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Wells Fargo Expands in UK

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Wells Fargo & Company (WFC - Free Report) has agreed to purchase commercial a real estate portfolio from Hypothekenbank Frankfurt – a subsidiary of Commerzbank. The buyout will include the subsidiary’s assets worth $6.05 billion (£4.0 billion) in the U.K., in particular those that are clustered in London.

Moreover, a fraction of this portfolio, comprising nonperforming assets worth $1.96 billion (£1.3 billion), will be purchased by Lone Star Funds, a private equity group.

The acquisition is expected to close by third-quarter 2013. Upon completion, Max Sinclair of Hypothekenbank Frankfurt will be appointed as head of its London commercial real estate office. Wells Fargo plans to absorb some more employees from the acquired bank in an attempt to smoothen the integration process.  

Wells Fargo’s Goal

The acquisition will help the company expand its commercial real estate platform in the U.K, thereby driving long-term profitability. Notably, Hypothekenbank Frankfurt is a leading commercial real estate firm operating in London since the past 20 years. Wells Fargo intends to utilize the U.K. subsidiary’s expertise to enhance services, eventually resulting in top-line growth.

The transaction will also help Commerzbank to shed its non-core assets and nonperforming loans. The positive impact of such disposals is already evident from Commerzbank shares being declared the biggest gainer on the Frankfurt stock exchange lately.  

Our Viewpoint

Wells Fargo’s growth plans have always included a large number of acquisitions, with Wachovia being the largest addition in Dec 2008. Notably, last year, the company completed three acquisitions with total assets of $4.5 billion. Further, on Aug 1, 2012, the company completed the acquisition of a prime brokerage and technology provider with assets of approximately $280 million.

Recent Update

On Jul 12, Wells Fargo reported second-quarter 2013 earnings of 98 cents per share, beating the Zacks Consensus Estimate by a nickel. The results were also above 92 cents earned in the prior quarter and 82 cents in the year-ago quarter.

Among other major regional banks, JPMorgan Chase & Co. (JPM - Free Report) reported earnings per share of $1.60, surpassing the Zacks Consensus Estimate of $1.44 and the year-ago earnings of $1.21. Moreover, Northern Trust Corporation (NTRS - Free Report) and BB&T Corporation (BBT - Free Report) are scheduled to report their results on Jul 17 and Jul 18, respectively.

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