Warren Buffett, Wells Fargo's largest shareholder, tells the FOX Business Network he won't be commenting 'anywhere for now' about the bank's growing scandal.
Continue Reading Below
Reached late Tuesday night in Omaha, Nebraska, Buffett, who as of June owns nearly 500 million shares of the embattled financial giant, said, "If I start commenting on that or anything else, it will lead down too many paths so I will wait until November to speak about it, the election or any other subject."
Buffett's Berkshire Hathaway (BRK.B) holds a near 10% stake in Wells Fargo (WFC). The Oracle of Omaha has been a longtime fan of the company but his silence may speak more loudly after Wells Fargo CEO John Stumpf gave a rocky performance on Capitol Hill before the Senate Banking Committee Tuesday morning.
Stumpf endured two hours of withering questioning from the bi-partisan committee who accused him of "gutless leadership." Stumpf apologized for employee behavior but stopped short of saying he would pursue the claw-back of compensation for top executives who might be involved.
Senate committee members came armed with both bank compensation information and definitions of words like "fraud" and "scheme." They specifically asked him about the bank's years-long practice of opening two million fake bank and credit card accounts and charging customers for them without their knowledge.
Employees, who risked missing out on bonuses if they didn't hit lofty sales goals, reportedly resorted to setting up the accounts to hit the aggressive goals. The bank paid a $185 million settlement to the Consumer Financial Protection Bureau this month after the scheme was uncovered years ago by the Los Angeles Times, but as of yet has not fired any C-suite or top echelon management over the practice.
Continue Reading Below
If history is any guide, Buffett can't be thrilled about the ethics lapse. 25 years ago this month, Buffett testified before a Congressional sub-committee regarding the Salomon Brothers bond scandal.
Buffett had become a major shareholder in Salomon when it was revealed that traders had been submitting false Treasury bond bids in order to skirt trading rules.
Buffett swiftly took over as CEO and fired a number of management. At the time, he said during the testimony, "Lose money for my firm and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless."
Every year before a crowd of 35,000 at Berkshire Hathaway's annual shareholder meeting in Omaha, Buffett plays the 25 year old C-Span clip of his testmony as a reminder that he and Vice Chairman Charlie Munger expect the companies in which they invest to maintain the highest level of ethical standards.
To be sure, Wells' reputation has lost more than a 'shred' in the wake of the scandal. The stock has seen $25 billion in market cap vaporize since the settlement and has in turn gained the scorn of customers.
5,300 lower level employees and bank branch managers have been fired for engaging in the practice of setting up the bogus accounts. Unsuspecting customers stuck with the ghost accounts and who subsequently missed payments and took hits to their credit scores are outraged.
Wells' problems aren't over yet. House Financial Services Chairman Jeb Hensarling (R-TX) told FOX Business he intends to subpoena top executives involved, including Wells' Community Banking Chief Carrie Tolstedt who exited the bank in July with $125 million dollar pay package. Hensarling has already requested all documents related to the bank's cross-selling practices but told FBN he and the committee will also work to get answers on whether the bank will push to clawback some of Tolstedt's and others' compensation. The committee expects to hold its hearing before the end of September.
While Buffett told FBN he'd rather stay quiet for now, sources say if more damaging revelations surface, he may, as the bank's largest shareholder, be forced to comment.