Warren Buffett Cuts His Wells Fargo (NYSE:WFC) Position


As Wells Fargo (NYSE:WFC) continues to deal with the aftermath of its high-profile scandal, the billionaire investor Warren Buffett sells 7 million shares of the company.

Owner of Berkshire Hathaway (NYSE:BKR.A,BRK.B) not only sold shares but also withdrew his application to increase his stake in Wells Fargo (NYSE:WFC). However Berkshire made it clear that the sale has nothing to do with valuation or investment considerations. A Buffett spokesperson said the real reason for the withdrawal was the commitments the Berkshire has to make in order to increase its exposure. According to the holding company these commitments would restrict Berkshire’s commercial dealing with Well Fargo.

Berkshire owned a 10% positon in Wells Fargo (NYSE:WFC) which made it the biggest shareholder of the bank. However a positon over 10% resulted in increased scrutiny from US Change in Bank Control. This would have interfered with Wells Fargo’s banking relationships with many of Berkshire’s companies; moreover the bank in the past had served as Berkshire’s debt underwriter. With just under 10%, Berkshire wil stilll continue to be the largest shareholder.

Wells Fargo (NYSE:WFC) praised Buffett’s clarification for selling. The bank also said it greatly appreciated its relationship with the investor.

The news has come just a couple of weeks before Wells Fargo is scheduled to host its annual meeting. The bank is also set to announce its earnings reports soon. Wall Street would be closely watching the results because it would reflect how well Wells Fargo was able to handle its fake-account scandal.

Buffett also expressed his concerns regarding the incident and said Wells Fargo (NYSE:WFC) was a great bank that made a huge mistake by not dealing with the issue right away. The investor also supported the bank’s new Chief Executive Officer Tim Sloan’s appointment.

Shares of Wells Fargo (NYSE:WFC), in September of last year, nosed dived by 12% after the scandal was made public. However despite the scandal in November bank’s shares recoverd in line with the banking. Since the election of the new President, the bank’s stock has gone up by 16.6%. However not all is sunshine for Wells Fargo; shares fell by 1.9% on Wednesday and its net income has declined for the past five quarters.

Another major fallout of the scandal could be major changes at the bank’s Board of Directors. Just last week it was recommended through proxy voting that 80% of the board including the chairman should lose their job due to their failure to stop fake accounts from getting opened.

Even though Berkshire has made its stance on the sale clear we will soon find out what kind of an impact it would have on other investors.

Wells Fargo (NYSE:WFC) currently has a market cap of $263.95 billion. The stock’s 52-week range is between $43.55 and $59.99.