On Friday, Bloomberg reported that Wells Fargo & Company ( WFC ) might purchase the London-based Burdale Finance Ltd. unit from Dublin-based Bank of Ireland PLC ( IRE ). In 2004, Bank of Ireland acquired Burdale from Wachovia Corp. for €71 million.
Bank of Ireland was contemplating the sale of Burdale since April and has hired Hawkpoint Partners Ltd. as an advisor in this regard. The sale of Burdale is expected to be completed by the end of 2011.
Burdale Finance Ltd. provides loans against assets in the U.S. and U.K. Currently, the firm has approximately €800 million ($1.1 billion) of loans in both countries across the Atlantic.
The completion of the deal will mark Wells Fargo's third dive this year on the assets of Irish banks. In October, Wells Fargo purchased €1.13 billion ($1.55 billion) of U.S. commercial real-estate loans from Bank of Ireland.
Earlier this month, Wells Fargo announced the acquisition of a loan portfolio with a face value of $3.3 billion from Irish Bank Resolution Corporation ( IBRC ), previously known as Anglo Irish Bank. The portfolio comprised 61 performing U.S.-based commercial real estate loans.
Moreover, according to a Wall Street Journal report, The Blackstone Group ( BX ) and Wells Fargo have joined hands to purchase a pool of approximately $600 million in loans on U.S. commercial property from Allied Irish Banks plc ( AIB ). The terms of the deal states that Wells Fargo and Blackstone Group will be able to buy hotels, office buildings and retail properties backed-portfolio loans for about 15% to 20% off the face value.
In August, Anglo Irish Bank sold a loan portfolio worth $9.5 billion to Wells Fargo, JPMorgan Chase & Co. ( JPM ) and Lone Star Funds. Out of the total, Wells Fargo agreed to acquire $1.4 billion loan portfolio at par, backed by the U.S. commercial property from Bank of Ireland.
In order to benefit from liquidity crisis of the Irish banks, these banks are investing their money in such loan portfolios. We believe the banks are aiming to significantly gain from such loans in the long term.
In May, Wells Fargo also announced that it would acquire substantially all of the US-based operating assets of Foreign Currency Exchange Corporation, a wholly owned subsidiary of IRE, in an effort to expand its international banking capabilities. The deal would substantially strengthen Wells Fargo's foreign currency exchange capabilities for domestic correspondent banks.
When the U.S. commercial real estate saw an upswing from 2004 through 2007, Irish banks were among the most active lenders. However, the market plummeted in 2008, and the banks were flooded with billions in soured loans. At present, such loans have lost about half of their value.
In September, one of the major competitors of Wells Fargo, Bank of America Corp. ( BAC ) signed a deal to vend a commercial real estate loan portfolio worth $1 billion to a group of investors for selling $880 million in loans at a discount of 20% to 25% to face value. With this planned sale, the bank aims to reduce part of its $44 billion commercial real estate portfolio.
Strategic acquisitions have been part of Wells Fargo's endeavor to strengthen its business model, expand its capabilities and diversify its footprint. Its growth plans have historically included several acquisitions, Wachovia being the largest addition in December 2008. The company has demonstrated its ability to assimilate local franchises, offering a wider range of products compared with the acquired company, thus increasing the number of options for its customers. This has been the driving force behind its growth in the recent years.
With cross-selling as its key strength, Wells Fargo has a diverse geographic and business mix that enables it to sustain consistent earnings growth. Opportunistic acquisition and the collapse of some of the smaller players helped the company to garner a larger share in the market. Yet, top-line headwinds and regulatory issues remain the causes of concern.
Wells Fargo currently retains a Zacks #3 Rank, which translates into a short-term 'Hold' rating. However, considering the fundamentals, we are maintaining a long-term "Neutral" recommendation on the stock.