The stock price of
Wells Fargo & Co.
) slipped nearly 2% following the announcement of an agreement
between Wells Fargo Insurance and USI Insurance Services during
the second half of the trading session on Thursday. As per the
agreement, Wells Fargo Insurance - a subsidiary of Wells Fargo -
will vend 42 of its regional insurance brokerage and consulting
locations spread across lower and middle markets to USI Insurance
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The terms and conditions of the deal were not disclosed. However,
it is expected to close in second-quarter 2014. Further, on
completion of the deal, Wells Fargo will continue with its
Insurance Brokerage and Consulting business in 55 locations
across Charlotte, Dallas, Minneapolis and San Francisco.
Insurance business is a lucrative option in the U.S market with
the potential for generating huge profits. Therefore, apparently
the divesture may not seem appropriate but it is part of the
company's growth plan to focus on upscale markets, from which it
derives the major part of its insurance revenues.
Moreover, in the present economic scenario that offers limited
scope to improve the top line, Wells Fargo delivered its
sixteenth consecutive earnings beat in fourth-quarter 2013
primarily on the back of aggressive cost cuts. The aforementioned
strategic move will further aid Wells Fargo's prudent expense
On the other hand, though the stock price movement indicates
negative market response following the news release, it could be
a consequence of the overall subdued market condition owing to
the prevalent macroeconomic factors. However, there could be
other factors as well.
Wells Fargo reported a 13% decline in fee revenues in
fourth-quarter 2014. However, insurance fee income recorded an
18% increase. The disposition of profit-making units by the
Insurance segment may have made analysts bearish, thereby
prompting the downturn in price movement.
Wells Fargo currently carries a Zacks Rank #3 (Hold).
Some better-ranked regional banks include
Bank of America Corp.
Fifth Third Bancorp
). All these stocks carry a Zacks Rank #2 (Buy).