OMAHA, Neb., May 6 (Reuters) - Warren Buffett on Saturday faulted Wells Fargo & Co's previous management for failing to take action immediately upon learning that its employees were signing up customers for accounts they did not want.
Speaking at Berkshire's annual meeting, where Buffett and Vice Chairman Charlie Munger are fielding five hours of questions from shareholders, journalists and analysts, Buffett said Wells Fargo gave employees too much autonomy to engage in "cross-selling" multiple products to meet sales goals.
He said this "incentivized the wrong type of behavior," and that former Chief Executive John Stumpf, who lost his job over the scandal, was too slow to fix the problem.
"If there's a major problem, the CEO will get wind of it. At that moment, that's the key to everything. The CEO has to act," Buffett said. "The main problem was they didn't act."
Berkshire owns about 10 percent of Wells Fargo's stock.
Buffett likened the situation to Salomon Brothers Inc, where in 1991 he was installed as chairman to clean up the mess left when the former chief executive failed to tell regulators that a trader was submitting fake bids at Treasury auctions.
Buffett discussed Wells Fargo in response to a question about whether Berkshire's decentralized structure could prompt a recurrence.
But he said Berkshire welcomes being alerted to misbehavior via an internal "hotline" that gets 4,000 calls a year.
"As we sit here, somebody is doing something wrong at Berkshire," he said. "But when it gets to some sales practice that was talking place at Wells Fargo, you can see the type of damage it can do."
Buffett also admitted he was wrong to think International Business Machines Corp "would do better" six years ago, when he started amassing an 81 million share stake.
He disclosed this week that Berkshire has sold about one-third of the IBM stake, even as it bulks up its holdings in Apple Inc, which Buffett said he thinks of more as a "consumer" company that a technology company.
Buffett started the meeting by noting that Berkshire reported far fewer investment gains in the first quarter, which proved a drag on quarterly results.
But he said Berkshire now has a slight preference for trying to take tax losses, which could have less value if lawmakers in Washington reduce the 35 percent corporate tax rate.
The annual meeting is the main event of a weekend of events that Buffett calls "Woodstock for Capitalists."
Buffett and Munger started taking questions after the traditional shareholder movie, and after Buffett roamed a nearby exhibit hall featuring products from Berkshire companies.
He was joined at the traditional newspaper tossing contest by friends including Microsoft Corp co-founder and Berkshire director Bill Gates and Miami Dolphins defensive tackle Ndamukong Suh.
Many hundreds of shareholders started lining up outside the CenturyLink Center, including several who said they got there nearly five hours before doors opened at about 6:45 a.m.
"Every year it seems I have to come earlier," said Chris Tesari, a retired businessman from Pacific Palisades, California who said he arrived at 3:20 a.m. for his 21st meeting. "It's a pilgrimage." (Reporting by Jonathan Stempel in Omaha, Nebraska; Editing by Jennifer Ablan and Nick Zieminski)