Wells Fargo and GE in deal
Banking giant’s deal for $32 billion in loans and leases marks GE Capital’s largest sale.
The banking giant’s pact for $32 billion in loans and leases marks GE Capital’s largest sale.
Wells Fargo’s growth strategy has been simple lately: Pick up what GE has been dropping.
Just two weeks after the San Francisco banking giant acquired the bulk of a GE unit that leases rail cars and locomotives, it announced Tuesday the purchase of three more GE businesses that specialize in business loans and equipment financing. The deal for $32 billion in loans and leases is the largest sale so far by GE’s GE Capital unit, which the industrial conglomerate started dismantling this year.
In a statement, Wells said it would acquire the three GE units, which come with about 3,000 employees, but did not disclose the terms of the deal. Wells Fargo executives declined to comment because the bank is announcing quarterly earnings Wednesday.
The acquisition, expected to close early next year, will boost Wells’ assets to $1.76 trillion, based on the company’s last quarterly filing. Wells would remain the nation’s fourth-largest bank, behind No. 3 Citigroup, with assets of $1.83 trillion, but could surpass it soon if it continues its recent spate of acquisitions.
Wells Fargo is already a big player in the equipment financing and leasing business. Monitor magazine, a trade publication for the equipment finance industry, last year ranked Wells as the second-largest bank in that business, behind Bank of America.
One of the acquired businesses, GE’s vendor finance unit, works with business equipment dealers to offer financing to customers — loans for buying construction equipment from a machinery dealership, for instance.
Analysts said the bank’s presence in the equipment lending and leasing business should make it an easy acquisition to digest.
“Wells already has an existing presence in these businesses,” said Scott Siefers, a managing director at brokerage Sandler O’Neill. “They’re well positioned to take advantage of dislocation at GE Capital.”
Still, Joe Morford, a managing director at investment firm RBC Capital Markets, said the acquisition will probably add at least a few new products or specialties to Wells’ offerings, and that could help attract new business clients.
Businesses are prized customers, because they demand many banking services, such as cash management, capital raising and wealth management for business owners. In the bank’s latest quarterly filing with the Securities and Exchange Commission, Wells Fargo noted that although the average consumer banking customer uses about six of its offerings — such as a checking account, savings account or student loan — the average business client uses about seven.
“They tend to use more of the bank’s services, which makes them more sticky, profitable relationships,” Morford said.
GE has been working to shed parts of its commercial lending business since April, part of a strategy by Chief Executive Jeffrey Immelt to return the company’s focus to its industrial roots. Former CEO Jack Welch turned GE into a financial services giant, but that strategy came back to haunt the company during the financial crisis.
First to go was a $26-billion portfolio of real estate and loans that GE sold in April. Wells was part of that deal, too, buying the bulk of the portfolio along with private equity firm Blackstone.