In an effort to boost its subscription finance business and take
advantage of the deleveraging activities of the European banks,
Wells Fargo & Company
(
WFC
) has agreed to buy WestLB's $6 billion subscription finance
portfolio. While the deal terms were not disclosed, the company
anticipates accomplishing it by the end of the second quarter
itself.
Subscription finance involves the offering of revolving and term
loans as well as letters of credit primarily to private equity and
real estate investment funds to help them with their investment
moves.
Wells Fargo has hired Dee Dee Sklar, former head of WestLB's
subscription finance group, to run the business. His team will
comprise 14 members of whom 8 were previously working with
WestLB.
Only last week,
Citigroup Inc.
(
C
) agreed to purchase part of the shipping loan book from
Societe Generale SA
(
SCGLY
). Deal terms were not revealed. Moreover, commercial real estate
loans worth $760 million in U.S. key markets were sold off by
Eurohypo AG to
U.S. Bancorp
(
USB
), Wells Fargo and
The Blackstone Group LP
(
BX
).
Amidst the Eurozone crisis and the need to build up capital
levels to satisfy regulator's stricter capital norms, European
banks are shedding their businesses, in particular the non-core and
the risky ones.
Especially, Wells Fargo is capitalizing on the deleveraging
activities of the European banks. Earlier in February, Wells Fargo
agreed to acquire the North American energy lending business of
BNP Paribas SA
(
BNPQY
) with nearly $9.5 billion of loan commitments and approximately
$3.9 billion in loans outstanding. The acquisition was closed in
April 2012. Moreover, in 2011, Wells Fargo also made loan portfolio
purchases from
Bank of Ireland
(
IRE
) and
Allied Irish Banks
(
AIBYY
).
Apart from purchasing loan portfolios, the U.S. banks are also
benefiting from the withdrawal of European banks from the
competitive loan pricing market.
In Conclusion
We believe that the deal is a strategic fit for Wells Fargo as
it would help increase its share in the subscription finance
market. The deal would also provide the cross-sell opportunities
with the company planning to offer its full range of products and
services to its clients.
Notably, Wells Fargo is benefiting from the turmoil in the
financial market with a host of business acquisitions and loan book
purchases. It has emerged strong and is eyeing European bank assets
to boost its business. On the other hand, for WestLB, which has
suffered losses in the recent years, the deal comes as part of its
restructuring efforts.
Wells Fargo shares currently retain the Zacks #3 Rank, which
translates to a short-term Hold rating. Considering the
fundamentals, we also maintain a long-term Neutral recommendation
on the stock.
ALLIED IRISH BK (AIBYY): Free Stock Analysis
Report
(BNPQY): ETF Research Reports
BLACKSTONE GRP (BX): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
IRELAND BK-ADR (IRE): Free Stock Analysis
Report
(SCGLY): ETF Research Reports
US BANCORP (USB): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis
Report
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