were signing up customers for bogus accounts, causing a national scandal.
Buffett
spoke at the annual meeting of Berkshire Hathaway Inc (BRKa.N),
which he chairs, and where he and Vice Chairman Charlie Munger are fielding five
hours of questions from shareholders, journalists and analysts.
Buffett said
Wells Fargo gave employees too much autonomy to engage in
"cross-selling" multiple products to meet sales goals.
He said this
"incentivized the wrong type of behavior," and that former Chief
Executive John Stumpf, who lost his job over the scandal, was too slow to fix
the problem.
"If
there's a major problem, the CEO will get wind of it. At that moment, that's
the key to everything. The CEO has to act," Buffett said. "The main
problem was they didn't act."
Berkshire
owns about 10 percent of Wells Fargo's stock, and Buffett's support of current
management was a key factor in ensuring that the bank's entire board won
re-election last month.
Buffett
likened the situation to Salomon Brothers Inc, where in 1991 he was installed
as chairman to clean up a mess left when the former chief executive failed to
tell regulators that a trader was submitting fake bids at Treasury auctions.
Asked
whether Berkshire's decentralized structure could lead to a similar scandal,
Buffett said Berkshire welcomes being alerted to misbehavior via an internal
"hotline" that gets 4,000 calls a year.
"As we
sit here, somebody is doing something wrong at Berkshire," and the Wells
Fargo situation highlights the "damage" that can result from
inaction.
AIRLINES,
IBM
Buffett also
discussed Berkshire's foray into the airline sector, where it is a top investor
in American Airlines Group Inc (AAL.O),
Delta Air Lines Inc (DAL.N),
Southwest Airlines Co (LUV.N)
and United Continental Holdings Inc (UAL.N)
to be successful.
He had long
disdained the industry, which had gone through many bankruptcies, but said he
is confident it will not resort to "suicidally competitive" strategies
that could spell doom.
"It is
no cinch that the industry will have some more pricing sensibility in the next
10 years than they had in the last 100 years, but the conditions have
improved."
Munger
added: "You've got to remember railroads were a terrible business for
decades and decades and decades, and then they got good." Berkshire bought
the BNSF railroad in 2010.
Buffett also
admitted he was wrong to think International Business Machines Corp (IBM.N)
"would do better" six years ago, when he started amassing an 81
million share stake.
He disclosed
this week that Berkshire has sold about one-third of the IBM stake, even as it
bulks up its holdings in Apple Inc (AAPL.O),
which Buffett said he thinks of more as a "consumer" company that a
technology company.
Buffett also
addressed the question of driverless vehicles, saying they could pose a threat
to Berkshire-owned car insurer Geico, and to BNSF if it spread to trucks.
TAX LOSSES
Buffett
started the meeting by noting that Berkshire reported far fewer investment
gains in the first quarter, which proved a drag on first-quarter results.
But he said
Berkshire now has a slight preference for trying to take tax losses, which
could have less value if lawmakers in Washington reduce the 35 percent
corporate tax rate.
The annual
meeting, expected to draw more than last year's estimated 37,000 shareholders,
is the main event of a weekend of events that Buffett calls "Woodstock for
Capitalists."
Buffett and
Munger started taking questions after the traditional shareholder movie, and
after Buffett had roamed a nearby exhibit hall featuring products from
Berkshire companies.
He was
joined at the traditional newspaper tossing contest by friends including
Microsoft Corp (MSFT.O)
co-founder and Berkshire director Bill Gates and Miami Dolphins defensive tackle
Ndamukong Suh.
Many
hundreds of shareholders started lining up outside the CenturyLink Center,
including several who said they got there nearly five hours before doors opened
at about 6:45 a.m.
"Every
year it seems I have to come earlier," said Chris Tesari, a retired
businessman from Pacific Palisades, California who said he arrived at 3:20 a.m.
for his 21st meeting. "It's a pilgrimage."
REUTERS
REUTERS
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