At last Warren Buffett has moved to make a serious statement on the fake accounts scandal at Wells Fargo, America’s second biggest bank.
After doing nothing and saying little since the scandal erupted last September, (he described the fake accounts scandal as a ‘helluva mistake’ by the bank’s former CEO, John Stumpf) Berkshire announced early Thursday, Sydney time, that it was selling a total of 9 million Wells Fargo shares.
Berkshire said 7,134,447 shares of Wells Fargo & Company shares had been sold in the past two days – from April 10 to April 12, or in the wake of Wells Fargo’s 113 page report into the fake accounts scandal that was very damning of the bank’s management and board.
"In the near future, we intend to sell 1,865,553 shares of Wells Fargo common stock in addition to the shares that are being reported on today’s Form 4. These sales are not being made because of investment or valuation considerations.
“Rather they are solely motivated by the desire to return to a percentage ownership below the 10% notification threshold under the Change in Bank Control Act of 1978 and Regulation Y (Bank Holding Companies and Change in Bank Control),“Berkshire said
And Berkshire also in its most pointed move), said it will withdraw its application for US Federal Reserve permission to boost its ownership stake above 10%.
In other words Berkshire wants to limit is association with Wells Fargo to a portfolio investment and has abandoned plans to build its shareholding well into double digit figures.
It is a damning decision in itself and the strongest message yet sent by Buffett about the scandal that has seen the bank fined $US185 million by federal regulators, cost an unknown amount in settlements with former staff sacked during the fake accounts scandal period, and exposed the company to further legal and regulatory actions.
Wells Fargo reports its first quarter results tonight, US time and that will see management questioned about the continuing scandal and Buffett’s shock move.
Berkshire said it concluded after several months of talks with Fed representatives that boosting its stake in Wells Fargo “would materially restrict our commercial activity" with the bank.
It also said "investment or valuation considerations" were not factors in the sales. Wells Fargo has been beset by a scandal over its creation of unauthorised customer accounts.
Earlier this week Wells Fargo, released a 113 page report into the false accounts scam, detailing on age after page at least 15 years of managerial cover up, obfuscation, blame shifting to staff, and a determined attempt by the bank’s CEO and the executives in charge of the troubled retail division, to hide the story and ignore numerous warnings from internal whistleblowers.
The bank is clawing back anther $US75 million in benefits from former CEO John Stumpf and other senior executives.
The report confirms that the fake accounts scandal has been going on for years – at least since 2002 when it was first reported internally back in 2002, and nothing was done).
It is clear from the report that there is now should be doubt on just how well Wells Fargo did from 2000 onwards in selling financial products to customers. Its results and commentaries boasted about it, but the report casts doubt on much of that. The abuse and pressuring of staff also raises considerable doubt about the bak’s wholesome reputation for treating employees well.
The report makes clear the fake accounts scandal was deliberately underplayed by Well Fargo management for more than a decade and that innocent staffers and mid level executives were sacrificed to keep a lid on the situation and protect the pay, bonuses and options of Stump and his head of retail banking, Carrie Tolstedt.
