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Principal to acquire the retirement and trust business of Wells Fargo
Posted on Tuesday, 09 April 2019 13:41
Wells Fargo has agreed to offload its institutional retirement and trust operations to Principal Financial Group for USD 1.20 billion, days after Warren Buffett urged the bank to look outside of Wall Street for its next chief executive (CEO).
The acquiror is expecting to gain ownership of the target’s defined contribution, benefit, executive deferred compensation, employee stock ownership plan, institutional trust and custody and asset advisory operations, which serve a combined 7.50 million US retirement customers.
Under the terms of the deal, Principal’s payment includes an earnout of up to USD 150.00 million dependent on revenue retention and payable two years after competition.
It expects the addition of the assets to boost net income and non-generally accepted accounting principles operating earnings per diluted share in 2020 and will finance the consideration using cash and senior debt financing.
Principal will double its US retirement business though the number of total recordkeeping assets, achieving greater scale and balance to compete, invest and grow in the market.
At 31st December 2018, the target operations of Wells Fargo had USD 827.00 billion in assets under administration, served by 2,500 employees in locations such as the US, the Philippines and India.
Closing is subject to regulatory approval and is expected in the third quarter of 2019, creating one of the largest retirement providers in the industry.
Dan Houston, chief executive of Principal, said: “This will be a powerful combination for customers, employees and shareholders as we solidify our place as a top-three leader in the US retirement market.”
In addition, the acquiror will gain a strong foothold with mid-sized employers as over two-thirds of Wells Fargo’s institutional retirements assets are in plans ranging from USD 10.00 million to USD 1.00 billion.
News comes a month after former Wells Fargo CEO Tim Sloan stepped down after pressure from both Congress and regulators.
Allen Parker, general counsel, is running the firm on an interim basis but the bank’s largest shareholder Buffett is look for a replacement that can restore the lender’s reputation.
In an interview with the Financial Times he said that the new CEO “probably shouldn’t come from JPMorgan or Goldman Sachs.”
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