Magazine article American Banker

Wells, with Acquisition, Bulks Up in Auto Lending

Magazine article American Banker

Wells, with Acquisition, Bulks Up in Auto Lending

Article excerpt

Wells Fargo Financial, the consumer finance subsidiary of Wells Fargo & Co., is going where fewer and fewer dare to tread, announcing Thursday a deal to boost its automobile lending business by nearly one-third.

The Des Moines-based consumer finance company said it bought $900 million of managed net receivables and the business relationships of Flagship Credit Corp. of Philadelphia. The deal increases the assets of Wells Fargo Financial Acceptance -- the auto lending unit of Wells Fargo Financial -- to $2.5 billion.

Terms of the transaction, which was finalized Thursday, were not disclosed. All 330 employees of Flagship are now Wells Fargo employees.

Over the past two years, a number of banks and other financial institutions have scaled back or exited automobile lending and leasing, as pricing has compressed lending margins and flattened the value of lease residuals. This year Union Bank of California said it would wind down its $1 billion indirect auto lending portfolio after it decided pricing had become unfavorably low.

And auto leasing, which has been more severely affected by a glut of vehicles in the used car market, has caused several banking companies, including Bank of America Corp. and Bank One Corp., to report charges and write-downs in their portfolios.

Still, analysts said that expanding its auto lending business would appear to bode well for Wells Fargo, particularly because its predecessor, Norwest Corp., had an established record as a consumer lending institution.

(Norwest Corp. of Minneapolis bought San Francisco-based Wells Fargo & Co. in 1998, taking its name and headquarters. Wells Fargo Financial is the new name for Norwest's consumer finance subsidiary, Norwest Financial.)

"Certainly, the auto lease business has been under a tremendous amount of pressure," said Jennifer Thompson, an analyst with Putnam Lovell Securities. …

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