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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."

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 295295

Reported Deaths: 6724
CountyCasesDeaths
DeSoto19672230
Hinds18799386
Harrison16710278
Rankin12685264
Jackson12592226
Lee9687160
Madison9457199
Jones7962146
Forrest7208136
Lauderdale6833226
Lowndes6022137
Lamar588080
Lafayette5733113
Washington5218130
Bolivar4609123
Oktibbeha441393
Panola430394
Pearl River4167130
Warren4129114
Pontotoc408869
Marshall403192
Monroe3989126
Union395374
Neshoba3807168
Lincoln3541102
Hancock347374
Leflore3375118
Sunflower318386
Tate302474
Pike300195
Scott293870
Alcorn291861
Itawamba289975
Yazoo289262
Tippah278765
Copiah277857
Coahoma277568
Simpson274878
Prentiss269758
Wayne253841
Marion252678
Leake252471
Covington248879
Grenada247377
Adams234377
George231745
Newton229652
Winston221675
Jasper213445
Tishomingo212365
Attala206569
Chickasaw201151
Holmes182270
Clay179150
Stone172429
Tallahatchie170539
Clarke169371
Calhoun157828
Smith152731
Yalobusha144836
Greene127633
Walthall124140
Noxubee122829
Montgomery122438
Perry121634
Lawrence120321
Carroll118225
Amite111533
Webster110630
Jefferson Davis101731
Tunica99023
Claiborne98429
Benton93324
Humphreys92827
Kemper90223
Quitman77114
Franklin76119
Choctaw69516
Jefferson62527
Wilkinson62426
Sharkey48817
Issaquena1676
Unassigned00

Alabama Coronavirus Cases

Cases: 493769

Reported Deaths: 9931
CountyCasesDeaths
Jefferson710731374
Mobile36139727
Madison32425455
Tuscaloosa24184410
Montgomery22586500
Shelby21968215
Baldwin19758283
Lee14967153
Morgan13667251
Calhoun13300286
Etowah13184319
Marshall11262209
Houston10104261
Elmore9385185
Limestone9363134
Cullman8897181
St. Clair8827223
Lauderdale8607211
DeKalb8459175
Talladega7523163
Walker6524255
Jackson6495102
Autauga627091
Blount6102127
Colbert6004118
Coffee5249102
Dale4642107
Russell404930
Franklin399177
Covington3960106
Chilton3876100
Escambia377672
Tallapoosa3588142
Clarke343650
Chambers3413110
Dallas3403141
Pike293472
Lawrence283484
Marion281995
Winston246867
Bibb245060
Geneva239970
Marengo236455
Pickens224654
Barbour211651
Hale210568
Fayette200756
Butler196866
Henry182441
Cherokee177038
Monroe166139
Randolph163740
Washington156535
Crenshaw144854
Clay144454
Macon142043
Cleburne137839
Lamar132833
Lowndes131151
Wilcox121825
Bullock116936
Conecuh106724
Perry105627
Sumter98531
Coosa88923
Greene88232
Choctaw55123
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