According to Bloomberg, Wells Fargo & Company (WFC), one of the Wall Street giants, decided to sell its majority stake in Overland Advisors LLC, a privately owned hedge fund supporter. Founded in January 2010, Overland operates as a subsidiary of Wells Fargo.
Though the terms of the transaction were not disclosed, the stake will be sold to a new company controlled by Gordy Holterman, Overland’s chief executive officer and Derek Dunn, the chief investment officer of Overland, according to the source. Moreover, through this stake sale, Wells Fargo will retain minority interest in $2.2 billion worth of hedge funds.
Wells Fargo has started retreating money from the fund and aims to complete the process in 2014. The bank has more than $1.6 billion invested in Overland, while external investors account for about $520 million.
Over the past two years, with the increase in Overland’s external client base, the fund has recorded strong growth performance. Therefore, following the completion of the deal, Overland’s clients will be benefited as the fund will be better positioned for continuing success as an alternative asset-management firm.
For this agreement, Overland is seeking approval from a bulk of unaffiliated investors. In addition to this, the company anticipates the transaction to close in April 2012.
Like other big Wall Street banks such as The Goldman Sachs Group Inc. (GS) and Bank of America Corporation (BAC), Wells Fargo has been buckled under the weakness in the wider economy and the fundamental pressures on the banking sector. Wells Fargo’s stake selling in hedge fund corresponds to the proposed rules as part of the Dodd-Frank Act, which aims to ban proprietary trading and ownership of hedge funds by banks. The new federal rules, once implemented, will limit banks’ rights of hedge funds.
However, last week, Wells Fargo Bank, banking unit of Wells Fargo, has entered into a definitive agreement to purchase BNP Paribas’ North American reserve-based and associated diversified energy lending business in an all-cash deal. The deal, subject to regulatory approvals and other customary closing conditions, is anticipated to close in the second quarter of 2012. The purchase is expected to strengthen Wells Fargo’s energy banking business.
Earlier in February, Wells Fargo announced that it has accomplished the purchase of Burdale Financial Holdings Limited (Burdale) and the portfolio of Burdale Capital Finance Inc. from Bank of Ireland (IRE). The acquisition was a part of the company’s effort to broaden its international commercial finance capabilities.
Going forward, we believe that strategic acquisitions will help Wells Fargo expand its business and improve its profitability. Its solid business model, strong capital position and expanded business through the Wachovia acquisition and its integration, expected expense management and improved credit quality, will also support its profit figures. Yet, a sluggish economic recovery and its impact on revenue along with new proposed regulations might limit its growth to some extent.
Wells Fargo currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Considering the fundamentals, we also maintain a long-term “Neutral” recommendation on the stock.
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