Wells Fargo

Origin of Relationship

Berkshire first acquired roughly a 10% stake in Wells Fargo & Company in 1990 for $290 million. Buffett made the purchase during a period of extreme market pessimism regarding California real estate, betting on the bank's underwriting discipline and superior management.

Major Milestones

• 1990: Initial acquisition of $290 million stake.
• 2004: Buffett characterizes CEO Dick Kovacevich as an "absolutely terrific" businessperson, despite a "violent" disagreement over the bank's stance on stock options (which Kovacevich refused to expense).
• 2018: During the 2018 Annual Meeting, Buffett addresses the massive fake accounts scandal that engulfed the bank. He defends the new CEO, Tim Sloan, as the right person to clean up the bank. He identifies the root cause of the scandal as a massive failure in incentive structures (cross-selling quotas) and management's failure to address the bad behavior immediately upon discovering it.
• 2019: At the 2019 Meeting, Buffett reiterated that Wells Fargo suffered from incentivizing the wrong behavior. He compared leadership's failure to act swiftly to his own experience at Salomon Brothers, stating that when a CEO discovers a "pyromaniac," they must take away the matches immediately.

Strategic Importance

Wells Fargo serves as the primary case study for Buffett's "banking exception." While he generally avoids banks due to their inherent leverage and risk of the The Institutional Imperative, Wells Fargo's low-cost deposit base and sales culture initially represented a distinct competitive moat. Later, the 2018 scandal served as Buffett's ultimate case study on the destructive power of bad incentives.

🔗 Connections

• People: Tim Sloan
• Concepts: Stock-Based Compensation, The Institutional Imperative, The Moat
• Sources: 1990 Letter, 2004 Meeting, 2018 Meeting