According to billionaire Warren Buffett, Wells Fargo was “incentivizing the wrong kind of behavior” during the recent scandal which saw its sales personnel create fake accounts in order to meet quotas.
The Chairman of Berkshire Hathaway, which own just under 500 million shares of Wells Fargo stock, addressed the bank’s ordeal in a question-and-answer session with shareholders at the company’s annual meeting on Saturday.
“Clearly at Wells Fargo, there was an incentive system built around cross-selling a number of services per customer,” Buffett said. “Well, it turned out that that was incentivizing the wrong kind of behavior. We’ve made similar mistakes.”
Buffett also criticized Wells Fargo’s then-CEO John Stumpf for not acting quick enough.
“It had to stop when the CEO learned about it,” he said. “They totally underestimated the impact.”
Still, every business has its problems, and Buffett said that’s to be expected.
"We did not buy American Express or Wells Fargo or United Airlines or Coca-Cola with the idea that they would never have problems or they would never have competition,” Buffett said. “But we did buy them because we thought they had very, very strong hands."
Berkshire Hathaway sold its 7.13 million shares of Wells Fargo stock in early April, earning about $384 million on the sale. The firm still holds 497 million shares—worth about $25 billion—across the company and its many subsidiaries, though a recent new release indicates plans to sell another nearly 2 million shares in the near future.
According to the same release, the sales are not due to “investment or valuation considerations,” but are instead a result of Berkshire’s desire to own a less-than 10 percent stake in the company, so as not to be beholden to requirements of the Change in Bank Control Act.
In the Q-and-A session, Buffett and Berkshire’s Vice Chairman Charlie Munger also covered the firm’s recent Q1 earnings report, which revealed a cash balance of $96.5 billion, and the tax cuts for business owners expected under President Trump’s administration.
According to Buffett, while lowering tax liabilities on investment gains would be a huge benefit to the firm’s stakeholders, some of that savings would also be passed on to Berkshire’s customers—as well as the customers of its many businesses and subsidiaries.
Still, Buffett said, the tax cuts aren’t necessary. The firm has managed the high corporate taxes levied against it for years and still “thrived.”