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 1:53 PM
Updated: May 6, 2018 1:53 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."

Indiana Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 71015

Reported Deaths: 3013
CountyConfirmedDeaths
Marion15322723
Lake7343274
Elkhart471380
Allen3725160
St. Joseph330179
Hamilton2610104
Vanderburgh184213
Hendricks1814106
Cass17669
Johnson1694118
Porter123839
Clark114846
Tippecanoe114611
Madison89565
LaPorte86930
Howard85565
Kosciusko82712
Marshall75822
Bartholomew75447
Floyd74045
Monroe70830
Delaware68052
Dubois65812
Boone65346
Noble64529
Hancock63838
Jackson5625
LaGrange55410
Warrick55330
Vigo54310
Shelby53527
Grant52029
Dearborn47928
Morgan45134
Clinton4043
Henry36919
White35110
Montgomery34621
Wayne34610
Lawrence33727
Decatur32432
Harrison30923
Putnam2778
Miami2642
Daviess25920
Scott25710
Greene24134
Franklin23413
DeKalb2234
Jasper2192
Jennings21512
Gibson2084
Steuben2043
Ripley1947
Perry17912
Fayette1777
Starke1747
Orange16624
Posey1650
Wabash1613
Fulton1592
Carroll1572
Wells1542
Jefferson1532
Whitley1476
Knox1420
Tipton1296
Huntington1213
Washington1211
Spencer1193
Newton11410
Randolph1144
Clay1045
Sullivan911
Adams892
Jay840
Owen831
Pulaski751
Brown711
Rush714
Fountain642
Benton600
Blackford592
Ohio574
Pike520
Parke501
Vermillion480
Crawford440
Switzerland440
Martin420
Union350
Warren201
Unassigned0202

Ohio Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 97471

Reported Deaths: 3618
CountyConfirmedDeaths
Franklin17834521
Cuyahoga13141491
Hamilton9374252
Lucas5155320
Montgomery417487
Summit3433218
Marion291045
Butler282262
Mahoning2477254
Pickaway237842
Stark1766137
Warren171136
Lorain168977
Columbiana161860
Trumbull1481105
Fairfield130931
Delaware126319
Licking120247
Clark111514
Lake107338
Wood99358
Clermont89211
Medina88735
Miami81137
Tuscarawas76214
Portage74361
Allen69942
Greene65611
Belmont59226
Richland58911
Mercer57313
Erie55627
Ashtabula55045
Geauga54844
Wayne51958
Ross4444
Huron3885
Ottawa36825
Sandusky36316
Darke36027
Athens3531
Hancock3533
Madison34910
Holmes3266
Lawrence2420
Auglaize2395
Union2331
Jefferson2192
Muskingum2151
Scioto2111
Putnam19917
Washington19822
Knox1917
Seneca1903
Coshocton1886
Shelby1774
Preble1762
Crawford1715
Morrow1652
Hardin15912
Clinton1586
Champaign1571
Highland1461
Fulton1441
Logan1402
Ashland1373
Wyandot1368
Defiance1334
Williams1303
Brown1232
Perry1163
Guernsey1147
Hocking1149
Henry1132
Carroll1105
Fayette1090
Monroe9118
Pike750
Jackson730
Van Wert701
Paulding640
Gallia621
Adams592
Meigs330
Vinton302
Morgan230
Harrison221
Noble170
Unassigned00
Fort Wayne
Few Clouds
75° wxIcon
Hi: 80° Lo: 54°
Feels Like: 75°
Angola
Clear
72° wxIcon
Hi: 79° Lo: 55°
Feels Like: 72°
Huntington
Clear
73° wxIcon
Hi: 79° Lo: 54°
Feels Like: 73°
Decatur
Clear
72° wxIcon
Hi: 79° Lo: 53°
Feels Like: 72°
Van Wert
Clear
72° wxIcon
Hi: 79° Lo: 53°
Feels Like: 72°
Sunny, Seasonable Saturday
WFFT Radar
WFFT Temperatures
WFFT National

Community Events