Wells Fargo shares jumped 14% last week in the wake of the surprise Trump victory as investors speculated that it will escape any further official action over the bogus accounts scandal that has so far cost the bank its long time chairman and CEO, and $US185 million in fines and penalties.
The surge came from Wednesday onwards and saw the shares end the week at $US51.73 – now 3.7% above the level it was ($US49.90) before the bogus accounts scandal broke in early September with news of the fine levied on the bank by regulators.
The scandal at Wells Fargo emerged when the bank agreed to pay $US185 million to settle regulatory charges that some of its employees opened as many as 2 million accounts without customers’ knowledge, in order to meet sales targets.
The bank later revealed that 5,300 down the line staff had been sacked over the accounts scandal, but no senior executives. In fact at that stage the bank was proposing to give the senior executive in charge of the area the scandal occurred in a retirement package potentially valued at $US124 million.
Buffett’s Berkshire Hathaway is Wells Fargo’s biggest shareholder with just on 10% (Buffett owns just under 2 million shares in his own name) and it is now worth a lot more after Friday’s close than over the past couple of months – nearly $US26 billion instead of under $US22 billion as it was 10 days ago.
Despite intense pressure to say something on the performance of the bank, its board and CEO Stumpf, Buffett maintained his silence, even after the bank’s board sacked him from his two roles as CEO and chair.
The price surge seems to have finally drawn Warren Buffett out of his self-imposed silence on Friday in a TV interview in the US on the performance of the bank and its management over the scandal.
Buffett said in an interview on CNBC that Wells Fargo has made a “terrible mistake” by keeping in place sales goals that “corrupted people”.
“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.”
Buffett described Stumpf as a “very decent man" who made a "hell of a mistake" and didn’t correct it.
When asked if he had advised Stumpf to step down, Buffett said he had not. “I don’t know the exact words, but I said I don’t think you understand the gravity of this," he said.
Buffett backed Tim Sloan, who succeeded Stumpf as CEO saying the new CEO is “exactly right” for the top job.
Buffett also confirmed that he has not sold any shares since the accounts scandal emerged.
Meanwhile, a day earlier, Sloan told a meeting of Wells Fargo staff that the bank may have “mishandled” complaints from staff who raised ethics concerns before the bogus accounts scandal emerged.
Sloan told the meeting that the bank was “looking into any and all allegations” that workers who used a supposedly confidential hotline may have been retaliated against by their managers.
While the “majority of cases” reviewed by the bank so far “were handled appropriately”, he said “there are some instances where we have questions, so we are doing further investigation of those matters.” Sloan said he wanted to make cear that “retaliation” against staff whitseblowers was “unacceptable”.
The handling of these warnings from staff has drawn an official investigation of the bank’s whistleblower protection process The US Department of Labor is investigating whether Wells violated employment standards, including retaliation against employees who made complaints under consumer and investor protection laws.
Other investigations are underway, and investors are looking to the Trump administration to end these. But that is pie in the sky stuff from a bunch air airheads – the most potent investigation ow under way is in California where the state’s attorney general is running a criminal investigation into the bogus accounts scandal and the bank’s handling of the matter, and its handling of staff warnings.
