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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: 516486

Reported Deaths: 10299
CountyCasesDeaths
Harrison35042558
DeSoto33463432
Hinds32797643
Jackson24926392
Rankin22593405
Lee16523245
Madison14978283
Jones14191248
Forrest13852260
Lauderdale12326323
Lowndes11387193
Lamar10713140
Pearl River9759244
Lafayette8881143
Hancock7848132
Washington7561169
Oktibbeha7234138
Monroe7091179
Pontotoc7060110
Warren6892178
Panola6807135
Neshoba6753210
Marshall6735142
Bolivar6472151
Union645699
Alcorn5950108
Pike5947157
Lincoln5544136
George511080
Prentiss510185
Tippah497983
Itawamba4903107
Scott479499
Tate4786118
Adams4784125
Leflore4756144
Yazoo458492
Copiah458395
Simpson4577117
Wayne443772
Covington435395
Sunflower4331106
Marion4311112
Coahoma4259110
Leake414491
Newton396182
Tishomingo388894
Grenada3796109
Stone366466
Attala341690
Jasper341566
Chickasaw319167
Winston318892
Clay313978
Clarke301995
Calhoun288950
Holmes273389
Smith270852
Yalobusha245847
Tallahatchie232653
Greene225449
Walthall222166
Lawrence220842
Perry214656
Amite210357
Webster206748
Noxubee188843
Montgomery182757
Carroll175841
Jefferson Davis174643
Tunica163939
Benton153439
Kemper145541
Choctaw137827
Claiborne134839
Humphreys132339
Franklin126630
Quitman107928
Wilkinson106139
Jefferson97334
Sharkey65321
Issaquena1957
Unassigned00

Alabama Coronavirus Cases

Cases: 848779

Reported Deaths: 16185
CountyCasesDeaths
Jefferson1164582005
Mobile744601384
Madison53563738
Shelby38454371
Baldwin38215589
Tuscaloosa36172644
Montgomery34573782
Lee25690264
Calhoun22636520
Morgan22548411
Etowah20075520
Marshall18865318
Houston17795426
St. Clair16968359
Limestone16206220
Cullman16170306
Elmore15952295
Lauderdale15093307
Talladega14267302
DeKalb13095271
Walker12180380
Blount10791193
Autauga10562157
Jackson10221196
Coffee9440192
Colbert9376210
Dale9049192
Tallapoosa7287202
Russell711465
Chilton7098170
Covington6973197
Escambia6969144
Franklin6369108
Chambers5810142
Marion5446132
Dallas5306210
Pike5135109
Clarke486086
Lawrence4852130
Winston4804110
Geneva4656136
Bibb436495
Barbour370880
Butler3445101
Marengo342993
Monroe338566
Randolph338067
Pickens335090
Fayette332285
Henry321266
Cherokee320564
Hale319589
Crenshaw261878
Washington256852
Cleburne255460
Lamar253555
Clay253169
Macon246367
Conecuh193562
Coosa186048
Wilcox178538
Lowndes178468
Bullock152845
Perry141940
Sumter139841
Greene130745
Choctaw94628
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