Buffett blasts Wells Fargo for ignoring sales abuses | Reuters


Buy Website Traffic | Increase Website Traffic | SEO Backlinks | Alexa Ranking

By Jonathan Stempel
| OMAHA, Neb.

OMAHA, Neb. Warren Buffett on Saturday faulted Wells Fargo & Co (WFC.N) for failing to stop employees from signing up customers for bogus accounts even after learning it was happening, causing a national scandal.

Buffett was speaking at the annual meeting of Berkshire Hathaway Inc (BRKa.N), the conglomerate he has run since 1965.

Wells Fargo, whose largest shareholder is Berkshire with a 10 percent stake worth $27 billion, gave employees too much autonomy to engage in “cross-selling” multiple products to meet sales goals, Buffett said.

This “incentivized the wrong type of behavior,” and former Chief Executive John Stumpf, who lost his job over the scandal, was too slow to fix the problem, Buffett said.

“If there’s a major problem, the CEO will get wind of it. At that moment, that’s the key to everything. The CEO has to act,” Buffett said. “The main problem was they didn’t act.”

Still, Buffett’s support of current management and board was key to ensuring the reelection of the entire board last month.

Buffett, 86, and Vice Chairman Charlie Munger, 93, were fielding five hours of questions from shareholders, journalists and analysts about Berkshire, its investments, their successors, the economy, and other matters.

Buffett likened the Wells Fargo situation to Salomon Brothers Inc, where in 1991 he was installed as chairman to clean up a mess after the former chief executive failed to tell regulators a trader was submitting fake bids at Treasury auctions.

Asked whether Berkshire’s decentralized structure could lead to a similar scandal – Berkshire subsidiaries employ some 367,000 people but just 25 work in the main office – Buffett said Berkshire welcomes being alerted to misbehavior via an internal “hotline” that gets 4,000 calls a year.

“As we sit here, somebody is doing something wrong at Berkshire,” and the Wells Fargo situation shows the potential “damage” from inaction.


Buffett also addressed questions about his successor as chief executive, including whether plans had changed because he praised fewer managers than usual in his February shareholder letter.

He said it may have been harder to single people out because “we have never had more good managers.”

But he also said it would be a “terrible mistake” if capital allocation were not the “main talent” of his successor.

Buffett did lavish much praise on top insurance executive Ajit Jain, who some investors believe could be that successor.

“Nobody could possibly replace Ajit. You can’t come close,” but even if he were promoted Berkshire would still have “the world’s best property-casualty operation,” Buffett said.

Buffett defended Berkshire’s foray into airlines, where it is a top investor in American Airlines Group Inc (AAL.O), Delta Air Lines Inc (DAL.N), Southwest Airlines Co (LUV.N) and United Continental Holdings Inc (UAL.N).

He had long disdained the industry, which had gone through many bankruptcies, but said he is confident it will not resort to “suicidally competitive” strategies that could spell doom.

“It is no cinch that the industry will have some more pricing sensibility in the next 10 years than they had in the last 100 years, but the conditions have improved,” he said.

Munger added: “You’ve got to remember railroads were a terrible business for decades and decades and decades, and then they got good.” Berkshire bought the BNSF railroad in 2010.

Buffett also admitted he was wrong to think International Business Machines Corp (IBM.N) “would do better” when he started amassing 81 million shares six years go.

Berkshire recently sold about one-third of those shares even as it built a huge stake in Apple Inc (AAPL.O), which Buffett said is more as a “consumer” company that a technology company.

Buffett also addressed the question of driverless vehicles, saying they could pose a threat to Berkshire-owned car insurer Geico, and to BNSF if it spread to trucks.

He also addressed criticism that Berkshire discloses too little about its businesses, including aircraft parts maker Precision Castparts Corp, which it bought last year for $32.1 billion.

“We want you to understand what you own,” he said, and “there are just a million things that are of minor importance” at Berkshire, whose market value is about $411 billion.


Buffett started the meeting by noting that Berkshire reported far fewer investment gains in the first quarter, which dragged on first-quarter results.

But he said Berkshire now has a slight preference for trying to take tax losses, which could have less value if lawmakers in Washington reduce the 35 percent corporate tax rate.

The annual meeting, expected to draw more than last year’s estimated 37,000 shareholders, is the main event of a weekend of events that Buffett calls “Woodstock for Capitalists.”

Buffett and Munger took questions after the traditional shareholder movie, and after Buffett had roamed a nearby exhibit hall featuring products from Berkshire companies.

He was joined at the traditional newspaper tossing contest by friends including Microsoft Corp (MSFT.O) co-founder and Berkshire director Bill Gates, and Miami Dolphins defensive tackle Ndamukong Suh.

Hundreds of shareholders lined up early outside downtown Omaha’s CenturyLink Center for the meeting. Several said they got there nearly five hours before doors opened around 6:45 a.m.

“Every year it seems I have to come earlier,” said Chris Tesari, a retired businessman from Pacific Palisades, California who said he arrived at 3:20 a.m. for his 21st meeting. “It’s a pilgrimage.”

(Reporting by Jonathan Stempel in Omaha, Nebraska; Additional reporting by Trevor Hunnicutt; Editing by Jennifer Ablan and Nick Zieminski)

Buy Website Traffic | Increase Website Traffic | SEO Backlinks | Alexa Ranking

Source link