WEATHER AUTHORITY : Flash Flood Watch View Alerts
STREAMING NOW: Watch Now

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.

Confirmed Cases: 94021

Reported Deaths: 2846
CountyConfirmedDeaths
Hinds7017157
DeSoto544859
Harrison378073
Jackson341869
Madison321886
Rankin320276
Lee263368
Jones243878
Forrest240971
Washington218671
Lafayette211639
Lauderdale2015124
Bolivar179765
Oktibbeha175950
Lamar163934
Neshoba1548104
Panola144927
Sunflower142945
Lowndes141257
Warren138250
Leflore137781
Pontotoc124116
Pike121749
Monroe119966
Scott116825
Copiah116433
Coahoma113627
Holmes109458
Marshall108015
Lincoln107353
Grenada106835
Yazoo104130
Simpson101544
Union98324
Tate95837
Leake94138
Adams92236
Wayne87721
Pearl River86952
Marion84234
Prentiss82617
Covington80822
Itawamba78021
Alcorn77611
Tallahatchie76221
Newton76123
George75513
Winston73119
Tishomingo66537
Chickasaw66224
Tippah65017
Attala64325
Walthall59525
Clay58217
Hancock56921
Clarke56342
Jasper55915
Noxubee54515
Smith52614
Calhoun50712
Tunica48113
Montgomery45821
Claiborne45616
Lawrence42712
Yalobusha41914
Perry41318
Quitman3755
Humphreys37415
Stone36012
Greene35417
Webster33213
Jefferson Davis32911
Amite31410
Carroll31412
Wilkinson30118
Kemper28615
Sharkey26313
Jefferson2439
Benton2232
Franklin1913
Choctaw1806
Issaquena1033
Unassigned00

Alabama Coronavirus Cases

Confirmed Cases: 131988

Reported Deaths: 2304
CountyConfirmedDeaths
Jefferson19230342
Mobile13192291
Montgomery8711175
Madison767475
Tuscaloosa7355114
Lee576560
Shelby576550
Baldwin512449
Marshall388943
Calhoun339040
Etowah338447
Morgan322626
Houston275322
Elmore258647
DeKalb237519
St. Clair225535
Walker225080
Talladega209927
Limestone202119
Cullman186819
Dallas176226
Franklin174828
Russell17302
Autauga171425
Lauderdale166233
Colbert162126
Blount157314
Escambia157325
Jackson152711
Chilton151328
Dale134143
Covington133427
Coffee12898
Pike11729
Chambers114042
Tallapoosa113984
Clarke106317
Marion95228
Butler91138
Barbour8487
Winston71812
Marengo70219
Lowndes65127
Pickens63914
Bibb63510
Randolph62413
Hale61628
Lawrence60320
Bullock59314
Geneva5844
Monroe5798
Cherokee57516
Clay5537
Washington54913
Perry5396
Conecuh53011
Wilcox53011
Crenshaw52532
Henry4805
Macon47920
Fayette4299
Sumter42319
Lamar3552
Choctaw34612
Cleburne3346
Greene30215
Coosa1673
Out of AL00
Unassigned00
Tupelo
Overcast
64° wxIcon
Hi: 67° Lo: 61°
Feels Like: 64°
Columbus
Overcast
64° wxIcon
Hi: 74° Lo: 62°
Feels Like: 64°
Oxford
Few Clouds
61° wxIcon
Hi: 63° Lo: 57°
Feels Like: 61°
Starkville
Overcast
63° wxIcon
Hi: 70° Lo: 59°
Feels Like: 63°
WTVA Radar
WTVA Temperatures
WTVA Severe Weather