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.

Confirmed Cases: 87807

Reported Deaths: 2002
CountyConfirmedDeaths
Hennepin25454917
Ramsey10349316
Dakota6995125
Anoka5596132
Stearns367023
Washington349255
Scott236632
Olmsted225327
Nobles192016
Blue Earth15566
Wright14937
Carver13197
Rice12908
St. Louis128229
Mower12614
Clay121340
Sherburne106313
Kandiyohi9112
Winona82818
Lyon6344
Steele5132
Freeborn5043
Nicollet49516
Watonwan4954
Benton4923
Todd4722
Le Sueur4413
McLeod4382
Waseca4228
Chisago4211
Crow Wing41018
Otter Tail3734
Beltrami3654
Goodhue3219
Martin2909
Itasca26413
Polk2624
Becker2372
Pine2360
Isanti2340
Carlton2311
Douglas2291
Cottonwood2140
Pipestone2089
Morrison1901
Dodge1880
Chippewa1851
Sibley1693
Meeker1662
Wabasha1660
Unassigned16552
Brown1642
Murray1492
Rock1450
Yellow Medicine1442
Mille Lacs1363
Faribault1290
Jackson1251
Cass1233
Renville1206
Roseau1090
Pennington1081
Fillmore1050
Houston1040
Swift1041
Kanabec1008
Koochiching1003
Lincoln950
Redwood930
Stevens901
Pope820
Hubbard710
Aitkin691
Big Stone660
Wadena610
Grant574
Wilkin553
Norman510
Lake480
Marshall481
Mahnomen451
Lac qui Parle410
Red Lake370
Traverse290
Clearwater240
Lake of the Woods201
Kittson130
Cook60

Iowa Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 78552

Reported Deaths: 1255
CountyConfirmedDeaths
Polk15133256
Johnson496227
Woodbury486561
Black Hawk431686
Linn3722105
Story326317
Scott271227
Dubuque266140
Dallas265338
Pottawattamie195137
Buena Vista193312
Marshall175634
Sioux12753
Wapello124357
Webster118414
Muscatine105452
Clinton104618
Plymouth100120
Cerro Gordo98621
Crawford9804
Warren9226
Jasper74232
Des Moines7247
Marion7014
Tama68531
Carroll6275
Henry5974
Lee5857
Wright5571
Dickinson4756
Bremer4597
Boone4557
Washington42711
Louisa41915
Franklin33117
Mahaska32619
Delaware3183
Hamilton3143
Jackson2923
Floyd2913
Winneshiek2835
Benton2781
Clay2773
Hardin2731
Winnebago26211
Butler2572
Clarke2533
Emmet24810
Shelby2411
Jones2393
Allamakee2375
Poweshiek2368
Lyon2323
Buchanan2291
Clayton2273
Cedar2171
Guthrie2115
Kossuth2090
Chickasaw2030
Grundy2002
Madison1992
Sac1980
Cherokee1792
Howard1795
Iowa1791
Fayette1781
Mitchell1750
Hancock1712
Harrison1692
Humboldt1693
Calhoun1672
Mills1621
Palo Alto1560
Pocahontas1502
Monroe14410
Page1410
Lucas1386
Jefferson1321
Cass1282
Monona1281
Osceola1210
Appanoose1193
Taylor1191
Union1193
Davis1134
Van Buren1081
Worth1000
Keokuk891
Montgomery855
Ida840
Greene820
Fremont790
Wayne792
Adair621
Decatur580
Audubon551
Ringgold412
Adams270
Unassigned150
Rochester
Few Clouds
58° wxIcon
Hi: 66° Lo: 50°
Feels Like: 58°
Mason City
Clear
59° wxIcon
Hi: 68° Lo: 49°
Feels Like: 59°
Albert Lea
Clear
61° wxIcon
Hi: 67° Lo: 51°
Feels Like: 61°
Austin
Clear
59° wxIcon
Hi: 67° Lo: 50°
Feels Like: 59°
Charles City
Clear
57° wxIcon
Hi: 68° Lo: 48°
Feels Like: 57°
Warmer Weather Ahead
KIMT Radar
KIMT Eye in the sky

Latest Video

Image

Saturday Weather

Image

What are the benefits of bringing football back to Minnesota this fall?

Image

Candlelight vigil for Prisoners of War

Image

MC Masters National Championship Regatta

Image

Early voting begins in Minnesota

Image

Dooley's Pub closes due to health hazards

Image

Area athletic directors prep to welcome back sports

Image

Early voting begins in Minnesota

Image

TikTok Ban to Begin This Weekend

Image

Sara's Evening Forecast - Friday

Community Events