Wells Fargo is considering a sale of its asset management unit, which has pushed a shortlist of firms, including Goldman Sachs, to the forefront as potential buyers for the $578 billion money manager.
In the past few months, Wells Fargo has been approached by multiple special purpose acquisition companies, or SPACs, regarding selling its asset management business, an anonymous source told Pensions & Investments, noting that the firm has so far rejected the proposals.
On Thursday night, Reuters reported that the bank was exploring a sale of its asset management business, citing people familiar with the matter. The report prompted analysts at Keefe, Bruyette & Woods to publish a note Friday about sale speculation and potential suitors for the Wells Fargo unit.
"A sale of the investment management business would be in line with the ongoing strategic review that the company is doing and we would not rule out a sale, but the financial impact could be muted and potential buyers could be few," said the note, co-authored by analysts Brian Kleinhanzl and Michael Brown.
Goldman Sachs was mentioned as an attractive buyer should Wells sell its asset management business.
"The pool of potential buyers may be small since smaller asset managers may not be able to do a large deal given (Wells') AUM scale and larger managers may not be interested to do a deal in order to simply obtain cost (savings) and increase scale but also increase execution risk," the analyst note said. "We would note that one potential buyer could be Goldman Sachs as the company is looking to grow asset management and also could look to sell additional products to (Wells') wealth management business as a strategic partnership."
On Friday, Mr. Kleinhanzl said in a phone call that J.P. Morgan Chase could also make sense as a potential buyer should a deal come to pass.
"There have been plenty of large banks that have talked about their ability to consolidate in the asset management space. That includes Goldman Sachs and J.P. Morgan, and I would expect those types of companies to look if (Wells' asset management business) was for sale," Mr. Kleinhanzl said.
On Friday, spokesmen at Wells Fargo and Goldman Sachs declined to comment on the matter, as did a spokeswoman at J.P. Morgan.
John Pancari, a senior managing director and senior regional banks analyst at Evercore ISI, said Wells looking to sell its asset management business is “not out of the realm of possibility, because (CEO) Charlie Scharf and the management team appear to be evaluating the business space and are still conducting a thorough review of the (company’s) business lines … and that may result in the decision to exit additional businesses.”
In 2017, Wells sold its commercial insurance business to USI Insurance Services. In April 2019, Wells also entered into an agreement to sell its institutional retirement and trust business to Principal Financial Group.
“(Mr. Scharf) did indicate in the past that they wanted to focus on serving their core customer base on the consumer and corporate side. I can’t rule out that (asset management) could end up being viewed as not ‘core’ to their business base,” Mr. Pancari added.
Jim Cooper, managing partner at executive search firm Concentriq, said Friday that Goldman “would be a logical fit as a potential suitor” for Wells Fargo’s asset management business.
“They have been very public about their intentions of pursuing acquisitions that could help the firm push into new growth areas or expand existing businesses. Their recent acquisitions of United Capital (Financial Advisors) and Folio Financial demonstrate that commitment, though a deal of this magnitude would be meaningfully more accretive,” Mr. Cooper said.
Due to the size of Wells Fargo’s asset management unit and the large acquisition costs a deal would entail, Mr. Cooper said “it would seem likely that only a select group of asset managers would be able to make the deal happen.” In addition to Goldman, Mr. Cooper sees J.P. Morgan, Bank of New York Mellon, Fidelity Investments and Prudential Financial as potential suitors large enough to consider Wells’ unit.
Goldman CEO David Solomon said during the firm’s Oct. 14 earnings call that leadership “certainly are aware of the continued consolidation that’s going on in the asset management industry.” As merger and acquisition opportunities come up, the firm will “consider them if we think they can enhance our franchise and allow us to expand the strength of our franchise and our ability to serve our institutional clients, and also individual clients to our wealth business,” Mr. Solomon added.
Earlier this month, Morgan Stanley agreed to acquire Eaton Vance in a $7 billion deal that will create a money management firm with nearly $1.2 trillion in assets under management. And there is also speculation that Invesco and Janus Henderson Group could pursue a tie-up, after activist hedge fund Trian Fund Management took 9.9% stakes in each firm this month, signaling that the firms might explore a combination together or separately with other firms in the asset management industry.
Rumors of Wells selling its asset management unit come as the bank has been considering cutting up to 20% to 25% of its workforce, or as many as 50,000 to 66,000 jobs, anonymous sources told Pensions & Investments last month. In response, the company told P&I at the time that a multiyear cost-cutting effort was already underway at the firm, but it had not set targets for a total number of job cuts.
“We can expect impacts, including job reductions, in most geographies across our footprint and nearly all of our business lines and functions,” the company said in statement.