Wells Fargo & Company WFC is in talks to divest the retirement plan services business to Principal Financial Group, Inc. PFG, per Reuters. Per people familiar with the matter, if all negotiations are successful, a deal of more than $1 billion could be announced later this month.
This move by the bank comes as part of its efforts to streamline its business in order to deal with consequences of the unauthorized-account scandal, which led the Federal Reserve to impose a cap on the company’s asset growth in February 2018.
Notably, Principal Financial, based in Des Moines, IA, provides an expansive range of retirement savings, investment, and insurance products and services through various subsidiaries.
Wells Fargo’s retirement plan services unit, which includes its 401(k) savings accounts business, if merged with Principal Financial, would aid in expanding the latter’s similar business.
However, no comment on a final deal has been made by Wells Fargo or Principal Financial yet.
In fact, this is not the first divestment that Wells Fargo will make. With a view to cut costs, it inked a deal with Flagstar Bancorp FBC last year to divest all of its branches in Indiana, Michigan and Ohio. Also, it entered into a deal with the local unit of Popular, Inc. BPOP to offload its Puerto Rico auto finance business.
Troubles for Wells Fargo began from its retail banking segment in September 2016, when its employees opened unauthorized accounts on behalf of its clients to fulfill sales targets. Following this, scandals in different areas of business came to light, which put Wells Fargo under the strict supervision of regulators.
In May 2018, Wells Fargo disclosed an impressive cost-control plan to help it deal with persistent legal expenses. Also, the bank’s efforts to revamp its financial position supported by lower tax rates and rising rate environment might help it overcome negatives.
Shares of Wells Fargo have lost 5.8% over the past 12 months compared with 8% decline recorded by the industry.
Currently, the stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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