Did Warren Buffett Make a Mistake When He Sold This Stock? The Company Is on the Precipice of a Monumental Achievement

Warren Buffett's holding company, Berkshire Hathaway, first acquired a stake in the large U.S. bank Wells Fargo (NYSE: WFC) in 1990. Berkshire would go on to hold the stock for another 32 years, with many market watchers often describing the relationship as a love affair. However, when the phony-accounts scandal rocked Wells Fargo in 2016, Buffett's patience with the bank began to wear thin. In 2019, Berkshire began to cut its position in Wells Fargo and the large conglomerate exited the stock in 2022. Although it hasn't been an easy ride for Wells Fargo, the bank has seen its stock rip higher since Berkshire exited and is now on the precipice of a monumental achievement. Did Buffett make a mistake in selling Wells Fargo?

The long road out of purgatory

In 2016 it was discovered that employees at Wells Fargo had opened millions of bank and credit card accounts without customer permission in order to meet performance quotas. In the years to follow, regulators would slap the fourth-largest bank in the U.S. with many consent orders and billions in fines. In 2018, the Federal Reserve placed a $1.95 trillion asset cap on Wells Fargo, effectively preventing the bank from expanding its balance sheet, a key way banks increase profits. Since then, Wells Fargo has significantly trailed its peers on asset growth.

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WFC Total Assets (Quarterly) data by YCharts

In 2019, Wells Fargo hired Charles Scharf, a veteran of JPMorgan Chase and Visa, to try to turn things around. Prior to hiring Scharf, Buffett reportedly had urged Wells Fargo to look for a chief executive officer outside of Wall Street, concerned that any veteran would receive too much attention from Washington. Some surmise that the hiring of Scharf upset Buffett and led Berkshire to begin to sell the stock.

Regardless, Scharf came in and made significant changes to the bank. He brought on a new management team and much of the board of directors was replaced as well. Scharf also got to work implementing a new regulatory infrastructure and trying to correct problems the bank needed to deal with to overcome a stack of regulatory consent orders. At the same time, Scharf cut expenses, sold off non-core businesses, and also began to scale up capital-light businesses due to the bank's cap on asset growth.

Early in his tenure, Scharf said multiple times that if investors and analysts wanted clues about progress on the bank's regulatory work, they should simply track the progress on its many consent orders. When Scharf joined the company Wells Fargo had 12 consent orders pending. Toward the end of 2021, the bank still had 10 consent orders outstanding. But already in 2025, Wells Fargo has seen five consent orders terminated. Now, only three remain, including the asset cap.

Media outlets have also reported that the bank is in the late stages of the work required to get the asset cap removed. President Donald Trump's administration should help the process along. The administration is more welcoming of bank deregulation and media reports have suggested that the administration would like to shut down or significantly limit the Consumer Financial Protection Bureau, a consumer watchdog agency born from legislation after the 2008 financial crisis.

Did Buffett make a mistake?

Wells Fargo looks to be on the precipice of getting the asset cap removed after more than seven years of cleanup. This will allow the bank to expand its balance sheet again and go on the offensive. Wells Fargo also looks to be a more streamlined organization. Since Berkshire exited Wells Fargo in the first quarter of 2022, the stock is up more than 50% and has hit new all-time highs.

Did Buffett and Berkshire make a mistake and sell too early? Based on the stock price, that certainly appears to be the case. However, Berkshire looks to have still done well on the investment given when it first purchased shares.

Berkshire has also exited many of its large bank holdings since the pandemic and is seemingly less interested in the sector. Furthermore, the Trump administration appears to have expedited the process and Buffett and his team likely could not have predicted at the time that Trump would win another term. Ultimately, as Buffett said in his annual letter to shareholders: "I expect to make my share of mistakes about the businesses Berkshire buys. ... And our experience is that a single winning decision can make a breathtaking difference over time."

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Wells Fargo is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Citigroup is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, and JPMorgan Chase. The Motley Fool has a disclosure policy.