Is Berkshire Bending the Rules With Bending Spoons?

Tyler Crowe (0:02)

Did someone tweak the Berkshire Hathaway settings? Motley Fool Hidden Gems Investing starts now.

Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by longtime Fool contributors, Matt Frankel and Jon Quast. We're going to get into Berkshire Hathaway's, some might say peculiar decision to invest more in Bending Spoons. We're going to talk about 15% interest rates at a certain NeoCloud company, but we want to start because it is earnings week, and we're going to do a little bit of dumping the Analyst Earnings Notebook. And Matt, I want to start with you, because on Tuesday we were talking about the big banks reporting. JPMorgan, Wells Fargo, we had Bank of America just report afterwards. In addition to the earnings report, there was a little bit of a oops, that wasn't great. So what exactly happened here?

Matt Frankel (0:51)

Yeah, so before we get to the oops, which was a $1.2 billion anti-money laundering penalty, it's worth mentioning that the earnings miss went beyond that. So the stock had a pretty negative reaction on Wednesday.

It was the worst performer of the bank stocks in response to earnings. And even without that penalty, Bank of America still would have missed earnings.

The big reason is investment banking. Investment banking fees were down 11% on the trading side, which was a strong point elsewhere in the industry. It was really not very strong at all. So the reaction makes sense. The bank did not have a great quarter. On the consumer side, it still looks good. But the trading, the investment banking, it was much weaker than peers.

Tyler Crowe (1:35)

All right. So, I hear anti-money laundering. And obviously, bank, that's like a real no-go sort of thing. I remember a couple of years ago, I think it was TD Bank, which is Toronto Dominion. It's changed its name. I can't remember specifically what it may have changed into now. But it had a similar problem with like its anti-money monitoring practices and know your customer laws. And there was actually an asset cap that was put on top of it, on top of fines.

Based on what you're seeing here with this one, is this a similar situation? Could Bank of America be headed for perhaps something more punitive than just a $1.2 billion fine?

Matt Frankel (2:13)

Well, it's worth mentioning these are two totally different situations. You don't want to hear this time is different in investing, but I'm going to do that right now.

So, in Bank of America's case, it was the failure to report some suspicious transactions in a timely manner. They just weren't kind of keeping the controls as tight as they should have. They were already under a 2024 order. All of this had happened between, I think, 2018 and 2025 And they essentially got penalized because they didn't fix their reporting process when they would see suspicious transactions. That's what Bank of America did. TDs was a criminal case. TD actually had certain employees taking bribes to let money-laundering transactions go through. That's a totally different animal.

So unless, and I'm not saying it's impossible, unless the investigation into Bank of America reveals something to that nature, where it becomes more of a criminal matter than a just failure to act matter, then I don't think an asset cap is very likely. That's a tool that the government really pulls out only when it has to.

Tyler Crowe (3:20)

Yeah. And certainly with TD and Wells Fargo, asset caps have not been a fun thing to manage. Jon, I guess we could say, moving on to something completely different here, I left the floor open. I didn't even ask what company you really wanted to hit in our analyst notebook here. So over the past week, we had a few that have reported so far. What was the one that stood out to you that you want to maybe shed some light on here?

Jon Quast (3:44)

Well, if I was just picking what I wanted to pick most, I would go with Taiwan Semi, but this is the Hidden Gems Show, and you got to give the listeners what they are looking for. I think they're looking for a little bit, something more under the radar than that. And so I talked about Fastenal. I looked into Fastenal. This is a cool little company. If you are a industrial player out there, you need some screws, nuts, bolts, that kind of thing. This is a company that can be your one-stop shop for that. Really boring business, but hey, that's what keeps it under the radar and hidden.

Really big quarter that it reported this week, 15 percent growth. Maybe that's not amazing by some AI standards, but hey, for a company such as this, that's actually a really great quarter and it tells us some things. It tells us that US manufacturing is quite strong. In fact, heavy manufacturing for Fastenal, that revenue source up more than 20 percent year over year. We're talking about strength in aerospace, industrial equipment, machine products, that kind of thing.