SAN FRANCISCO — Wells Fargo plans to move quickly to shed between $8 billion and $10 billion in low-yielding assets after it completes its pending acquisition of the $19.2-billion-asset Crocker National Bank later this year.
The plans for aggressive cuts of Crocker assets have been outlined during talks by Wells Fargo officials to securities analysts here and in New York, a Wells Fargo spokeswoman confirmed Thursday. Wells Fargo announced last week that it had agreed to acquire Crocker from Midland Bank of London for $1.08 billion.
"They're going to trim half the present Crocker, trim it down to a leaner body," said George Salem, banking analyst for Donaldson, Lufkin & Jenrette, a New York securities firm. The spokeswoman confirmed that Wells Fargo's chairman and chief executive, Carl E. Reichardt, told analysts that he expects the combined institutions to have about $40 billion in assets--$8.6 billion less than their combined total of $48.6 billion on Dec. 31.
Assets to be trimmed will be in several categories, including about $3.5 billion in Crocker assets--primarily loans to other financial institutions--funded by overseas deposits.
Although the interest rate spread on such assets is narrow, they gave Midland certain tax advantages that would not be available to a domestic company such as Wells, said Paul H. Baastad, banking analyst here for the brokerage of S. G. Warburg, Rowe & Pitman, Akroyd Inc.
Other assets likely to be pared include Crocker's $1.5-billion portfolio of investment securities and nearly $4 billion in largely fixed-rate residential mortgages.
Wells Fargo will also be highly selective in making loans to major corporations across the country. Although it was the lead banker in the recent leveraged buy-out of Levi Strauss & Co. by members of the Haas family, it has largely withdrawn from that business in the last few years.
"With competition from the New York banks and (with) corporate treasurers raising their own funds, the spreads and the potential for growth in major corporate lending just aren't there," the Wells Fargo spokeswoman said.
She said the combined bank will also lose some assets if it is forced to sell off retail branches by the U.S. Department of Justice, which will likely review the acquisition's antitrust implications.
"There may be some communities in California where the joining of the banks may be ruled anti-competitive," she said. Analysts said such branch sales will be most likely to occur in Northern California, where the overlap between the two banks' retail systems is greatest.
Besides outright sales of branches, many branches of the two banks in Northern California will be consolidated. Legal, data processing, economics and other departments will also be melded, resulting in significant economies--and layoffs.
Wells Fargo, Reichardt has said, will continue to focus on three basic areas: consumer banking in California, banking for middle-size companies in California and construction financing across the country.
As a result, Crocker's trust department will also likely come under close scrutiny by Wells Fargo. Although Wells Fargo operates a trust department, it specializes in matching the performance of stock and bond markets by offering so-called "index funds." Any peripheral businesses such as stock-transfer departments will also likely be axed; Wells Fargo sold its stock-transfer business to Manufacturers Hanover Trust Co. several years ago.
Times staff writer John M. Broder in Los Angeles contributed to this story.