Wells Fargo WFC recently completed the divestiture of certain assets and liabilities of its auto finance business in Puerto Rico (“Reliable”) to Popular BPOP. The all-cash deal was announced in February 2018.
Wells Fargo’s auto-lending segment landed in trouble last year when its customers were financially hurt due to issues related to auto Collateral Protection Insurance policies. Per its fourth-quarter 2017 earnings release, auto loan originations plunged nearly 33% on a year-over-year basis, though it has been stabilizing in the past couple of quarters.
Terms of the Deal
Reliable Financial Services and Reliable Finance Holding Company, subsidiaries of Wells Fargo, sold about $1.6 billion in retail auto loans and $360 million in commercial loans, to the banking subsidiary of Popular, Banco Popular de Puerto Rico. However, Reliable will continue to work as a unit of Popular Auto, along with Popular Auto’s existing operations, in order to provide continued services to customers.
Moreover, such arrangement will be carried till the integration gets completed. Notably, Popular Auto has employed all Reliable employees.
Per this deal, around $385 million in retail auto loans has been retained by Wells Fargo. Further, the bank has entered into a loan-servicing agreement with Popular Auto related to such loans.
Past Divestures
Also, recently, Wells Fargo divested its Shareowner Services business to Equiniti Group plc for $227 million. Equiniti Group is the leading provider of share registration and associated investor services in the U.K.
Previously, in November 2017, the bank completed the sale of Wells Fargo Insurance Services USA to USI Insurance Services. The motive behind this divesture was to bring banking activities back into focus.
Our Viewpoint
Wells Fargo has been trimming its operations ever since its nosediving journey started after the fake account scandal surfaced in September 2016. Earlier this year, the Federal Reserve put a cap of $1.95 trillion (as of Dec 31, 2017) on its assets. This is likely to further push the bank into concentrating on core operations.
Though litigation costs will continue to strain its financials in the near term, the bank’s cost-cutting initiatives might lend some support. Also, its strong capital position and much-attentive management might keep it from falling into trouble again.
Shares of Wells Fargo have gained 11.9% over the past three months, outperforming 5.6% growth recorded by the industry it belongs to.
Wells Fargo currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Comerica Incorporated CMA has been witnessing upward estimate revisions for the past 30 days. Also, the company’s shares have risen nearly 34% in the past year. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
M&T Bank Corporation MTB has been witnessing upward estimate revisions for the past 30 days. Additionally, the stock has jumped more than 5% in a year’s time. It currently carries a Zacks Rank #2 (Buy).
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