October 3, 2016

Warren Buffett has spoken to Wells Fargo

As most are aware, Warren Buffett and I crossed swords at Berkshire Hathaway's Omaha Nebraska annual meeting in 2013 when The Oracle invited me to pepper him and Charlie Munger with questions from the stage as Berkshire's "credentialed bear."

Thursday morning in posts on RealMoneyPro, I made several claims of information I had obtained from my contacts regarding Warren and his investment in Wells Fargo.

My Claim #1. Warren had discussions with a member or members of senior management and/or member(s) of the board of directors expressing his dissatisfaction with the bank's ethical lapse. I went on to claim that the board was now directly informed and acutely aware of his consternation and Warren's view of the need to remedy the bank's conduct, posthaste .

My Claim #2. For now, Warren was content and committed to his $23 billion Wells Fargo investment - the largest individual investment in Berkshire's portfolio.

My Claim #3. Subject to Fed regulatory approval and/or share price, Berkshire may buy additional shares of WFC.

At around noon, through my pal Becky Quick's reporting, a representative in Warren's Omaha office declared my claims "false," though he didn't clarify what part or parts he was referring to.

Subsequently reports from Becky Quick (after directly speaking to Warren) as well asadditional reports made by Charlie Gasparino at Fox Business, Reuters and Bloomberg News confirmed part of my first claim that Warren had indeed spoken to John Stumpf, Wells Fargo's CEO and board chairman about the alleged fraud and that he had expressed his consternation.

Let me start with the caveat: I have learned through my research leading up to the 2013 Berkshire meeting that one has to be very careful of how we phrase questions to Warren. He is quite good at not responding to questions that he doesn't want to answer, especially when questions are not structured perfectly for him to answer. That is a lesson that I learned, particularly from Alice Schroder. Warren is exceptional at deflecting questions he doesn't want to answer by making jokes, answering a question other than the one is asked, etc. He has had tons of practice.

I wanted to make several relevant points to his pushback that my claims were "false" -- one by one:

Claim #1: My (first) claim that the Wells Fargo board knows of Warren's dissatisfaction with the ethical missteps at the bank. I claimed that Warren had conversations with one or more members of WFC senior management and/or board members admonishing the bank for unethical conduct. I was informed that he told them to clean up their act posthaste. My understanding is that this displeasure was likely communicated by one or more people to the board of Wells Fargo.

So I essentially said the board of directors, as a result, now had direct knowledge of Warren's view of their ethical missteps and had been admonished to rectify that or any other lapses. My intent was not to say that he formally addressed the board but rather that through his acquaintances and associations had so informed the directors.

By contrast, Warren said this claim was "false" stating to CNBC:

"It's dead wrong to imply I've spoken to the board directly ... Going to the board implies I've gone around Stumpf, the guy who is under fire."

Again I didn't claim that Warren Buffett made a presentation to the board of Wells. He cleverly responded to a claim that I didn't make -- he simply answered a different question/claim.

Claim #2: I offered that Warren, for now, was committed to WFC investment. I will stick with this claim as well.

Claim #3: Berkshire might purchase more Wells Fargo shares. Most analysts and investors are aware that Berkshire's investment in WFC went up to 10% recently because of WFC's repurchase program and not because of incremental purchases as Berkshire has not added to the position since October 2015:

From Bloomberg News: Berkshire said in the application that it hasn't bought shares in Wells Fargo since Oct. 21. Buffett's company learned that it crossed the limit in March, when the bank updated its share count to reflect buybacks. Berkshire told the U.S. Securities and Exchange Commission that month that the stake had reached 10 percent.

That said, my third claim was that, subject to regulatory approval and share price, Warren might consider the purchase of additional shares of Wells Fargo. Warren also denied this claim as "false," suggesting to reporters that Berkshire has no intention of buying more Wells Fargo stock. However, here is an exact quote from Warren -- from a July interview that he has never rescinded -- indicating as clear as day that he wants the option or has the intention to buy more WFC stock:
"Berkshire is seeking permission to retain its current ownership position in Wells Fargo and to acquire additional shares of common stock of Wells Fargo for investment purposes, " Buffett's Omaha, Nebraska-based company said in an application to the Fed. "Berkshire does not have any specific transaction or dollar value in mind with respect to any such potential purchases."

Bottom line: Despite Warren's protestations, I will stick with all three of my claims made....

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