Buffett, 86, met with 20 MBA and undergraduate students from Boston University, Columbia University, Concordia, Grinnell College, Marquette University, St. Louis University, the University of Maryland, and Yale University. The “Oracle of Omaha” spent more than 2 hours answering questions from the students. Audio and video recording were prohibited, but attendees were allowed to take notes.
Buffett told the students that Wells Fargo will be fine. He also expects that the number of depositors will be higher in a year, according to notes posted by Dr. David Kass, a professor of finance at the University of Maryland’s Robert H. Smith School of Business.
Question 15: What are your views on Tim Sloan (new CEO at Wells Fargo)?
WB: One-third of the country does business with Wells Fargo (WFC). WFC broke a bond of trust, but the number of depositors will be higher one year from now. Its balance sheet is $1 trillion – $2 trillion. Former CEO John Stumpf created an incentive system with perverse consequences. He should have acted quickly, but he did not. John Gutfreund at Salomon Brothers in 1989 also was slow to respond. One should face up to a problem fast. ‘Get it right, get it fast, get it over.’ WFC will do fine over time. Berkshire has not sold any of its shares. Charlie says: ‘an ounce of prevention is worth a ton of cure.’
Since September, Wells Fargo has been rocked by a scandal involving employees at the retail bank opening up approximately 2 million fraudulent accounts to meet sales targets. More than 5,000 employees were subsequently fired.
Soon after, the bank’s now-former CEO, John Stumpf, was grilled on Capitol Hill over the cross-selling scandal with Sen. Elizabeth Warren (D-Mass) slamming him for “gutless leadership.” Just two weeks later, Stumpf, a 35-year veteran at the bank, retired as chairman and CEO. He was immediately replaced by Tim Sloan, who was previously the COO and president.
Immediately after the scandal broke, the bank saw the number of new account openings drop in September. More recently, the bank indicated that it saw a significant slowdown in traffic in October. New account openings fell 44%, while account closures had risen 3%. The bank also saw a 50% drop in credit card applications.
In October, the San Francisco-based bank lost its accreditation with the Better Business Bureau. Wells Fargo is currently under investigation by the DOJ, the SEC, and state attorneys general and prosecutors offices.
Julia La Roche is a finance reporter at Yahoo Finance.