Warren Buffett, who is a big shareholder in Wells Fargo & Co (NYSE:WFC), said that the lender mishandled the fake-account scandal. However, the legendary investor believes that the bank’s “fundamental earnings power” has not been hurt in “any material way” over a period of years, according to reports from Bloomberg and CNBC.
At the annual meeting of Berkshire, the star investor said that Wells Fargo should have acted quickly to fix abuses that damaged its reputation. He said the bank was “totally wrong on” its approach. “The main problem was they didn’t act when they learned about it,” Buffett added.
Buffett, through its firm Berkshire Hathaway, holds nearly 500 million WFC shares.
Wells Fargo Scandal
Wells Fargo & Co (NYSE:WFC) fined millions of dollars for creating fake accounts. More than 2 million accounts were created in customer names without their permission by the bank’s employees for meeting aggressive sales goals.
As a result of this scandal, John Stumpf had to resign as chief executive officer of Wells Fargo in October 2016. He was replaced by Tim Sloan.
The bank fired over 5,000 employees who were involved in opening unauthorized accounts to hit sales targets and receive bonuses.
In addition to opening fake banks accounts, the bank’s employees also submitted applications for more than 500,000 credit card accounts without their customers’ consent.
Buffett Criticized Flawed Compensation System
According to Buffett, flawed compensation systems – which includes a bonus system for employees for hitting sales goals – can “promote the wrong behavior” and are “a periodic problem.”
“It was bad enough having a bad system,” Buffett said.
The star investor also said that the bank failed to act the time when employees made complaints about colleagues’ wrongdoing. Even some workers claim they were fired for reporting misconduct related to opening accounts without customers’ knowledge.
According to the billionaire, it was “a huge, huge, huge error” for the bank to ignore those complaints.
In response, Wells Fargo said that the bank agrees “with Mr. Buffett’s comments” and will fix the problems.
Meanwhile, shares of Wells Fargo & Co (NYSE:WFC) were down 0.13% in the extended trading session. The stock is down 0.15% year-to-date.
