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Earlier this week, Wells Fargo & Company (WFC - Analyst Report) announced its plan to acquire LaCrosse Global Fund Services from Cargill Inc. LaCrosse is an independent hedge-fund administration and middle-office service provider company of Cargill. The deal is subject to certain regulatory approval in several jurisdictions.
The transaction is being financed by the Structured Product Services division of Wells Fargo Corporate Trust Services (CTS), leader in providing trustee and agency services to institutional and corporate clients. The terms of the deal were not disclosed.
Globally, at current level, LaCrosse operates in New York, Minneapolis, London, Dublin, Singapore, Buenos Aires and in the Channel Islands. The same will be retained by Wells Fargo.
The completion of the acquisition will help Wells Fargo in expandinghedge-fund administration business. With the expansion, Wells Fargo and CTS will be able to take advantage of LaCrosse’s strong platform in the hedge fund administration market. Further, they will get the benefit of traditional fund administration services, derivatives processing, operational support, bank-debt processing, and cash and collateral management services provided by LaCrosse at current level.
On the other hand, clients of LaCrosse will be able to access Wells Fargo’s custody, cash management, trust, paying agent, and other banking services. Moreover, the existing clients of LaCrosse will continue to receive the services as service teams, management, and systems will be maintained by Wells Fargo.
This amalgamation gives Wells Fargo full opportunity to leverage its strong corporate trust market reputation with LaCrosse’s experience and proficiency, which in turn, would offer clients enhanced hedge fund administration services.
In July, Wells Fargo also completed the acquisition of its strategic partner, Castle Pines Capital. The buyout was a part of Wells Fargo’s effort to expand its business and add channel financing capabilities.
In May, Wells Fargo announced that it would acquire substantially all of the US-based operating assets of Foreign Currency Exchange Corporation, a wholly owned subsidiary of the Bank of Ireland Group (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.
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 demise of some smaller players helped the company to garner a larger share in the market. Yet, top-line headwinds and regulatory issues remain a cause of concern.
Wells Fargo currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Moreover, considering the fundamentals, we are maintaining our long-term “Neutral” recommendation on the stock.
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