Anytime Warren Buffett speaks, it's worth listening. That's especially true for people interested in bank stocks, given that his company, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), has accumulated an enormous portfolio of ownership stakes in some of the nation's leading banks.
Wells Fargo (WFC 1.73%) is one of those banks. Berkshire Hathaway owns 10% of it, making Buffett's company the bank's biggest shareholder.
Image source: Wells Fargo.
Over the past year, Buffett has voiced displeasure with a scandal that came to light last September at Wells Fargo, saying the bank made a "terrible mistake." The Consumer Financial Protection Bureau revealed at the time that thousands of Wells Fargo employees had opened up to 2 million unauthorized accounts for customers, oftentimes without the customer's approval or knowledge.
But Buffett has also made it clear that Berkshire Hathaway wouldn't abandon the bank. In a CNN interview last year, Buffett said that Wells Fargo's now-former CEO John Stumpf is a "very decent man" who "made a hell of a mistake" in not dealing with the scandal more aggressively. Buffett went on to say that Wells Fargo is an "incredible institution" and that he wasn't planning on selling a single share of it.
Fast forward to today, and Buffett has doubled down on his commitment to the nation's third biggest bank by assets. Here's an exchange from an interview of Buffett this week by CNBC's Becky Quick:
Quick: [Wells Fargo CEO] Tim Sloan just came out recently and said that because of a third-party review there will be more negative headlines.
Buffett: What you find is that there's never just one cockroach in the kitchen. That's what used to terrify me about Salomon Brothers is what they'd find after the first one.
Anytime you put the focus on an organization that has hundreds of thousands of people working for it, you may very well find that it wasn't just the one that misbehaved that you found out about. And of course it was more than just one in Wells Fargo's case.
Quick: Are you comparing Wells Fargo to Salomon?
Buffett: I'm comparing the shock of a huge financial institution that all of the sudden people view in a different light. And once you put a spotlight and start looking at everything, you're likely to find something additional.
Quick: Is that enough to concern you about your ownership of its shares?
Buffett: Not in terms of the long-term investment, no. It's a terrific bank, as is Bank of America. There were some things that were very wrong done there but they are being corrected.
This is a vote of confidence that Wells Fargo needs right now, as the company continues to repair its image in the wake of its sales scandal.
To Quick's point, moreover, things could very well get worse at Wells Fargo before they get better. The bank announced last week that it would soon release the results of a third-party review of its retail practices, which could cause more negative headlines.
But Buffett is taking the long view. He sees these issues as temporary troubles, after which Wells Fargo will be able to get back to doing what it has done for 165 years: focusing on the nuts and bolts of banking.
