Wells Fargo’s stock slump has cost Warren Buffett’s Berkshire Hathaway $2.4 billion

  • Wells Fargo got smoked Monday morning after the Federal Reserve handed down its harshest penalty in years limiting the bank's growth to its 2017 year-end assets of $1.95 trillion.
  • Warren Buffett's Berkshire Hathaway, which owns just under 10% of the company, lost more than $2.4 billion thanks to the stock slide. 

Shares of Wells Fargo plungedmore than 7% when markets opened Monday, costing Warren Buffett’s Berkshire Hathaway company more than $2.4 billion, following a cease and desist letter from the Federal Reserve.

The US’ top bank regulator on Friday announced new sanctions against Wells Fargo, the country’s third-largest bank by assets, limiting its balance sheet to $1.95 trillion and ordering it to beef up its oversight and governance following a sales scandal that has bogged down the bank since 2016.

Berkshire Hathaway owned roughly 488.5 million shares of Wells Fargo, or 9.92%, as of September 30, 2017, according to regulatory filings. The billionaireinitially dumped 9 million shares in April 2017, worth $480 million at the time, to stay below the Fed’s 10% ownership limit and avoid regulations.

“We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again," Federal Reserve Chair Janet Yellen said in a press release on her last day at the central bank.

"The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers."

When the fake accounts scandal first came to light, Buffett originally called the scandal a “huge mistake,” but said he didn’t plan to sell any more shares once the bank paid its $185 million fine.

“John Stumpf is a perfectly decent guy in my opinion," Buffett said of the former CEO who stepped down following the scandal’s revelation. “I'd have him as a trustee in my will and I wouldn't worry for a second. But somehow, when he saw the evidence, he didn't do something about it." 

RELATED: How Warren Buffett manages to live a frugal life:

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11 ways Warren Buffett lives frugally

Warren Buffett’s House Is the Same One He Bought in 1958

Billionaires live in mansions, right? Not Buffett.

He lives in the same residence in Omaha, Neb., that he bought in 1958 for $31,500, the equivalent of roughly $270,000 in 2017 dollars. Buffett has no intention of putting his own home up for sale. "I wouldn't trade it for anything," he told CNBC earlier this year.

In today's money, Buffett would have paid about $41 per square foot for the 6,570-square-foot home. But these days, you'll pay about $143 per square foot for a home in Omaha of that size and era, based on the listing of a home in the neighborhood of the multi-billionaire.

If you want to live like Buffett, consider buying less home than you can afford. Instead of paying pricey mortgage payments, you'll be able to put more of your money toward savings, retirement or vacations.

And if you must take out a loan, perhaps get a 30-year mortgage — it's "the best instrument in the world," Buffett told CNBC. In fact, Buffett took out a 30-year mortgage in 1971 when he bought a vacation home in Laguna Beach, Calif.

"If you're wrong and rates go to 2 percent, which I don't think they will, you pay it off," he said. "It's a one-way renegotiation. It is an incredibly attractive instrument for the homeowner and you've got a one-way bet."

Buffett Starts His Day With a Cheap Breakfast

You might assume billionaires brunch at the most extravagant restaurants, ordering eggs Benedict and bottomless mimosas. Or, they hire a personal chef who can whip up whatever and whenever they want — right?

Wrong. Adopting Buffett's lifestyle doesn't include paying high prices for daily gourmet French toast prepared in the comforts of your own home.

When it comes to food, the billionaire investor has been known to save money by taking the fast-food route. In fact, he might kick off his day with a trip to McDonald's during his five-minute drive to work, reports CNBC.

If he's feeling rich, he'll splurge by spending $3.17 on a bacon, egg and cheese biscuit sandwich. If the market's down, he might spend $2.95 on a sausage, egg and cheese sandwich instead. On a really bad day, he buys two sausage patties for $2.61, puts them together and washes it down with a Coke he pours himself.

Buffett also is known to opt for cheap food when he's on the road — but forget the cholesterol-soaked bacon and eggs at a local restaurant. Buffett's travel breakfast might consist of a pack of Oreos, his friend Bill Gates — yes, his good buddy is the Microsoft founder — wrote on his blog.

"One thing that was surprising to learn about Warren is that he has basically stuck to eating what he liked when he was 6 years old," Gates wrote. "He did move past baby food, of course, but he mostly eats hamburgers, ice cream and Coke."

Buffett explained his diet in a 2015 interview with Fortune: "I checked the actuarial tables, and the lowest death rate is among 6-year-olds. So I decided to eat like a 6-year-old. It's the safest course I can take."

Buffett Buys Reduced-Price Cars

Although some CEOs drive around in million-dollar cars, you'll likely find Buffett driving something much more modest.

In a BBC documentary, his daughter, Susie Buffett, said he bought cars that he could get at reduced prices — like those that had been damaged by hail. The cars were fixed and didn't look hail-damaged and became a regular part of the Buffett lifestyle.

"You've got to understand, he keeps cars until I tell him, 'This is getting embarrassing — time for a new car,'" said his daughter in the documentary.

Buffett also told Forbes in 2014 about his car-buying habits — or lack thereof. "The truth is, I only drive about 3,500 miles a year so I will buy a new car very infrequently," he said.

Remember this the next time you're in the market for a car: Cars tend to depreciate quickly, so it can be better for your finances if you try to keep your well-working car for as long as possible — or at least opt to buy a used car instead of new.

Buffett Enjoys Affordable Hobbies

A commitment to live like Warren Buffett doesn't mean all work and no play. After all, even billionaires have hobbies. But compared to other famous CEOs, investors and entrepreneurs, Buffett's hobbies are much more affordable. For example, he enjoys playing bridge.

"If I play bridge and a naked woman walks by, I don't even see her," laughed Buffett during a CBS News "Sunday Morning" interview. Yep, Buffett is a self-proclaimed bridge addict, and you might even catch him playing the game about 12 hours a week.

"I one time said that I wouldn't mind going to jail if I had the right three cellmates so we can play bridge all the time," he also said in the interview.

When Buffett's not busy being a business mogul, you might find him strumming his ukulele and singing as well. He's played for investors and at charity events. A video of him playing the instrument with Gates even went viral after it was posted on Gates' blog in 2016.

Buffett Treats His Friends Well, But Not Extravagantly

What do you give a friend who's also a billionaire? Buffett's long-standing friendship with Gates is legendary. The Microsoft magnate explained on his blog what's kept their friendship strong over the years:

"I've learned many things from Warren over the last 25 years, but maybe the most important thing is what friendship is all about," he said. "It's about being the kind of friend you wish you had yourself. Everyone should be lucky enough to have a friend who is as thoughtful and kind as Warren. He goes out of the way to make people feel good about themselves and share his joy about life."

And those special touches don't have to be expensive. For example, Buffett drives personally to the airport to pick up Gates whenever he's in town, calls frequently and sends news clippings by mail that he thinks Gates and his wife will enjoy.

Those special touches that mean a lot to friends just might be the best takeaway for those seeking to live the Warren Buffett lifestyle.

Buffett Used a Nokia Flip Phone Long After Smartphones Existed

Buffett likely won't be shelling out $999 for the iPhone X. The billionaire revealed in a 2013 interview with CNN that he still used a Nokia flip phone.

"This is the one Alexander Graham Bell gave me," he joked about his phone. "I don't throw anything away until I've had it 20 or 25 years."

While it's tempting to always splurge on the latest technology, take a page from Buffett's book and only upgrade your phone when you really need to. If you insist on buying the latest iPhone to hit the market, look for other ways to save on your phone expenses, such as using a no-contract phone plan or buying a family plan to share data.

Buffett Doesn’t Splurge on Wallets and Designer Suits

Buffett revealed in the CNN interview that he's used the same black wallet for 20 years. He also shuns high-end designer suits. Instead, he exclusively wears suits created by a Chinese sewing entrepreneur named Madam Li, whom he met in 2007.

"They fit perfectly," he said of the suits in a 2017 CNBC interview. "We get compliments on them. It's been a long time since I got compliments on how I looked but, since I am wearing Madame Li's suits, I get compliments all the time."

The takeaway: Opt for quality goods that will last you a long time, rather than buying something just because it has a brand name attached to it.

Buffett Clips Coupons

Buffett proves that even billionaires still appreciate an opportunity to save money. In Bill and Melinda Gates' 2017 annual letter, Bill recalled a trip he took with the investor, during which Buffett paid for their fast-food lunch using coupons. He even provided photographic proof of this.

"Remember the laugh we had when we traveled together to Hong Kong and decided to get lunch at McDonald’s? You offered to pay, dug into your pocket, and pulled out…coupons!" Bill wrote. "Melinda just found this photo of me and 'the big spender.' It reminded us how much you value a good deal."

Save on your next purchase — even if it's something as inexpensive as a McDonald's meal — by using applicable discounts, which you can easily find on online coupon sites.

Buffett Has Worked in the Same Office Building for More Than 50 Years

Buffett has remained in the same office building since he joined Berkshire Hathaway in the 1960s.

"It's a different sort of place," Buffett said of the company's Omaha headquarters in the 2017 HBO documentary "Becoming Warren Buffett," CNBC reports. "We have 25 people in the office and if you go back, it's the exact same 25. The exact same ones. We don't have any committees at Berkshire. We don't have a public relations department. We don't have investor relations. We don't have a general counsel. We just don't go for anything that people do just as a matter of form."

Even if you're not a business owner, you can still benefit from Buffett's way of thinking. It boils down to the old saying: If it ain't broke, don't fix it.

Buffett Thinks Outside the Box to Save Money

In Roger Lowenstein's biography of the businessman, "Buffett: The Making of an American Capitalist," the author says that after Buffett's first child was born, he converted a dresser drawer into a space for the baby to sleep instead of spending money on a bassinet, reports Forbes. When it came to the family's second child, he borrowed a crib rather than buy one.

Perhaps making your baby sleep in a drawer seems a little extreme, but it's just an example of thinking outside the box. Use resources that are already available to you to prevent unnecessary spending.

Buffett Values Relationships Over Material Things

Buffett explained his choice to live frugally during a 2009 Q&A session he conducted with a group of business school students.

"You can’t buy health and you can’t buy love," said Buffett, according to the Underground Value blog. "I’m a member of every golf club that I want to be a member of [...] I’d rather play golf here with people I like than at the fanciest golf course in the world. [...] I’m not interested in cars, and my goal is not to make people envious."

And in a 2017 interview with People, Susie Buffett said of her father: "...it’s really true that he does not care about having a bunch of money." Instead, she said, he emphasizes family.

“I don’t think people realize, he’s got a bunch of great-grandchildren and he could tell you everything about what they’re all doing. He knows every one of those kids and he knows about their lives,” she said.

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In a press release Friday, Wells Fargo CEO Timothy Sloan re-affirmed the bank's response to the Fed’s latest move.

"We take this order seriously and are focused on addressing all of the Federal Reserve’s concerns,” he said. “It is important to note that the consent order is not related to any new matters, but to prior issues where we have already made significant progress. We appreciate the Federal Reserve’s acknowledgment of our actions to date. In addition, the order is not related to Wells Fargo’s financial condition -- we remain in a strong financial position and stand ready to serve the varied financial needs of our customers."

The bank has 60 days to provide the Fed with plans detailing what the company has done so far to beef up its compliance operations, and what it plans to improve going forward.

Berkshire Hathaway did not immediately respond to a request for comment from Business Insider. 

Shares of Wells Fargo were trading down 7.36% Monday morning at the time of writing, and up 5.25% in the last 12 months. Berkshire Hathaway A and B shares were both down just over 1%. 

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SEE ALSO: BUFFETT: Wells Fargo's accounts scandal was 'a huge mistake'

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