Billionaire Warren Buffett says he’s sticking with Wells Fargo (WFC) despite the myriad scandals that have engulfed the company over the past few years. In response to a question during Berkshire Hathaway’s annual shareholder meeting on Saturday, Buffett said he still likes Wells Fargo for a number of reasons, but mainly it’s because of his previous experience with troubled companies.
Buffett referenced previous investments he’d made in American Express, Geico and Salomon Brothers as companies that had made big mistakes, but worked hard to turn things around.
“I see no reason why Wells Fargo as a company … going forward is in any way inferior to other big banks in which it competes,” Buffett told attendees.
He noted that he still likes the company as an investment and stands behind chief executive Tim Sloan, noting that Sloan “is correcting mistakes made by other people.”
Berkshire Vice Chairman Charlie Munger even stepped in to compare it to mistakes made by ousted Weinstein Co. head Harvey Weinstein, the now-disgraced Hollywood producer.
“I think Wells Fargo will come out stronger than if these leaks had never come out,” Munger said. “I think Harvey Weinstein has done a lot for improving behavior too.”
The bank is “clearly aware” of their bad behavior and as a result, Munger said, “If I had to say which bank is going to behave the best in the future it might be Wells Fargo out of all of them.”
Responding well to errors of judgment is a key to smart business, but perhaps even more important is getting ahead of bigger problems that could happen in the future, both men argued.
Mistakes, Buffett said, are “going to happen, you try to minimize it. An ounce of prevention isn’t worth an ounce of cure, it’s worth a ton of cure.”
Wells Fargo is being held back by the Fed
The Federal Reserve accused Wells Fargo of “widespread consumer abuses” and leveled an asset growth restriction on the bank last year. The bank admitted employees created millions of fraudulent accounts for real customers in an effort to hit aggressive sales targets. The company also reportedly sold unneeded auto insurance to as many as 570,000 customers.
Wells Fargo will be restricted from growing its assets beyond its current $2 trillion level until it can prove it has improved internal controls and risk management as a result of the Fed restrictions. Berkshire still owns more than 482 million shares of Wells Fargo stock representing roughly 9.9% ownership of the company, according to the most recent shareholder letter.
“I see no reason to think that Wells Fargo going forward, is other than anything other than a large bank that had an episode,” Buffett said.
In fact, Buffett even gave a guarantee in his repose, though it may not have been the one that shareholders were hoping for.
“I will guarantee you that we will get some unpleasant news at Berkshire [going forward],” Buffett said. “The question is what will we do about it.”