Billionaire investor Warren Buffett said this week that Wells Fargo made "a huge mistake" in the way it handled the phony-accounts scandal, and he laid the blame on former Wells CEO John Stumpf more squarely than he had in previous comments.
"A huge mistake was made at Wells," Buffett said in an interview Monday with CNBC's Becky Quick. "If the top guy doesn’t do anything about it, the people down below won't."
Buffett's Berkshire Hathaway owns slightly more than 10% of Wells' shares. His comments were his most extensive public remarks about Wells since the bank agreed in September to pay $185 million to settle allegations that employees opened roughly 2 million credit card and deposit accounts without the permission of their customers.
Last week Wells fired four sales executives for actions related to the fraudulent accounts. The bank has fired 5,300 employees, many of them bank tellers, over several years for opening fake accounts. Wells declined to comment Tuesday about Buffett's remarks.
Buffett has previously criticized Stumpf, but this time he appeared to go further, saying the bank was "wrong" to create aggressive sales incentives that led to what he called "crazy behavior" by thousands of employees.
"Cross-selling is fine — I mean, you want to have incentives for people to do it," he said. "But you don't want to have it lead to crazy behavior, which it did. And the big mistake was when they found out about it, they didn't do anything about it."
Buffett also tried to pinpoint where the bank went wrong in its response. Wells was too focused on the size of the fine from regulators and not on immediately addressing the problem, he said.
"Anytime you have people making up accounts and doing all the things they were doing, it isn't the size of the fine that measures the customer impact and how your reputation will suffer, it is what you were doing, and it was wrong," Buffett said.
Failing to act put the bank in a precarious position, he said.
"I think to some extent, when you get behind the eight ball and don't do it immediately, you keep thinking, 'Well, maybe it will go away because if I come in now, they will say why didn't I come in six weeks ago or six months ago,' " he said.
"Whatever it was, it's a terrible mistake when you see a problem not to attack it immediately. It can be unpleasant," Buffett said. "But I say, get it right, get it fast, get it out, get it over. I keep telling our managers that. I'm sure something is being done wrong now with 367,000 employees at Berkshire, and I just hope I find out about it and do something about it."
Buffett praised Stumpf's general character even as he criticized his actions in this now infamous case.
"John Stumpf is a perfectly decent guy in my opinion; I'd have him as trustee in my will and I wouldn't worry for a second," Buffett said. "But somehow, when he saw the evidence, he didn't do something about it."