Wells Fargo does not come to rest – the sales-scandal is even bigger than was thought. While stock guru Jim Cramer finds harsh words, legendary investor Warren Buffett had only recently announced his position.
The scandal around fake accounts at Wells Fargo has significantly larger dimensions than initially indicated by the US big bank. After investigating the incidents, the number of fraudulent accounts had to be revised upwards from 2.1 million to around 3.5 million. CEO Tim Sloan apologized to all concerned and announced that he would provide another $2.8 million for compensation.
Already a year ago the institute had to admit that employees had opened accounts for many years without the consent of the customers. After numerous layoffs – even CEO John Stumpf had to announce early retirement – as well as penalties and court fines in millions, the investigators cover more and more conspiracies. Recently Wells Fargo was in distress because of doubtful insurance premiums for car loans.
The fact that the scandal is not yet fully developed, Tim Sloan must have guessed already. Only in the previous week had he warned that in the course of the investigations probably more bad news could follow.
Buffett wants to be loyal
This was addressed by investment economist Warren Buffett, who is the largest shareholder of Wells Fargo with his affiliate Berkshire Hathaway, in an interview recently: “What you find is there’s never just one cockroach in the kitchen when you start looking around. Anytime you put focus on an organization that has hundreds of thousands of people … you may very well find that it wasn’t just the one who misbehaved that you find out about.”
Despite this, Buffett once again expressed his confidence in the bank and said that he did not question the investment in Wells Fargo as a long-term investment. “It’s a terrific bank, just like Bank of America. Serious mistakes were made, but they are now being corrected.
Hard criticism of the procedure
Jim Cramer, who called Wells Fargo as rogue bank (“rouge bank”), was less gracious. In the US Congress, too, the expansion of the scandal heats up the mood. MPs from both parties announced even stricter investigations.
The shareholder also assumes that the scandal at Wells Fargo has not yet passed and the share price will suffer further. After the stock had been declining since the end of July, investors should remain at the side line.