(WFC) Wells Fargo & Company Acquires $3.3 Billion Loan Portfolio

Yesterday, Wells Fargo & Company (WFC) announced the acquisition of a loan portfolio with a face value of $3.3 billion from Irish Bank Resolution Corporation (IBRC), previously known as Anglo Irish Bank. The portfolio comprised 61 performing U.S.-based commercial real estate loans.

Last week, out of the total 61 loans, WFC closed 25 worth $1.5 billion. The company expects to purchase the remaining loans in the fourth quarter of 2011.

Moreover, The Blackstone Group (BX) and WFC have joined hands to purchase a pool of approximately $600 million in loans on U.S. commercial property from Allied Irish Banks plc, according to Wall Street Journal. According to the terms of the deal, WFC and BX will be able to buy hotels, office buildings and retail properties backed-portfolio loans for about 15% to 20% off the face value.

In August, Anglo Irish Bank sold loan portfolio worth $9.5 billion to WFC, JPMorgan Chase & Co. (JPM) and Lone Star Funds. Out of the total, WFC agreed to acquire $1.4 billion loan portfolio at par backed by U.S. commercial property from Bank of Ireland.

In order to benefit from liquidity crisis of the Irish banks, these banks are investing their money in such loan portfolios. We believe the banks are aiming to significantly gain from such loans in the long term.

When the U.S. commercial real estate was in upswing from about 2004 through 2007, Irish banks were among the most active lenders. However, market plummeted in 2008, and the banks were flooded with billions in soured loans. Moreover, at current level, such loans have lost about half of their value.

In September, one of the major competitors of WFC, Bank of America Corp. (BAC) signed a deal to sell a commercial real estate loan portfolio worth $1 billion to a group of investors. BofA would sell $880 million in loans at a discount of 20% to 25% from face value. With the planned sale, the bank aims to reduce part of its $44 billion commercial real estate portfolio.

Strategic acquisitions have been part of WFC’s endeavor to strengthen its business model, expand its capabilities and diversify its footprint. Its growth plans have historically included several acquisitions, Wachovia being the largest addition in December 2008.

The company has demonstrated its ability to assimilate local franchises, offering a wider range of products compared with the acquired company, thus increasing the number of options for its customers. This has been the driving force behind its growth in the recent years.

With cross-selling as its key strength, WFC has a diverse geographic and business mix that enables it to sustain consistent earnings growth. Opportunistic acquisition and the demise of some of the smaller players helped the company to garner a larger share in the market. Yet, top-line headwinds and regulatory issues remain a cause of concern.

WFC currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Moreover, considering the fundamentals, we are maintaining a long-term Neutral recommendation on the stock.

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