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Wells Fargo (WFC) Divests $2B Private Equity Fund Investments
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Wells Fargo & Company (WFC - Free Report) divested around $2 billion of private equity investments in certain funds to a group of leading investors. The move demonstrates the bank’s active investment portfolio management strategy.
Particularly, the company sold its investment in Norwest Equity Partners and Norwest Mezzanine Partners to a buyer group, including AlpInvest Partners, Atalaya Capital Management, Lexington Partners and Pantheon.
WFC was the only institutional limited partner in these funds. Nonetheless, the company will continue its relationship and investments with venture capital and growth equity investment firm, Norwest Venture Partners.
Per WFC management, “With this transaction, we are continuing with our strategic efforts to focus on Wells Fargo’s core businesses and customers.”
The divestiture of these private equity funds enables the company to explore avenues for growth and profitability by freeing up resources for strategic reallocation. The move comes when lenders have been eyeing opportunities to reduce insignificant bets and improve efficiency as they navigate the uncertain interest-rate scenario.
Particularly, in its September meeting, the Federal Reserve held the interest rates steady at a 22-year high of 5.25-5.50%, while indicating one more hike before this year's end as “inflation remains elevated.” This marked the second time the central bank kept the rates unchanged since it began raising it effective March 2022.
The Fed officials, through the latest dot-plot, indicated that the rates would remain high for a longer period. This dot plot projected a 5.6% Fed funds rate through 2023. For the next year, rates will come down, but not as previously expected. The rates are projected to be down to 5.1%, higher than the 4.6% estimated in June.
This shows that the officials are not likely to cut rates as fast as earlier expected. Though the central bank is anticipating a “soft landing,” it will act more aggressively to slash interest rates if the economy tumbles into a recession.
Hence, banks are likely to continue facing a tough operating backdrop next year. Other than macro woes, the asset cap imposed by regulators will limit Wells Fargo’s loan balance. This will, thereby, hamper net interest income growth.
Over the past six months, shares of Wells Fargo have gained 7.6% compared with the industry’s rise of 3.1%.
MidWestOne Financial Group (MOFG - Free Report) announced that it entered a definitive agreement to sell its Florida operations to DFCU Financial. The completion of the cash deal, approved by both companies’ boards of directors, is expected in the second quarter of 2024.
As a result of the sale, MOFG will transfer two branches, $158.8 million in deposits and $162.2 million in gross loans to DFCU Financial. MidWestOne will receive a deposit premium of 7.5%, amounting to $11.9 million pre-tax. The premium is calculated on the basis of its deposits as of Jun 30, 2023.
Citigroup Inc. (C - Free Report) announced the sale of its Bridge built by Citi platform to Foro Holdings, Inc., a Charlotte-based commercial lending services provider. Moreover, Citigroup joined Foro’s investors, including TTV Capital, US Bank and Correlation Ventures, to provide Foro with additional capital investment to aid continued business growth.
Citigroup will be a minority investor in Foro and support the platform in numerous ways, including ongoing connectivity with Citi’s Diverse Financial Institutions Group.
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Wells Fargo (WFC) Divests $2B Private Equity Fund Investments
Wells Fargo & Company (WFC - Free Report) divested around $2 billion of private equity investments in certain funds to a group of leading investors. The move demonstrates the bank’s active investment portfolio management strategy.
Particularly, the company sold its investment in Norwest Equity Partners and Norwest Mezzanine Partners to a buyer group, including AlpInvest Partners, Atalaya Capital Management, Lexington Partners and Pantheon.
WFC was the only institutional limited partner in these funds. Nonetheless, the company will continue its relationship and investments with venture capital and growth equity investment firm, Norwest Venture Partners.
Per WFC management, “With this transaction, we are continuing with our strategic efforts to focus on Wells Fargo’s core businesses and customers.”
The divestiture of these private equity funds enables the company to explore avenues for growth and profitability by freeing up resources for strategic reallocation. The move comes when lenders have been eyeing opportunities to reduce insignificant bets and improve efficiency as they navigate the uncertain interest-rate scenario.
Particularly, in its September meeting, the Federal Reserve held the interest rates steady at a 22-year high of 5.25-5.50%, while indicating one more hike before this year's end as “inflation remains elevated.” This marked the second time the central bank kept the rates unchanged since it began raising it effective March 2022.
The Fed officials, through the latest dot-plot, indicated that the rates would remain high for a longer period. This dot plot projected a 5.6% Fed funds rate through 2023. For the next year, rates will come down, but not as previously expected. The rates are projected to be down to 5.1%, higher than the 4.6% estimated in June.
This shows that the officials are not likely to cut rates as fast as earlier expected. Though the central bank is anticipating a “soft landing,” it will act more aggressively to slash interest rates if the economy tumbles into a recession.
Hence, banks are likely to continue facing a tough operating backdrop next year. Other than macro woes, the asset cap imposed by regulators will limit Wells Fargo’s loan balance. This will, thereby, hamper net interest income growth.
Over the past six months, shares of Wells Fargo have gained 7.6% compared with the industry’s rise of 3.1%.
Image Source: Zacks Investment Research
WFC presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Divestures by Other Companies
MidWestOne Financial Group (MOFG - Free Report) announced that it entered a definitive agreement to sell its Florida operations to DFCU Financial. The completion of the cash deal, approved by both companies’ boards of directors, is expected in the second quarter of 2024.
As a result of the sale, MOFG will transfer two branches, $158.8 million in deposits and $162.2 million in gross loans to DFCU Financial. MidWestOne will receive a deposit premium of 7.5%, amounting to $11.9 million pre-tax. The premium is calculated on the basis of its deposits as of Jun 30, 2023.
Citigroup Inc. (C - Free Report) announced the sale of its Bridge built by Citi platform to Foro Holdings, Inc., a Charlotte-based commercial lending services provider. Moreover, Citigroup joined Foro’s investors, including TTV Capital, US Bank and Correlation Ventures, to provide Foro with additional capital investment to aid continued business growth.
Citigroup will be a minority investor in Foro and support the platform in numerous ways, including ongoing connectivity with Citi’s Diverse Financial Institutions Group.