Wells Fargo Buys $1.4B Portfolio - Analyst Blog

Wells Fargo & Co. (WFC) is said to have won a bid for a $1.4 billion U.S. commercial real estate loan portfolio of the Bank of Ireland (IRE), according to a Wall Street Journal report.

The portfolio consists of 25 loans, performing in nature and mainly backed by commercial real estate in New York, Boston and Washington. The loans were sold near their face value. The portfolio sale is a part of Bank of Ireland's deleveraging efforts.

In May, Wells Fargo also struck a deal in partnership with Blackstone Group LP to purchase around $1 billion in commercial mortgages from Allied Irish Banks Plc. (AIB).

Strategic acquisitions have been part of Wells Fargo's endeavor to strengthen its business model, expand its capabilities and diversify its footprint.  These have been the driving force of its growth in recent years. The Wachovia acquisition and the demise of some smaller players helped it garner a larger share in the mortgage market. With cross-selling as its key strength, Wells Fargo's diverse geographic and business mix provides a solid leverage for consistent earnings growth.

Capital ratios are strong, and dividend as well as share buyback initiatives inspire investors' confidence in the stock. Yet, we believe that a substantial improvement in revenue will remain elusive. In addition, regulatory issues also pose as headwinds to the company's top line.

Wells Fargo currently retains its Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we are maintaining a long-term Neutral recommendation on the stock.