Looking back over this year’s Investment U columns, I said plenty that readers disagreed with.
About stocks, I suggested that “the most disrespected bull market in history” had further to run. I pointed out that folks with all or most of their money in gold weren’t just wrong, but “nuts.” I said the historic 34-year bull market in bonds was over. And I opined that the world’s cheapest asset class - emerging market equities - was overdue for a significant rally.
(That rally is now further overdue. No one bats a thousand.)
However, nothing created more controversy - and negative blowback - than my two columns defending Wells Fargo (NYSE:WFC) after an internal investigation revealed that the nation’s largest bank had opened nearly 2 million fraudulent accounts, setting up credit lines and bank cards that customers didn’t want or request.
[Editor’s Note: You can read Alex’s initial commentary on the Wells Fargo scandal here: Part 1, Part 2.]
Readers were incensed that I would side with the “fat cats” on Wall Street. Some insisted that shares of Wells Fargo - already near a 52-week low - were about to take a real beating.
I disagreed. And still do.
The brouhaha wasn’t a tempest in a teacup. It was more like a tempest in a thimble.
Hold on. I didn’t gloss over Wells Fargo’s fraudulent actions. In those columns, I wrote...
This wasn’t just wrong. It was inexcusably wrong... It has damaged the bank’s reputation with its customers. And the firm - in addition to paying a $185 million fine - is getting hit with a wave of class-action lawsuits that will cost it many millions more...
The bank is paying a serious price in penalties, litigation and lost goodwill - as it should.
- I further predicted that CEO John Stumpf could lose his job:
That too may be appropriate since the fiasco shows an astonishing lack of internal controls and, ultimately, the buck stops with the CEO.
Ultimately, of course, Stumpf did have to resign.
So what set readers off so? It was my contention that while the bank’s top management showed a shocking lack of oversight, they did not deliberately set out to injure customers.
None of the officers or directors received a bigger bonus or greater pay as a result of the bogus accounts. Indeed, these were money losers for the bank.
It’s not hard to see why. The amount wrongly charged to customers - and refunded after the fraud came to light - averaged less than $1 per account.
The perpetrators here were $12-an-hour employees trying to hit performance goals to earn bonuses.
As I pointed out at the time, this wasn’t the rich guy sticking it to the little guy. This was the little guy sticking it to the little guy.
Yet, some folks detest Wall Street banks so much, they refuse to believe that top executives don’t sit around dreaming up ways to steal a few pennies from customers, even if it reduces the bank’s earnings and their own compensation.
One reader wrote to say her husband worked in sales for the bank and felt pressured by Wells’ bonus program, designed to incentivize opening legitimate accounts. She declared,
You don’t know what it’s like to have your income depend on hitting quotas.
Really? As a young man in my 20s, I worked six years in straight-commission sales. I called it the “No Deals, No Meals” program.
Yet, for some reason it never occurred to me to defraud customers to boost my income. Guess I’m not very creative.
It is inexcusable that so many Wells’ employees - and their supervisors - could screw up so royally while the bank’s top brass remained clueless.
However, Wells is not your local community bank. It has more than 8,000 branches, over a quarter of a million employees and hundreds of millions of accounts.
As a former money manager at one of the world’s biggest investment banks, I can assure you that the accounts that get the least oversight are the smallest ones. And the ones that get less attention still are the ones - like the ones here - with no transactions and zero balances.
There is no evidence that Wells’ top managers set up an orchestrated scheme to defraud customers. These were lower-level employees - who should have been better supervised - exercising poor judgment and deplorable ethics.
Recall that Wells Fargo is one of the largest and longest-standing holdings of Berkshire Hathaway. CEO Warren Buffett doesn’t invest in or hold any company unless top management is ethical and competent.
They clearly weren’t competent in this instance, which is why John Stumpf is now scouring the help-wanted ads.
But investors have sorted all this out properly. Shares of Wells Fargo are up 23% since my columns ran. That has added another $50 billion to the bank’s market cap.
It is often said that “markets make opinions.” Indeed. And the market is clearly bullish on the prospects for Wells Fargo.