Recently, Wells Fargo & Company (WFC) priced a €1 billion ($1.31 billion), seven-year bond. The Eurobond, having a coupon rate of 2.25%, will mature on Sep 3, 2020. The bond has a re-offer price of 99.463 and spread of 60 basis points over midswaps.
Moreover, the Eurobond carries a yield of 2.334%. Barclays PLC (BCS), Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) acted as joint lead managers in the pricing. Notably, Moody's Investors Service has rated the bond A2.
A Eurobond is an international bond that is denominated in a currency different from the currency of the country where it is issued. Also called external bond, it can be categorized in terms of the currency in which it is issued. In general, Eurobonds provide banks the opportunity to expand international operations in a more simplified manner and thereby avoid fluctuating interest rate risks.
The aforementioned pricing underlines the U.S. banking major’s effort to reduce its interest expenses. Notably, Wells Fargo’s interest expenses for the first half of 2013 were $2.2 billion. Additionally, Wells Fargo is expected to use the proceeds of the aforementioned pricing for general corporate purposes, including opportunistic investments.
Investors will not be disappointed with their investments in Wells Fargo, given its diverse geographic and business mix, which enable it to sustain consistent earnings growth. Going forward, we believe that strategic acquisitions will help Wells Fargo to expand its business and boost profitability.
However, we expect the top-line headwinds to persist, given the protracted economic recovery. Wells Fargo’s legacy mortgage issues also remain a concern. With the thrust of banking regulations, fees will be under pressure and loan growth will remain feeble..
Wells Fargo currently carries a Zacks Rank #2 (Buy).
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