Wells Fargo Bets on Small Businesses
SAN FRANCISCO (
) --
Wells Fargo's
(WFC) - Get Report
latest acquisition reinforces the bank's belief that lending to small and medium-sized businesses will be a huge part of the recovery effort, and a profit hub for the industry.
Banks will be licking their housing wounds for years to come, with Wells Fargo and
Bank of America
(BAC) - Get Report
giving the most troubled "underwater" homeowners five-to-10 years to start floating again in separate modification efforts. Major corporate lending -- where it exists -- is already dominated by a few key players.
Yet for traditional banks, commercial lending to smaller entities is still a market rife with inefficiencies, where opportunity exists.
Wells Fargo is the biggest lender to small- and medium-sized businesses, an area it has dominated for some time. Big competitors like
CIT Group
(CIT) - Get Report
,
GMAC
and
General Electric's
(GE) - Get Report
Commercial Finance business -- one of which recently emerged from bankruptcy, another of which was once part of a bankrupt automaker and the last of which required government support to survive -- are still trying to get back on their feet. As they whittle away bad loans, restructure existing businesses and deal with capital issues, dislocation exists. Wells Fargo is no stranger to the bailout program, having repaid $25 billion in TARP funds last December, but it's in a better position than many big lenders to seize opportunity where it exists.
On Wednesday,
Wells Fargo said it would acquire GMAC's North American factoring portfolio. The entity provides cash to roughly 150 small and medium-sized commercial clients to finance day-to-day operations, in exchange for invoices as collateral. Terms weren't disclosed, but the portfolio books about $4 billion worth of factored receivables.
The acquisition may not have a huge impact on Wells Fargo' bottom line, the bank sees opportunity to develop those new relationships. Commercial lending accounted for 20% of Wells' loan portfolio last quarter. Nonperforming loans were stable, and utilization of commercial credit lines were at "cyclical lows," according to CFO Howard Atkins.
"We are encouraged by the potential for increased loan volume, should a growing economy lead to increased commercial loan demand," he said during the fourth-quarter earnings report.
Factoring M&A may not get headlines the way
Wachovia
did -- or the way anything related to housing does -- but the GMAC deal also represents Wells Fargo's broader strategy to grab new business, and then cross-sell clients on other products.
Stuart Brister, president of Wells' Trade Capital division, said the bank wants to help its new clients "achieve success through the expertise we've gained in more than 50 years in factoring and through all the additional financial products and services Wells Fargo has to offer."
"Wells Fargo is committed to helping small and middle-market businesses succeed," added Bill Mayer, president of the Commercial & Retail Finance Group at Wells Fargo Capital Finance, of which the Trade Capital division is a part. "Being able to provide continuous service and financing for these clients during these uncertain times is another example of how we deliver on that commitment."
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Written by Lauren Tara LaCapra in New York
