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 12:53 PM
Updated: May 6, 2018 12:53 PM

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."

Minnesota Coronavirus Cases

Data is updated nightly.

Cases: 486434

Reported Deaths: 6575
CountyCasesDeaths
Hennepin1009131586
Ramsey43165803
Dakota36375392
Anoka33335388
Washington22121258
Stearns18752201
St. Louis14822263
Scott13308107
Wright12538116
Olmsted1181788
Sherburne874172
Carver775640
Clay692387
Rice670791
Blue Earth596635
Kandiyohi579674
Crow Wing521282
Chisago499545
Otter Tail483270
Benton447790
Winona418549
Mower405731
Douglas393368
Nobles387247
Goodhue386269
Polk343763
McLeod340049
Beltrami338651
Morrison324747
Itasca313646
Lyon313644
Becker312542
Isanti306756
Steele301511
Carlton300149
Freeborn282623
Pine282016
Nicollet259241
Todd248330
Brown245537
Le Sueur235720
Mille Lacs227947
Cass220424
Waseca209317
Meeker207434
Martin189928
Wabasha18673
Roseau180317
Hubbard160740
Houston157414
Dodge15294
Renville150340
Redwood147027
Fillmore13768
Chippewa136735
Pennington136316
Cottonwood135020
Wadena131020
Faribault123417
Aitkin119033
Watonwan11758
Sibley117310
Rock115914
Kanabec107519
Pipestone101624
Yellow Medicine97617
Murray9488
Jackson93610
Swift87918
Pope8075
Marshall78015
Lake74218
Stevens7418
Clearwater71914
Lac qui Parle68516
Wilkin67411
Koochiching61911
Big Stone5163
Lincoln5092
Grant4918
Norman4788
Unassigned44568
Mahnomen4417
Kittson40921
Red Lake3625
Traverse3075
Lake of the Woods2191
Cook1180

Iowa Coronavirus Cases

Data is updated nightly.

Cases: 335218

Reported Deaths: 5443
CountyCasesDeaths
Polk51785551
Linn19463313
Scott17080210
Black Hawk14924292
Woodbury13778212
Johnson1312174
Dubuque12416194
Dallas1019092
Pottawattamie9828143
Story959345
Warren511674
Clinton500784
Cerro Gordo498882
Webster494487
Sioux479169
Marshall463072
Des Moines427161
Muscatine424191
Buena Vista412237
Wapello4025108
Jasper386266
Plymouth367478
Lee354252
Marion339869
Jones284654
Henry279637
Bremer268754
Carroll266349
Crawford252235
Boone242830
Benton240354
Washington239047
Mahaska215246
Jackson209738
Dickinson202440
Tama202365
Kossuth198055
Delaware185540
Clay183825
Winneshiek182827
Fayette178635
Page177819
Buchanan176929
Wright173831
Hamilton173742
Cedar171523
Hardin169439
Harrison167169
Clayton159854
Butler158831
Mills147920
Floyd147741
Poweshiek147730
Lyon145541
Cherokee145336
Allamakee142347
Madison141918
Iowa139423
Hancock137630
Grundy132030
Winnebago130231
Calhoun129311
Cass128751
Jefferson128334
Appanoose123147
Louisa122341
Mitchell120440
Chickasaw119615
Union118731
Sac118318
Shelby116433
Emmet115040
Humboldt113525
Franklin109019
Guthrie108928
Palo Alto100921
Howard99021
Montgomery96736
Clarke94720
Keokuk92029
Monroe89428
Adair81028
Ida81032
Pocahontas80919
Davis76323
Monona76327
Greene72910
Lucas71421
Osceola68215
Worth6667
Taylor64112
Decatur5699
Fremont5599
Van Buren53718
Ringgold50520
Audubon4739
Wayne45821
Adams3184
Unassigned00
Rochester/St. Mary'S
Partly Cloudy
39° wxIcon
Hi: 45° Lo: 27°
Feels Like: 39°
Mason City
Clear
35° wxIcon
Hi: 45° Lo: 29°
Feels Like: 28°
Albert Lea
Partly Cloudy
36° wxIcon
Hi: 43° Lo: 30°
Feels Like: 30°
Austin
Partly Cloudy
34° wxIcon
Hi: 43° Lo: 28°
Feels Like: 34°
Charles City
Partly Cloudy
34° wxIcon
Hi: 43° Lo: 30°
Feels Like: 29°
Several days of mild weather expected
KIMT Radar
KIMT Eye in the sky

Latest Video

Image

New fishing pier coming to Rochester

Image

Record number of handgun permits issued in Minnesota

Image

Creating an 'IT ecosystem' in North Iowa

Image

Tracking WX Live at Silver Lake Park

Image

Hyvee adding nail salons

Image

World's Largest Grain Bin

Image

Ride Share services up

Image

Olmsted County Vaccine Progress

Image

Dodge County Begins Administering Covid Vaccines

Image

Mayo Clinic Vaccinated 42,000 People

Community Events