Wells Fargo buying assets from Strong

By Michael Liedtke
Associated Press

Strong Financial, whose headquarters is in Menomonee Falls, Wis., will sell $34 billion in assets under its management to Wells Fargo in a deal announced yesterday. Associated Press

San Francisco-based Wells will acquire assets totaling $34 billion under Strong Financial's management in the long-rumored deal, announced yesterday.

Financial terms weren't disclosed, but industry analysts estimated that Wells will end up paying between $400 million and $700 million by the time the deal is completed in seven to 10 months.

The estimated price represents a potential bargain, given that Strong Financial's assets probably would have fetched more than $1 billion a year ago, said Hoefer & Arnett analyst Richard Bove.

The steep discount stems from the stench of scandal.

Industry regulators alleged Strong Financial's founder and former CEO Richard Strong had engaged in improper trading practices at other shareholders' expense, turning the 30-year-old firm into a symbol of the mutual fund abuses that have emerged during the past year.

Wells announced the deal six days after Richard Strong accepted a lifetime ban from the mutual fund industry and agreed to pay $60 million to settle allegations that he made $1.8 million in profits through improper fund trading. Strong Financial will pay $115 million in disgorgement of revenues, civil penalties and fee reductions.

Richard Strong, who owns 85 percent of his privately held company, can still pocket some of the profits from the sale. Wells structured the deal so it won't inherit Strong Financial's potential liabilities.

Strong's disillusioned shareholders have been dumping their funds for months, withdrawing about $5 billion since August, estimated analyst Gareth Lyons of Morningstar, an industry research firm.

"The settlement and this sale are steps in the right direction, but there is still a lot of uncertainty associated with these funds," said Lyons, who has a "sell" rating on Strong's funds.

By the time the deal closes, Wells probably will end up acquiring $30 billion in assets, Bove estimated. He also expects Strong's 70 mutual funds, held by 414,000 households in 870,000 accounts, to be rebranded under the Wells name. The bank — the nation's largest based west of the Mississippi — already runs a large mutual fund operation, which is expected to swell to $103 billion in assets after the Strong deal.

Wells didn't spell out its specific plans for the Strong funds, but said the bank has arranged to retain key money managers. Lyons warned that Wells still might close down some of the funds.

The fate of the majority of Strong Financial's 1,076 employees is unclear. Wells already employs 143,000 workers.

"This is a great strategic fit of investment talent, resources, well-established investment management products and new distribution channels," said Mike Niedermeyer, who runs Wells' investment management business.

Investors seemed to like the deal. Wells' shares rose 37 cents to close at $59.12 on the New York Stock Exchange.

Strong Financial chairman Kenneth Wessels expressed hope that his firm would benefit from Wells' "stellar reputation."

By buying Strong, Wells will be able to expand the financial smorgasbord that it feeds to its 23 million customers through its 5,900 offices. The bank prides itself on its ability to persuade customers with basic banking accounts to buy other financial services products, including credit cards, mortgages, insurance and mutual funds.

The strategy has been paying off. Wells earned $6.2 billion last year and its profit surged by 18 percent during the first three months of this year.