Warren Buffett defends Wells Fargo's 'cardinal sin'

Warren Buffett said on Saturday that Wells Fargo committed a "cardinal sin" by turning a blind eye t...

Posted: May 6, 2018 10:53 AM
Updated: May 6, 2018 10:53 AM

Warren Buffett said on Saturday that Wells Fargo committed a "cardinal sin" by turning a blind eye to the bad behavior caused by its horrible incentive system.

But, the billionaire Wells Fargo shareholder defended the scandal-ridden lender, arguing its misdeeds aren't much worse than what other big banks have done.

Buffett said at the Berkshire Hathaway annual meeting in Omaha, Nebraska, that Wells Fargo had the "wrong incentives."

Wells Fargo's wildly unrealistic sales goals led workers to create millions of fake accounts and the bank has admitted to charging customers for auto insurance they didn't need and mortgage fees they didn't deserve.

"That was bad," Buffett said. "But then they committed the much greater error" by "ignoring the fact that they had a faulty incentive system." He said unrealistic sales goals encouraged workers to do "crazy" things, like opening millions of fake accounts.

"That is the cardinal sin at Berkshire," he said.

Despite Wells Fargo's 20-month nightmare, Berkshire Hathaway has largely stood by the bank. Buffett's holding company still owns more than 458 million shares, a 9% stake.

Buffett reiterated his support for Wells Fargo and its embattled management team even though the bank's legal troubles have persisted.

"I see no reason why Wells Fargo as a company - from both an investor standpoint and a moral standpoint going forward - is in any way inferior to the other big banks with which it competes," Buffett said.

He pointed to the legal problems that plagued American Express in the 1960s, noting that the company emerged stronger.

Yet a Berkshire Hathaway shareholder noted that Buffett has famously said that if you find yourself in a "chronically leaking boat," it would be more productive to devote energy to "changing vessels" than "patching leaks."

"At what magnitude of leakage would Berkshire consider changing boats?" the shareholder asked Buffett about Wells Fargo.

Related: Wells Fargo will pay $480 million to settle securities fraud lawsuit

While Wells Fargo made a "big mistake," Buffett said "all the big banks have had troubles of one sort or another."

"I like Tim Sloan as a manager," Buffett said of Well Fargo's CEO, who has had to fight off calls for his resignation. "He is correcting mistakes made by other people."

Just a day earlier, Wells Fargo agreed to pay $480 million to settle claims it misled shareholders about its fake-account scandal. Wells Fargo denied the allegations in the securities fraud class action, but said it agreed to pay to "avoid the cost and disruption of further litigation."

Wells Fargo's troubles aren't limited to the fake-account scandal. Last month, federal regulators fined Wells Fargo $1 billion for auto insurance and mortgage abuses.

And in February, the Federal Reserve slapped Wells Fargo with unprecedented sanctions for "widespread consumer abuses." The penalties prevent the bank from growing any bigger until it cleans up its act.

Wells Fargo remains under investigation from the Department of Justice, Department of Labor and the Securities and Exchange Commission. Federal regulators also recently urged Wells Fargo's board to probe whether the bank made inappropriate recommendations to customers about their 401(k) plans.

Charlie Munger, Berkshire's vice chairman, argued that it's precisely because of all of these legal problems that Wells Fargo will be stronger in the future.

"I think Wells Fargo is going to be better going forward than it would have been if these leaks had never been discovered," Munger said.

"If I had to say which bank is more likely to behave the best in the future," Munger said, "it might be Wells Fargo."

Oregon Coronavirus Cases

Data is updated nightly.

Cases: 313161

Reported Deaths: 3594
CountyCasesDeaths
Multnomah51245642
Washington34995276
Marion32577393
Clackamas26570271
Lane23989246
Jackson20977257
Deschutes16623102
Umatilla12602125
Douglas10712188
Linn1046886
Josephine8659165
Yamhill744999
Klamath643491
Polk623570
Malheur479467
Benton461927
Coos412069
Columbia324237
Jefferson313746
Lincoln276330
Union272737
Wasco239039
Crook212338
Clatsop211725
Tillamook181523
Baker174421
Morrow167921
Curry166817
Hood River163035
Harney78916
Grant7558
Lake6768
Wallowa50811
Gilliam1374
Sherman1283
Wheeler651
Unassigned00

California Coronavirus Cases

Data is updated nightly.

Cases: 4644566

Reported Deaths: 68019
CountyCasesDeaths
Los Angeles144512125852
Riverside3579884804
San Diego3495814009
San Bernardino3472035506
Orange3146225354
Sacramento1503072089
Santa Clara1405641841
Fresno1358611888
Kern1358421515
Alameda1162141329
Ventura976901120
San Joaquin973871615
Contra Costa95727924
Stanislaus806991234
Tulare72969896
San Mateo52239607
San Francisco51907605
Monterey49465565
Solano44151312
Santa Barbara43112500
Sonoma39441378
Merced39370535
Placer36487364
Imperial34261755
Kings30124284
San Luis Obispo28300313
Madera21707258
Butte21307230
Shasta20683276
Santa Cruz20151211
Yolo19143239
Marin17106242
El Dorado16004127
Sutter13094153
Napa1226895
Yuba926061
Nevada847685
Humboldt829587
Tehama823784
San Benito709067
Mendocino685575
Lassen637627
Tuolumne615393
Lake603687
Amador492259
Glenn398030
Siskiyou389541
Calaveras342266
Del Norte336034
Colusa290918
Inyo166539
Mono14935
Plumas12406
Mariposa99712
Trinity72010
Modoc6278
Sierra1980
Unassigned1650
Alpine1000
Out of CA00
Medford
Clear
61° wxIcon
Hi: 88° Lo: 46°
Feels Like: 61°
Brookings
Partly Cloudy
75° wxIcon
Hi: 84° Lo: 56°
Feels Like: 75°
Crater Lake
Clear
61° wxIcon
Hi: 69° Lo: 35°
Feels Like: 61°
Grants Pass
Partly Cloudy
61° wxIcon
Hi: 91° Lo: 46°
Feels Like: 61°
Klamath Falls
Clear
59° wxIcon
Hi: 78° Lo: 41°
Feels Like: 59°
Warmer temperatures with haze returning
KDRV Radar
KDRV Fire Danger
KDRV Weather Cam

Community Events