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Buffett throws weight behind new Wells chief

Warren Buffett has thrown his weight behind scandal-hit Wells Fargo, saying it is “a great bank that made a terrible mistake” whose new chief executive Tim Sloan is “exactly right” for the top job.

Breaking his months-long silence on the debacle, the head of Berkshire Hathaway, the bank’s biggest shareholder, confirmed he has not sold any shares after the scandal erupted over sales practices.

The famed investor also described the bank’s former chief executive, John Stumpf, as a “very decent man” — who had made “a hell of a mistake, and he didn’t correct it”.

Wells has been subject of a public outcry after regulators found that, over a period of about five years, thousands of its workers who were trying to meet sales targets had set up bogus bank accounts and credit cards for customers without their consent.

“It was a dumb incentive system, which when they found out it was dumb, they didn’t do anything about it,” Mr Buffett told CNN. “If you find out incentives are producing perverse behaviour to what you intended, you got to change it.”

“The big mistake was they didn’t do something about it.”

His comments were broadcast amid a sharp recovery in the bank’s share price, which has left Berkshire’s holding valued at about $26bn.

The sham accounts episode had wiped as much as $31bn off Wells Fargo’s market capitalisation and cost the bank its status as the world’s most valuable. Since the election this week, however, the shares have leapt almost 14 per cent — back above levels they were trading at before the scandal blew up in September.

The rally has been driven in part by hopes a Trump presidency will ease regulatory requirements on Wells, along with the rest of the sector.

Tim Sloan © AP

Wells reached a $185m settlement in September over the sales practices with agencies including the Consumer Financial Protection Bureau. Several other public bodies have since launched investigations. The CFPB, along with other regulators, is expected to be reined in by the incoming administration.

Mr Buffett said that he had not demanded the departure of Mr Stumpf, who quit suddenly last month amid a public outcry.

However, the billionaire revealed he had spoken to Mr Stumpf following an appearance the Wells chief made on CNBC soon after the CFPB settlement.

Mr Buffett complained he had not struck the right tone. “I said: ‘I don’t think you got the gravity of this,’” Mr Buffett said.

The investor said he had not commented publicly on the situation earlier because he had pledged to regulators at the Federal Reserve in June that he would be a “passive” investor in the bank. Berkshire Hathaway’s stake in Wells recently ticked above 10 per cent, a level that results in greater scrutiny from the Fed.

The head of Berkshire is backing Mr Stumpf’s successor Mr Sloan, a 29-year veteran of the bank, despite criticism that he lacks the critical eye needed to change its culture. “If I had to guess where deposits would be a year from now, I’d guess they’d be up,” Mr Buffett said.

Via FT