The new CEO "probably shouldn't come from JPMorgan or Goldman Sachs," he told The Financial Times
Wells Fargo was urged by Warren Buffett, its largest shareholder, to look outside of Wall Street for its next chief executive officer following the resignation of CEO Tim Sloan. "They probably shouldn't come from JPMorgan (JPM) or Goldman Sachs (GS)," he told The Financial Times.
BUFFETT URGES WELLS TO LOOK OUTSIDE WALL STREET FOR NEXT CEO: In an interview with The Financial Times published on Sunday, Berkshire Hathaway's (BRK.A) Warren Buffett said he wants Wells Fargo to look outside of Wall Street for a new CEO after Tim Sloan stepped down last month, and search for a new CEO who has not worked in investment banking. "There are plenty of good people to run it, but they are automatically going to draw the ire of a significant percentage of the Senate and the U.S. House of Representatives, and that's just not smart," he said. "They just have to come from someplace [outside Wells] and they shouldn’t come from Wall Street," Buffett said in the interview, adding that "They probably shouldn’t come from JPMorgan or Goldman Sachs."
However, excluding Wall Street bankers would eliminate many of the potential candidates for the role floated by analysts and investors, including former Goldman Sachs executives Gary Cohn and Harvey Schwartz, former JPMorgan banker Matt Zames and current JPMorgan CFO Marianne Lake. Bill Demchak, a former JPMorgan executive who is now CEO of PNC Financial (PNC), has also been mentioned by analysts as a potential contender for the Wells role.
WHAT'S NOTABLE: On March 28, Wells Fargo announced that Tim Sloan, who took over as CEO of the bank in October 2016, would resign, effective immediately. He has been replaced by Wells's general counsel Allen Parker on an interim basis. An external search process has commenced for the company's new CEO and president, it said. "The board has a continuous succession planning process through which we identify potential successors within the company," Chairman Betsy Duke said at the time, adding that "Although we have many talented executives within the company, the board has concluded that seeking someone from the outside is the most effective way to complete the transformation at Wells Fargo."
Sloan took over as CEO after John Stumpf, the bank's previous CEO, stepped down in the wake of the firm's fake account scandal. The bank was fined by the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and others for opening as many as 2 million fake accounts in order to get sales bonuses. In 2018, Wells said it was preparing to hand out $80M in remediation for potentially wrongfully forcing auto insurance on as many as 570,000 customers. Also in 2018, the bank revealed that an error in its mortgage underwriting software led to hundreds of improperly denied mortgage modifications for borrowers facing foreclosure over a five-year period. Last year, the Federal Reserve capped the bank's asset growth after Wells found more problems with customer dealings.
Sloan informed the board prior to his resignation that he felt his presence was a hindrance for the company, according to a call conference call with reporters, CNBC reported. His resignation was not the result of the bank's first quarter performance or any "newly discovered issues," he said. Sloan's departure followed calls from lawmakers for the CEO to step down. Senator Elizabeth Warren previously sent a letter to Federal Reserve Chairman Jerome Powell calling on the Fed to maintain its growth cap on Wells Fargo until the bank replaces Sloan.
When asked two weeks ago whether he supported Sloan, Berkshire Hathaway's Buffett told CNBC's Becky Quick that Sloan had his support "100%."
OTHER BUFFET COMMENTS: Berkshire Hathaway is also the largest shareholder in US Bancorp (USB). Since BB&T (BBT) and SunTrust (STI) announced a merger earlier this year, US Bancorp has been the subject of rumors that it could also announce a merger, possibly with PNC Financial, but Buffet told The Financial Times that "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."
PRICE ACTION: In morning trading, shares of Wells Fargo are up fractionally to $48.89.
Keywords: management, CEO, Tim Sloan, executive change, scandal, Warren Buffett