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Warren Buffett says the fake account scandal at Wells Fargo hurt its reputation

  • Buffett says he would not be surprised if Wells Fargo's systems to flag bad behavior are now better than most of its competitors.
  • Wells Fargo reached a $185 million settlement with regulators in September over creating what the bank then said could be as many as 2.1 million accounts in customer names without their permission.

Billionaire investor Warren Buffett told CNBC on Monday that Wells Fargo's reputation has been hurt by the fake account sales scandal.

"[But] the fundamental earnings power of the bank over a period of years has not been hurt in any material way," Buffett said on "Squawk Box," two days after he held court at Berkshire Hathaway's annual meeting.

Berkshire is a big shareholder in Wells Fargo.

Buffett said he would not be surprised if Wells Fargo's systems to flag bad behavior are now better than most of its competitors.

"At Wells Fargo, you knew some stuff was coming up through the branches. Somebody didn't pay attention to it," Buffett said. "It's just totally bad news."

Wells Fargo reached a $185 million settlement with regulators in September over creating what the bank then said could be as many as 2.1 million accounts in customer names without their permission.

The third-largest U.S. bank has since encountered more government investigations and lawsuits.

The Wells Fargo board recently decided to claw back more money from former Wells Fargo Chairman and CEO John Stumpf and Carrie Tolstedt, the former head of the community bank unit head, where the scandal unfolded.

"They obviously came up with an incentive system that incentivized the wrong thing," Buffett said. "Most businesses do that from time to time."

"The big mistake was when whenever sufficient information had come back that this is producing a counterproductive effect ... that's the moment of truth," he said. "If you don't do it immediately and you let it run for a while, now you've got the ultimate problem."

On a personal note, Buffett talked about Stumpf's role. "I know John Stumpf and I don't think it had anything to do with making money."

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