Warren Buffett, who controls the largest stake in Wells Fargo & Co., said the bank mishandled the fake-account scandal by failing to act promptly to fix abuses that tarnished the lender’s reputation and made it harder to attract customers.
“They were totally wrong on that,” Buffett said Saturday in Omaha, Nebraska, at the annual meeting of his Berkshire Hathaway Inc. “The main problem was they didn’t act when they learned about it.”
Wells Fargo shares are little changed from their 2014 closing price, while rivals Bank of America Corp. and JPMorgan Chase & Co. have each advanced more than 30 percent in that span. The scandal has spurred millions of dollars in fines and legal costs and dented Wells Fargo’s standing as one of the country’s best run banks. In October, Chief Executive Officer John Stumpf resigned after being hauled in front of Congress to testify on why the lender opened accounts without customers’ permission.
To repair the damage, the company bolstered internal controls, abandoned sales and bonus targets that were linked to the abuses, and promoted Tim Sloan to be CEO. The bank also eliminated or clawed back about $180 million in pay, much of it from Stumpf and former community bank head Carrie Tolstedt.
Buffett said Saturday that flawed compensation systems — such as the arrangement that rewarded Wells Fargo employees for meeting aggressive sales goals — are a periodic problem for companies, and can promote the wrong behavior.
“It was bad enough having a bad system,” Buffett said, building on his prior remarks about the bank. “But they didn’t act.”
Six months ago, Buffett called Stumpf a “very decent man” who “made a hell of a mistake” by being too slow to respond to the bank’s problems. Still, the billionaire voted to re-elect the bank’s slate of directors last month.
Buffett controls about 500 million shares of San Francisco-based Wells Fargo, primarily through Berkshire. The stake was valued at more than $25 billion as of Friday’s close, making it one of his top holdings. The first question he faced at the annual meeting was about the bank.
The billionaire also said Saturday that the lender should have acted when employees called internal hotlines to complain about colleagues’ wrongdoing. Some former workers claim they were fired for flagging misconduct related to opening accounts without customers’ knowledge and other sales abuses.
Buffett said it was a “a huge, huge, huge error” for the company to ignore complaints or send them “back down to somebody down below” rather than elevate them. He contrasted that with Berkshire’s hotline, which he said is “the main source of information for me about anything that’s being done wrong at a subsidiary.”
Wells Fargo said in a statement Saturday that “we agree with Mr. Buffett’s comments,” and added that the bank is working to fix the problems.
A report from the bank’s board into sales practices concluded after a “limited review” that there wasn’t “documentary evidence suggesting purposeful retaliation” against workers who raised concerns. Sloan, the bank’s CEO, has said most calls to what the bank calls the EthicsLine were handled properly and promised to fix cases where they weren’t.