By Rick Rothacker
April 27 (Reuters) – Wells Fargo & Co is buying a
prime brokerage firm in its first foray into the business of
providing trading, reporting and other services for hedge funds.
The acquisition of Merlin Securities LLC gives the No. 4
U.S. bank a platform for growing in the prime brokerage business
and for selling other products and services to hedge funds, said
Chris Bartlett, Wells Fargo’s head of equity sales and trading.
“It’s a way for us to wade into the business and grow over
time,” Bartlett said in an interview.
San Francisco-based Wells Fargo did not disclose the terms
of the acquisition. Merlin, based in New York and San Francisco,
serves more than 500 hedge funds, each with less than $2 billion
in assets, but Wells could eventually target larger firms,
Bartlett said.
Merlin’s 100 employees will join Wells Fargo Securities, the
bank’s capital markets and investment banking unit. Merlin’s
managing partners, Stephan Vermut and Aaron Vermut, will
continue to lead the business.
The deal, subject to regulatory approvals, is expected to
close in the third quarter. Wells has been active on the
acquisition front in recent months, mostly buying loan
portfolios from European banks looking to build capital. on
Tuesday, Wells finalized its purchase of a North American
energy-lending business from BNP Paribas SA.
Wells emerged from the financial crisis as one of the
healthier U.S. banks, partly because it eschewed some of the
riskier capital markets activities that damaged some of its
peers. The bank became a bigger player in these businesses when
it bought Charlotte, North Carolina-based Wachovia Corp in 2008,
but Chief Executive John Stumpf has emphasized Wells only likes
the client-driven part of the business, not riskier trading
ventures.
Bartlett said Merlin brings minimal risk to Wells because it
is essentially a processing business. The firm sends clients
needing loans to Goldman Sachs Group Inc and JPMorgan
Chase & Co. Wells over time will make loans to hedge
funds, but clients will be able to still choose to do business
with Goldman or JPMorgan, he said.
“The Wells way is very thoughtful and gradual,” Bartlett
said. “We will grow with the client base.”
Merlin is the second hedge fund-related acquisition by Wells
in the past year. In September, it bought LaCrosse Global Fund
Services, which provides hedge fund administration services. The
two businesses will continue to operate separately, Bartlett
said.
Wells Fargo’s wholesale banking unit, which includes capital
markets and investment banking businesses, reported a
first-quarter profit of $1.9 billion, up 14 percent from a year
ago. The unit accounted for 41 percent of the bank’s net income.
Wells Fargo shares were down 1 cent to $33.83 in early
afternoon trading on a mixed day for bank stocks.
