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Wells Fargo (WFC) Enters Deal to Divest Asset Management Unit

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Wells Fargo & Company (WFC - Free Report) has signed a deal to divest its asset management business to private equity firms GTCR LLC and Reverence Capital Partners, L.P. The transaction has been valued at $2.1 billion and is expected to close in the second half of 2021.

Per the terms, Well Fargo will retain only 9.9% stake in the unit and will continue to serve as an important client and distribution partner. The divesture consists of Wells Fargo Bank N.A.’s business of acting as trustee to its collective investment trusts and all related Wells Fargo Asset Management (“WFAM”) legal entities.

Notably, post completion of the deal, the new and independent company will be rebranded. Nico Marais, WFAM’s CEO since June 2019, will continue in the same capacity. He will also retain his leadership team for overseeing the business. 

Since his joining in October 2019, CEO Charlie Scharf has been reviewing the company’s businesses. Notably, Wells Fargo has undertaken several such divesture measures to focus on its core operations, improve efficiency and strengthen its balance sheet. These have resulted in significant cost savings for the bank.

The asset management industry is witnessing cut throat competition and a shift toward passive fund management. Further, industry players are facing several challenges such as rising costs related to technology, outflows, fee pressure and heightened regulations. Thus, the business requires substantial scale to remain profitable.

Barry Sommers, CEO of Wells Fargo’s wealth & investment management division said, “At the same time, this transaction reflects Wells Fargo’s strategy to focus on businesses that serve our core consumer and corporate clients, and will allow us to focus even more on growing our wealth and brokerage businesses.”

Though the performance of Wells Fargo has remained hampered over the past few years on account of its involvement in past misconducts, the company has come a long way in its remedial journey. It continues to invest in its businesses to enhance compliance and risk management capability, which seems impressive.

Over the past six months, shares of Wells Fargo have jumped 50.9% compared with 42.8% growth registered by the industry.

 

Currently, Wells Fargo carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, there has been a rise in restructuring activities in the finance sector. Last month, Truist Financial (TFC - Free Report) sold its institutional 401(k) investment advisory services business to OneDigital Investment Advisors, and agreed to sell its institutional 401(k) recordkeeping businesses to Ascensus and Empower Retirement.

Associated Banc-Corp (ASB - Free Report) announced that it will divest its wealth management subsidiary Whitnell& Co. to Rockefeller Capital Management and enter into a partnership with the latter. Also, in December 2020, The Bank of New York Mellon Corporation (BK - Free Report) announced that it is set to sell its Canada-based wealth management business to Guardian Capital Group Limited. Closing of the deal, subject to regulatory approvals, is expected in first-quarter 2021.

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