Wells Fargo eyes acquisitions as profits rise

Firm is interested in a deal that could enhance the wealth, brokerage and retirement unit, where profits were up 41% for the quarter

Apr 11, 2014 @ 2:03 pm

By Mason Braswell

Coming off a 41% rise in quarterly profits in its wealth unit, Wells Fargo & Co.'s chief executive John Stumpf said Friday that the firm could be interested in an acquisition.

“One of the things that we look at is, is there a way to enhance the wealth brokerage retirement unit, possibly?” he said during a conference call announcing earnings. “That would be interesting to us.”

The proclamation was made as the firm reported strong first-quarter results in wealth management, driven largely by growth in loans and fee-based accounts.

Wells Fargo Advisors raked in earnings of $475 million for the quarter, up 41% from $337 million a year earlier. Revenue was up 8%, rising to nearly $3.5 billion for the quarter, from $3.2 billion a year earlier.

“I don't think we can do 41% every year, but that's a huge growth opportunity for us,” Mr. Stumpf said during the call.

Much of the revenue growth was driven by increases in recurring fee revenue. Managed-account assets reached $63 billion, up 19% from a year earlier and accounting for just under half the total $1.4 trillion in the retail brokerage unit.

Fees accounted for 80% of total revenue in the division, the firm said.

(See also: Wells Fargo training program violates labor laws: Suit)

Average loan balances also rose 23%, helping to offset a decrease in transactional revenue. Trading has declined somewhat as clients remain cautious, other wirehouse executives have said.

The total head count also slipped to 15,146 during the quarter, from 15,354 as of March 31 last year.

The wealth unit, which derives largely from Wells Fargo's 2008 acquisition of Wachovia Bank N.A.'s roughly 14,000 financial advisers, has been a consistent revenue source for the company. It delivered about 17% of total first-quarter revenue of $20.6 billion and has provided an extra boost as the firm made a strong recovery from 2008.

“Clearly, we have adequate capital to run the business and excess capital,” Mr. Stumpf said. “We have the capacity to do a relatively large acquisition.”

Mr. Stumpf declined to specify a particular name, or type, of firm that Wells Fargo would be interested in acquiring and cautioned that he was only opening up the possibility.

“We're pretty discriminating,” he said. “We don't need to do anything.”

Wells Fargo spokesman Anthony Mattera said that he couldn't elaborate on Mr. Stumpf's comments.

Acquiring another broker-dealer at this point would probably be low on the list of acquisitions, but couldn't be ruled out, industry experts said.

Wells Fargo is still trying to unify platforms following the Wachovia merger and is in the process of transferring advisers over to its new platform, Smartstation 2.0.

“They're still working through that stuff,” said Alois Pirker, a research director at the consulting firm Aite Group.

Mr. Stumpf said not to expect a “big splash” anytime soon.

But the firm would benefit from a smaller regional brokerage that has clients in the $1 million to $10 million range, Mr. Pirker said.

A significant portion of Wells Fargo Advisors' clients have close to or less than $1 million in investible assets, he said.

The firm's Abbott Downing unit is focused on the ultrawealthy, but Wells Fargo Advisors has sometimes missed out on a segment in between, Mr. Pirker said.

“This is a strategic gap for them and an area that is growing,” he said.

Without speaking to the possibility of any acquisitions, Vince Scanlon, a spokesman for Wells Fargo Private Bank, emphasized that the firm's private bank, which has around $223 billion in assets under management, already caters to clients with assets in the range of $1 million to $50 million.

The firm also may feel pressure to move as the marketplace for wealth management firms heats up.

Most recently Sterne Agee Group Inc. announced plans Thursday to purchase a midsize broker-dealer. That followed Robert W. Baird & Co. Inc.'s saying that it would be merging with McAdams Weight Ragen Inc., and Putnam Investments' picking up J.P. Morgan Retirement Plan Services.

“Right now, it is a target-rich market,” Mr. Pirker said. “We're seen a number of acquisitions and we're going to see more this year unfolding.”

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