Feb 25 Wells Fargo's role in a blockbuster
investment banking deal is raising concerns at a major ratings
Wells' agreement to provide financing for H.J. Heinz Co's
$23 billion buyout highlights how the No. 4 U.S. bank is
expanding beyond retail banking into riskier capital markets
businesses, Allen Tischler, an analyst at Moody's Investor
Services, wrote in a report on Monday.
Moody's stopped short of saying it might cut Wells Fargo's
ratings, or change the outlook for its ratings, but did note
that the bank appears to be dialing up risk. Wells Fargo's low
exposure to the capital markets business allowed it to avoid a
wave of downgrades that hit many of the biggest banks globally
Wells served as a financial adviser to Heinz and has joined
JPMorgan Chase & Co in providing $14.1 billion in
financing, according to the report. Berkshire Hathaway Inc
and private equity firm 3G Capital are buying the
ketchup maker in a $23 billion deal announced Feb. 14.
While JPMorgan has long been entrenched in the capital
markets business, Wells Fargo has largely focused on providing
traditional banking services like loans to large corporations,
the report said. Wells, however, gained more capital markets
capabilities when it bought Wachovia Corp in 2008.
Wells Fargo's "primary capital market capabilities... are
lucrative but can lead to riskier activities," Tischler wrote.
When a bank serves as an adviser to a company on a deal, the
client often expects it to provide financing, Tischler wrote.
This can be a problem if a bank offers more financing than it
should just to win lucrative investment banking fees. The Heinz
deal could also encourage Wells to expand its capacity to trade
debt and loans, Tischler wrote.
Wells Fargo has a longstanding relationship with one of the
key players in the Heinz deal: Berkshire Hathaway's Warren
Buffett. Berkshire is Wells Fargo's largest shareholder.