May 1 - The ratings for Wells Fargo & Company (WFC) are not
impacted by the acquisition of prime broker services provider Merlin Securities
(Merlin), according to Fitch Ratings. Merlin offers prime brokerage services to
more than 500 clients, largely hedge funds. The deal is expected to close in
3Q12, and provides an entry into prime brokerage for WFC.
Currently, Fitch does not view prime brokerage as a key growth objective for
WFC. Despite being a profitable business, Fitch does not see prime brokerage
becoming a considerable part of WFC's revenue mix. WFC is adding prime brokerage
services under an open architecture framework to its suite of customer
offerings. While WFC may use Merlin as a platform for further expansion, the
transaction is still viewed as relatively small in nature.
WFC has historically concentrated on traditional commercial banking, which is a
key credit strength for the bank. With its 2008 purchase of Wachovia, WFC
transformed itself into a dominant, national banking company, and as a result of
the acquisition, inherited Wachovia's trading and advisory businesses. These
businesses were not a key focus of WFC's business model prior to the
acquisition, but may be growing in importance as WFC seeks to provide its
customers with a broader suite of products.