Wells Fargo, the fourth-largest bank in the United States and its largest mortgage provider, has achieved Q2 earnings of $5.52 billion, representing an increase of 20 percent over the previous quarter.
The bank has now decided to use some of this profit to purchase the operational business of Hypothekenbank Frankfurt in the UK after owners, Commerzbank, decided to get out of the commercial property finance market.
Its loan book is worth £4 billion, and the bank also has interest-rate and currency hedging derivatives as well. Its London office at 90 Long Acre will be transformed into a Wells Fargo branch very soon.
About £1.3 billion of the loan book is impaired, and this portion will be acquired at a 3.5 per cent discount to book value by Lone Star, a venture capital firm. Wells Fargo will provide financing for the transaction when it closes in Q3.
According to Commerzbank, it expects to see charges of €179 million as a consequence of the transaction. It has undertaken the transaction to satisfy the European Union state aid rules following its bailout by the government.
Chief financial officer Stephan Engels said, “With this transaction, we are accepting a charge on earnings in 2013, to take out risk costs in the coming years.
“The positive capital effect from the RWA reduction compensates largely the charge to the equity capital ratio.
“This portfolio sale is attractive from a risk perspective since we transfer future risk from our UK operating platform to the buyers.”
Wells Fargo was able to ride out the global financial crisis and emerge from it relatively unscathed. The Bank focused on basic mortgage lending, as opposed to trading.
It is the largest originator of mortgages in the United States. In January 2013, it had a 22 per cent share of the US home loan market, according to data from Mortgage Daily Finance.
