1996: Can Wells Fargo reduce costs by cutting branches?

AUDIENCE MEMBER: Mr. Buffett, my name is Hugh Stephenson. I’m a shareholder from Atlanta, Georgia.

My question involves the company’s interest in Wells Fargo. As you know, Wells Fargo, like most banks, has a very expensive branch system for deposit-gathering and servicing their customers.

As I guess you know, they also have moved more into branches in supermarkets and in online banking that seems to have the potential to very significantly reduce their costs, relative to the branch system.

Would you comment on how you think that might play out and how significant it might be?

WARREN BUFFETT: Well, the question — you’re right. Wells Fargo has been a leader in moving into supermarkets. They’ve got a couple different formats they’ve used. And they’ve been a — they’ve certainly been a leader in the online banking services.

Unfortunately, in banking, you know, it’s a little hard to have any secret formulas. Coca-Cola has 7X down there in the vaults of the, what used to be the Trust Company of Georgia, now SunTrust. But in the banking business, anything you do, your competitors can copy.

Nevertheless, there’s a — there is an advantage. And sometimes it can be a quite — a significant advantage in being first and learning more about different distribution methods. And I think Wells Fargo has done a terrific job in learning that.

I think they’ve got some advantages. They — but they aren’t advantages that other people can’t work at copying and chipping away at.

But it’s a good management. They’ve done a very good job of seizing on that particular trend in supermarkets.

And as such, they are — they have the potential, perhaps, for having a relatively low-cost deposit-gathering operation. And every other bank in the world will be looking, noticing how that works, not only there but at other banks, to figure out whether they can copy it.

Charlie? OK.