderful businesses indefinitely.
🔗 Connections
- Company / People: Warren Buffett, Harvey Golub, Frank Olson
- Concepts: Consumer Franchise, Convertible Preferred Stock, The Moat
- Sources: 1964 Portfolio Analysis, 1980 Letter, 1994 Letter, 1997 Letter, 2004 Letter, 2011 Letter, 2020 Letter, 2022 Letter, 2023 Letter
📚 Historical Mentions & Citations (8)
Click a reference document below to expand and read the exact paragraph(s) containing this concept in the archive.
📜1980 LetterExcerpt Available▼
1980 LetterExcerpt Available
GEICO’s problems at that time put it in a position analogous to that of American Express in 1964 following the salad oil scandal. Both were one-of-a-kind companies, temporarily reeling from the effects of a fiscal blow that did not destroy their exceptional underlying economics. The GEICO and American Express situations, extraordinary business franchises with a localized excisable cancer (needing, to be sure, a skilled surgeon), should be distinguished from the true “turnaround” situation in which the managers expect—and need—to pull off a corporate Pygmalion.
📜1994 LetterExcerpt Available▼
1994 LetterExcerpt Available
| Shares | Company | Cost | Market |
| :--- | :--- | :---: | :---: |
| 27,759,941 | American Express Company | $ 723,919 | $ 818,918 |
| 20,000,000 | Capital Cities/ABC, Inc. | 345,000 | 1,705,000 |
| 100,000,000 | The Coca-Cola Company | 1,298,888 | 5,150,000 |
| 12,761,200 | Federal Home Loan Mortgage Corp. (“Freddie Mac”) | 270,468 | 644,441 |
| 6,854,500 | Gannett Co., Inc. | 335,216 | 365,002 |
| 34,250,000 | GEICO Corp. | 45,713 | 1,678,250 |
| 24,000,000 | The Gillette Company | 600,000 | 1,797,000 |
| 19,453,300 | PNC Bank Corporation | 503,046 | 410,951 |
| 1,727,765 | The Washington Post Company | 9,731 | 418,983 |
| 6,791,218 | Wells Fargo & Company | 423,680 | 984,727 |
Before looking at new investments, we consider adding to old ones. If a business is attractive enough to buy once, it may well pay to repeat the process. We would love to increase our economic interest in See’s or Scott Fetzer, but we haven’t found a way to add to a 100% holding. In the stock market, however, an investor frequently gets the chance to increase his economic interest in businesses he knows and likes. Last year we went that direction by enlarging our holdings in Coca-Cola and American Express.
📜1997 LetterExcerpt Available▼
1997 LetterExcerpt Available
| Berkshire’s Major Investees | Berkshire’s Approximate Ownership at Yearend(1) | Berkshire’s Share of Undistributed Operating Earnings (in millions)(2) |
| :--- | :---: | :---: |
| American Express Company | 10.7% | $161 |
| The Coca-Cola Company | 8.1% | 216 |
| The Walt Disney Company | 3.2% | 65 |
| Freddie Mac | 8.6% | 86 |
| The Gillette Company | 8.6% | 82 |
| The Washington Post Company | 16.5% | 30 |
| Wells Fargo & Company | 7.8% | 103 |
| | Berkshire’s share of undistributed earnings of major investees | 743 |
| | Hypothetical tax on these undistributed investee earnings(3) | (105) |
| | Reported operating earnings of Berkshire | 1,292 |
| Total look-through earnings of Berkshire | $1,930 | |
Instead, our problem has been that we own a truly marvelous collection of businesses, which means that trading away a portion of them for something new almost never makes sense. When we issue shares in a merger, we reduce your ownership in all of our businesses—partly-owned companies such as Coca-Cola, Gillette and American Express, and all of our terrific operating companies as well. An example from sports will illustrate the difficulty we face: For a baseball team, acquiring a player who can be expected to bat .350 is almost always a wonderful event—except when the team must trade a .380 hitter to make the deal.
📜2004 LetterExcerpt Available▼
2004 LetterExcerpt Available
12/31/04 Shares Company Percentage of Company Owned Cost Market (in $ millions) 151,610,700 American Express Company 12.1 $1,470 $ 8,546 200,000,000 The Coca-Cola Company 8.3 1,299 8,328 96,000,000 The Gillette Company 9.7 600 4,299 14,350,600 H&R Block, Inc 8.7 223 703 6,708,760 M&T Bank Corporation 5.8 103 723 24,000,000 Moody’s Corporation 16.2 499 2,084 2,338,961,000 PetroChina “H” shares (or equivalents) 1.3 488 1,249 1,727,765 The Washington Post Company 18.1 11 1,698 56,448,380 Wells Fargo & Company 3.3 463 3,508 1,724,200 White Mountains Insurance 16.0 369 1,114 Others 3,531 5,465 Total Common Stocks $9,056 $37,717
Let’s look at how the businesses of our “Big Four” — American Express, Coca-Cola, Gillette and Wells Fargo — have fared since we bought into these companies. As the table shows, we invested $3.83 billion in the four, by way of multiple transactions between May 1988 and October 2003. On a composite basis, our dollar-weighted purchase date is July 1992. By yearend 2004, therefore, we had held these “business interests,” on a weighted basis, about 12½ years.
📜2011 LetterExcerpt Available▼
2011 LetterExcerpt Available
Insurance has been good to us. * Finally, we made two major investments in marketable securities: (1) a $5 billion 6% preferred stock of Bank of America that came with warrants allowing us to buy 700 million common shares at $7.14 per share any time before September 2, 2021; and (2) 63.9 million shares of IBM that cost us $10.9 billion. Counting IBM, we now have large ownership interests in four exceptional companies: 13.0% of American Express, 8.8% of Coca-Cola, 5.5% of IBM and 7.6% of Wells Fargo. (We also, of course, have many smaller, but important, positions.)
12/31/11 Shares Company Percentage of Company Owned Cost Market (in $ millions) 151,610,700 American Express Company 13.0 $ 1,287 $ 7,151 200,000,000 The Coca-Cola Company 8.8 1,299 13,994 29,100,937 ConocoPhillips 2.3 2,027 2,121 63,905,931 International Business Machines Corp 5.5 10,856 11,751 31,416,127 Johnson & Johnson 1.2 1,880 2,060 79,034,713 Kraft Foods Inc 4.5 2,589 2,953 20,060,390 Munich Re 11.3 2,990 2,464 3,947,555 POSCO 5.1 768 1,301 72,391,036 The Procter & Gamble Company 2.6 464 4,829 25,848,838 Sanofi 1.9 2,055 1,900 291,577,428 Tesco plc 3.6 1,719 1,827 78,060,769 U.S. Bancorp 4.1 2,401 2,112 39,037,142 Wal-Mart Stores, Inc 1.1 1,893 2,333 400,015,828 Wells Fargo & Company 7.6 9,086 11,024 Others 6,895 9,171 Total Common Stocks Carried at Market $48,209 $76,991
📜2020 LetterExcerpt Available▼
2020 LetterExcerpt Available
12/31/20 Shares* Company Percentage of Company Owned Cost** Market (in millions) 25,533,082 AbbVie Inc 1.4 $ 2,333 $ 2,736 151,610,700 American Express Company 18.8 1,287 18,331 907,559,761 Apple Inc 5.4 31,089 120,424 1,032,852,006 Bank of America Corp 11.9 14,631 31,306 66,835,615 The Bank of New York Mellon Corp 7.5 2,918 2,837 225,000,000 BYD Co. Ltd 8.2 232 5,897 5,213,461 Charter Communications, Inc 2.7 904 3,449 48,498,965 Chevron Corporation 2.5 4,024 4,096 400,000,000 The Coca-Cola Company 9.3 1,299 21,936 52,975,000 General Motors Company 3.7 1,616 2,206 81,304,200 Itochu Corporation 5.1 1,862 2,336 28,697,435 Merck & Co., Inc 1.1 2,390 2,347 24,669,778 Moody’s Corporation 13.2 248 7,160 148,176,166 U.S. Bancorp 9.8 5,638 6,904 146,716,496 Verizon Communications Inc 3.5 8,691 8,620 Others*** 29,458 40,585 Total Equity Investments Carried at Market $ 108,620 $ 281,170
📜2022 LetterExcerpt Available▼
2022 LetterExcerpt Available
American Express is much the same story. Berkshire’s purchases of Amex were essentially completed in 1995 and, coincidentally, also cost $1.3 billion. Annual dividends received from this investment have grown from $41 million to $302 million. Those checks, too, seem highly likely to increase.
A very minor gain in per-share intrinsic value took place in 2022 through Berkshire share repurchases as well as similar moves at Apple and American Express, both significant investees of ours. At Berkshire, we directly increased your interest in our unique collection of businesses by repurchasing 1.2% of the company’s outstanding shares. At Apple and Amex, repurchases increased Berkshire’s ownership a bit without any cost to us.
📜2023 LetterExcerpt Available▼
2023 LetterExcerpt Available
Last year I mentioned two of Berkshire’s long-duration partial-ownership positions — Coca-Cola and American Express. These are not huge commitments like our Apple position. Each only accounts for 4-5% of Berkshire’s GAAP net worth. But they are meaningful assets and also illustrate our thought processes.
American Express began operations in 1850, and Coca-Cola was launched in an Atlanta drug store in 1886. (Berkshire is not big on newcomers.) Both companies tried expanding into unrelated areas over the years and both found little success in these attempts. In the past — but definitely not now — both were even mismanaged.