--Wells Fargo acquires $6 billion lending portfolio from Germany's WestLB
--Deal follows trend of U.S. bank acquisitions from struggling European lenders, including others by Wells Fargo
--Portfolio acquisitions present opportunity for bargains, higher returns
By Christian Berthelsen
Struggling European banks are presenting a rich opportunity for their U.S. counterparts.
On Monday, Wells Fargo & Co. (WFC) became the latest bank to announce an acquisition of U.S. assets from a European bank, buying German bank WestLB's $6 billion portfolio of loans and funding commitments to primarily U.S.-based private equity and real estate investment funds.
The deal came on the heels of two similar moves last week: Citigroup Inc.'s (C) purchase of a chunk of Societe Generale SA's (SCGLY, GLE.FR) shipping loan portfolio, and Eurohypo AG's sale of $760 million in U.S. commercial real estate loans to U.S. Bancorp (USB), Wells Fargo and Blackstone Group LP (BX). The real estate loans were purchased for 95 cents on the dollar.
Wells Fargo, in particular, has been looking to Europe to find bargains on U.S. assets that banks there look to divest as they raise capital and repair balance sheets amid the grinding euro-zone economic crisis. Wells Fargo has also purchased loan books from French banking giant BNP Paribas SA (BNPQY, BNP.FR), Allied Irish Banks (AIBYY, ALBK.DB) and Bank of Ireland.
The deals are highlighting the increasingly divergent condition of U.S. and European banks. While European banks struggle with shaky loans and increased liquidity and capital needs, some U.S. banks are flush with deposits from retail and corporate clients. They are looking for investments that offer better returns than are otherwise available in a low-interest-rate environment.
"It's the latest in a series of acquisitions they've made of portfolios from European banks that are getting out of their U.S. loans and businesses," said Joe Morford, a managing director and financial services analyst at RBC Capital Markets. "Here's an opportunity to buy a portfolio of attractive yielding assets and build additional relationships with a customer they can cross-sell."
In the latest deal, the benefit to Dusseldorf-based WestLB is cash to shore up listing finances. The commercial bank has reported losses and negative free-cash flow for the last three years, with negative return on equity and a price-to-tangible book ratio of less than 1, according to data provided by FactSet. The company is undergoing a restructuring in which it is spinning off traditional banking business to focus on asset management, credit analysis, treasury services and other corporate functions.
The San Francisco-based Wells Fargo gets to add to its existing subscription-finance portfolio, which provides fairly short-term loans to private equity and real estate investment funds. The loans have average maturities of three years--the WestLB loan book averages 1.8 years--and can serve as bridge financing for funds that need cash faster than their investors can put it up.
The loans are secured by the capital commitments investors make to the funds that are borrowing the money. Terms weren't disclosed.
Wells Fargo is also hiring WestLB's nine-member New York-based team to augment its subscription-finance business.
"The market dislocation in Europe has definitely created opportunities for U.S. banks," Dave Hoyt, Wells Fargo's head of wholesale banking, said in a prepared statement. "Wells Fargo continues to be well positioned to consider selective acquisitions, including transactions with European sellers. Acquisitions of high-quality assets are a core activity of the company and are consistent with our strong risk discipline."
Write to Christian Berthelsen at email@example.com