U.S. lender Wells Fargo has reached an agreement to dispose of its banking assets in Puerto Rico at a price of approximately $1.7 billion. This comes less than a fortnight since the lender was punished by the Federal Reserve for malpractices preventing it from expanding. The deal struck with Popular, the largest lender in Puerto Rico will see the subsidiary of Wells Fargo, Reliable Financial Services, sell its commercial loans and car loans to the former.
According to Wells Fargo the restrictions slapped on the bank by the Federal Reserve placing a $2 trillion cap on the balance did not influence the divestment. In the last one and a half years since the fake bank accounts scandal erupted at Wells Fargo, the fortunes of the lender have reversed. Wells Fargo’s Puerto Rican business was purchased more than two decades ago by Norwest, which was to later merge with the San Francisco, California-based lender a year after and adopted its name.
Global financial crisis
Though Wells Fargo emerged from the global financial crisis in a better shape compared to peers, it is under pressure to reevaluate its business model following the scandal which has been blamed on aggressive sales tactics. This involved thousands of its sales staff signing up customers for credit cards and bank accounts without their consent or knowledge. The Federal Reserve has now blocked the bank’s expansion plans till there is a demonstration of an improvement in governance.
Prior to the restrictions imposed by the Fed, the San Francisco, California-based lender has been turning its focus to core areas. In 2017 the lender inked agreements to dispose of its share registration arm as well as insurance assets. At the time, the chief financial officer of Wells Fargo, John Shrewsberry, indicated that more divestment would be undertaken.
“Wells is just trying to clean up — this is another step in which they are shedding anything that doesn’t contribute to the core business,” said Vining Sparks’ banking analyst Marty Mosby.
Due to heightened competition Wells Fargo has also been reducing its exposure in car lending in the United States.
Earlier in the week renowned Berkshire Hathaway investor and Warren Buffett’s business partner, Charlie Munger, said that regulators should go easy on Wells Fargo in order to give the lender room to correct the mistakes it had made. This was in reference the banking accounts scandals that has been rocking the bank since one and a half years ago.