Over the past two years, Wells Fargo has been caught in a vicious purgatory: on one hand, the consent order the bank signed with the Fed in 2018 in response to the bank’s chronic criminal activity limits it from arbitrarily growing its balance sheet with its assets under constant observation by the Fed; on the other, with Wells’ net interest margin collapsing…
… the bank desperately needs to either issue higher margin loans or somehow unlock balance sheet space to issue debt that results in a higher yield. And throughout all of this, Wells urgently need to make sure its liquidity is generous in case there is another market crisis.
In an attempt to wiggle out of this smothering vice, Wells Fargo is reportedly exploring a sale of its corporate-trust unit that could fetch more than $1 billion and is also considering whether to find a buyer for its $10 billion student-loan portfolio, which follows a notification of Wells customer earlier this month that it plans to exit from the student-lending business.
The relatively boring but cash-flow generating corporate-trust business provides trust and agency services in connection with public and private debt securities. It’s part of the firm’s commercial bank, which serves businesses that typically have more than $5 million in annual sales.
According to Bloomberg, the corporate-trust process is ongoing and Wells Fargo is handling the potential divestiture itself; at the same time Warren Buffet’s formerly favorite bank is also exploring a sale of its $607 billion asset manager and expects to receive bids by the end of the month.
The corporate-trust process is ongoing and Wells Fargo is handling the potential divestiture itself, one of the people said, asking not to be identified because the talks are private. The San Francisco-based bank is also exploring a sale of its $607 billion asset manager and expects to receive bids by the end of the month, as reported last week.
Some speculate that Wells’ decision to sell its entire student loan business is confirmation the bank is scrambling ahead of what may be uniform loan forgiveness by the Biden administration (Liz Warren has been especially vocal on the topic) and the result would be major impairment for any private-sector issuer of such loans. Alternatively, it may simply mean that the hurdle for the Fed to buy such student loans remains high and a far greater economic shock would be needed before banks can dump their exposure to the central bank (at par or higher).