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Headline risk squeezes Buffett's bet on Wells Fargo


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Headline risk squeezes Buffett's bet on Wells Fargo

One of WellsFargo & Co.'s staunchest allies is taking a hit as thescandal-ridden bank's stock falls.

BerkshireHathaway Inc.'s massive position in Wells Fargo shares has tumbledin value since late August, roughly three months after the wide-rangingconglomerate asked the Federal Reserve for permission to above 10%.

Berkshire disclosed that it hit the legal limit forownership of a single company's stock in a March regulatory filing. Those 504,299,470 shares tradedat $50.80 each at the close of Aug. 31, for an aggregate value of about $25.72billion.

In a little more than a month, however, that position hadseen more than $3 billion in value erased. It was worth $22.19 billion as ofthe Oct. 3 closing bell.

Still, that loss is a small portion of Berkshire's roughly$102.56 billion stock portfolio, according to the company's most recentquarterly filing. It is an even smaller part of the company's total assets,including the companies it owns wholly, David Kass, a finance professor at theUniversity of Maryland, said in an interview.

Berkshire Chairman, President and CEO Warren Buffett has notcommented publicly on the scandal, which involved thousands of Wells Fargobankers and salespeople opening accounts for customers without their knowledgeor consent. The practice, an extreme form of cross-selling, became a common wayof meeting difficult sales goals.

In a Sept. 29 blog post, Seabreeze Partners ManagementPresident Doug Kass wrote that Buffett had personally expressed "extremedissatisfaction" to some members of the bank's board and demanded that thecompany transform its ethics. Buffett denied that assertion in a commentprovided to CNBC and said he only spoke to Wells Fargo Chairman and CEO JohnStumpf, telling him the problem was worse than the size of the regulatorypenalty would suggest.

Buffett has invested in Wells Fargo since 1989, and despitethe recent scandal, that investment has paid out well for Berkshire Hathaway,David Kass said, with a compounded annual return, including dividends, in thehigh single digits,

"At the moment, I don't see where Buffett can becriticized in any way for an investment that has worked out so well forBerkshire for 26 years, for a bank that … was considered almost like the goldstandard," the University of Maryland professor said.

On the other hand, Buffett has been an outspoken proponentof ethical business practices. After going from passive shareholder to interimchairman and CEO of Salomon Brothers during the company's 1991 bond-tradingscandal, Buffett appeared before a Congressional subcommittee.

His message for the investment bank's employees was:"Lose money for the firm, and I will be understanding; lose a shred ofreputation for the firm, and I will be ruthless."

Reputational damage has accompanied the $185 million inpenalties that regulators including the Consumer Financial Protection Bureauhave levied on Wells Fargo. Public outcry over compensation the bank hadpromised Carrie Tolstedt, the executive in charge of the retail bankingsegment, led the board to clawback $19 million from her, while Stumpf has also forfeited about$41 million in unvested equity awards.

During Stumpf's own appearance before congressional panels,Sen. Elizabeth Warren, D-Mass., called for his resignation and a criminalinvestigation.

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