FILE PHOTO: Warren Buffett, CEO of Berkshire Hathaway Inc, pauses while playing bridge as part of the company annual meeting weekend in Omaha, Nebraska U.S. May 6, 2018. REUTERS/Rick Wilking/File Photo
Warren Buffet prefers the new leader of Wells Fargo to be an outsider and one who has not worked in investment banking © Reuters

Warren Buffett, the largest shareholder in Wells Fargo, has called on the US bank to look outside Wall Street for a new chief executive who can restore its battered reputation.

“They just have to come from someplace [outside Wells] and they shouldn’t come from Wall Street,” Mr Buffett said of the bank’s next leader in an interview with the Financial Times. “They probably shouldn’t come from JPMorgan or Goldman Sachs.”

Wells Fargo’s former chief executive, Tim Sloan, stepped down last month after coming under pressure from both Congress and regulators. He has been replaced by Wells’s general counsel Allen Parker on an interim basis.

The bank has struggled to recover from a fake accounts scandal, in which branch employees, hoping to hit incentives targets, illicitly opened millions of accounts for customers without their consent.

The wrongdoing first emerged in 2016 under the previous chief executive, John Stumpf. But the decision to replace Mr Stumpf that year with Mr Sloan, a 25-year veteran of the bank, antagonised some politicians.

Mr Buffett, who has held shares in Wells since 1989, now prefers the new leader to be an outsider and one who has not worked in investment banking, saying this would be like a red rag to a bull in Washington.

“There are plenty of good people to run it [from the Wall Street banks], but they are automatically going to draw the ire of a significant percentage of the Senate and the US House of Representatives, and that’s just not smart,” said Mr Buffett.

Excluding Wall Street bankers would eliminate many of the potential candidates floated by analysts and investors to run the fourth-largest US bank by assets. On that list are former Goldman executives Gary Cohn and Harvey Schwartz, former JPMorgan banker Matt Zames and current JPMorgan chief financial officer Marianne Lake.

One potential candidate from outside Wall Street whose name has been raised by analysts is Bill Demchak, a former JPMorgan executive who is now chief executive of PNC Financial, a Pittsburgh-based bank.

Mr Buffett owns almost 10 per cent of Wells’s shares, worth about $22bn. He believes that the bank’s competitive position remains strong, despite the damage done by the fake accounts scandal that broke over two years ago.

“If you look at Wells, through this whole thing they’re uncovering a whole lot of problems, but they aren’t losing any customers to speak of,” he said. “They are losing the ones in the public sector . . . but one household out of every three does business with Wells one way or another.” 

The bank still holds more than $900bn in customer deposits.

Only hours before Mr Sloan announced his intention to depart, Mr Buffett had given the former chief executive his support in an interview with CNBC television. Betsy Duke, the bank’s chair, has said the board is only considering external candidates.

On the same day last month that Mr Sloan received a grilling before the House financial services committee, regulators at the Office of the Comptroller of the Currency issued a highly unusual statement saying it was “disappointed” in the bank’s efforts to reform its governance. Two senior Democrats — Maxine Waters, chair of the House financial services committee, and presidential candidate Elizabeth Warren — had both called for Mr Sloan’s departure.

While deposits and assets at Wells have been relatively stable since the scandal, the bank’s once industry-leading growth has slowed. Yet Mr Buffett said: “I don’t care whether they grow [revenues] or not, I care about whether they grow in earnings per share over time.”

Berkshire Hathaway, the investment vehicle Mr Buffett chairs, is also the largest shareholder in US Bancorp, the largest of America’s “regional” banks, with an $80bn market capitalisation. Since two other large regional lenders announced a merger earlier this year, Bancorp has been the subject of speculation that it could embark on a merger, perhaps as a buyer of PNC Financial, which has a $58bn market capitalisation.

Mr Buffett, however, said “I don’t like having a bank we own buy another bank”, believing the key to the banking business is avoiding stupid mistakes and that in mergers, “the acquirer usually overpays”.

Here is the full interview with Mr Buffett

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