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2 Potential Suitors for Wells Fargo's Asset Management Business

By Bram Berkowitz – Oct 30, 2020 at 7:10AM

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One of these banks has expressed an interest in further diversifying its revenue mix, while another has said it is interested in making acquisitions in the asset management space.

Numerous media outlets have reported that Wells Fargo (WFC 0.16%) is contemplating a sale of its asset management division, which could fetch as much as $3 billion. The rumors, which came from anonymous sources, would fall in line with CEO Charlie Scharf's statements on the bank's most recent earnings call that it may look to exit some business segments in order to refine its focus and significantly cut expenses. Here are two potential acquirers.

Front view of a Wells Fargo branch.

Image source: Wells Fargo.

1. Goldman Sachs

Rumors were swirling earlier this year that Goldman Sachs might swallow Wells Fargo whole. While I can't speak to those, I could certainly see Goldman being interested in Wells Fargo's asset management division.

Despite its impressive earnings during the pandemic, Goldman is one of several major investment banks that have made it clear they want to diversify their revenue mix so they can continue to perform when investment banking and sales and trading activity aren't as strong. One of its competitors, Morgan Stanley, has made two huge acquisitions in the wealth and asset management space this year, buying E*Trade in February and Eaton Vance in October. After these two purchases are complete, Morgan Stanley expects more of its revenue to come from asset and wealth management than investment banking and trading. Morgan Stanley CEO James Gorman expects the new company to earn a higher valuation from the market as a result.

Goldman has been in the process of diversifying revenue for a few years now, but its investment banking and global markets businesses still make up about 60% of net revenue. Asset management accounts for 26%, while consumer and wealth management -- which includes its digital bank Marcus -- makes up 14%. On Goldman's third-quarter earnings call, CEO David Solomon responded to a question about asset management acquisitions by essentially saying the bank would consider them if they "can enhance our franchise and allow us to expand the strength of our franchise."

At the end of the third quarter, Goldman's asset management division had roughly $1.5 trillion in managed assets and generated nearly $2.8 billion in net revenue. Wells Fargo's asset management division is toward the larger end; it would have $607 billion in assets under management at the end of the third quarter. The asset and wealth management division combined generated total revenue of nearly $3.8 billion and turned a profit of $463 million in the third quarter. 

2. JPMorgan Chase

America's largest bank, JPMorgan Chase, strikes me as another potential suitor. When CEO Jamie Dimon was asked about asset management acquisitions on the bank's third-quarter earnings call, he said, "Well, since we have you all on the line, our doors and our telephone lines are wide open. We would be very interested, and we do think you will see consolidation in the business, but we're not going to be more specific than that." In mid-October, media outlets reported rumors that JPMorgan might be thinking about buying the asset management and financial planning company Waddell & Reed. But with roughly $70 billion in assets under management, the company pales in comparison to Wells Fargo.

JPMorgan would makes sense as a buyer, given how directly it competes with Wells Fargo. The two probably have a lot of branches and offices in similar places that would make the transition smooth for existing clients. Additionally, Dimon and Scharf have worked extensively together in the past, so it's not like it would be hard for the two to get together and make a deal. JPMorgan Chase's asset management division generated $1.9 billion in revenue in the third quarter, and along with its wealth management division, has $2.6 trillion of assets under management .

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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