Wells Fargo (WFC) has made a bold move by acquiring Merlin Securities LLC in what some analysts are calling a window of opportunity for the bank and its shareholders. Christopher Bartlett, head of equity sales and trading, said of the deal,
There is a window of opportunity that exists today because of the macro landscape, some of the attrition on the street and some of the regulatory changes that are coming. This is another example of our commitment to the capital markets business.
The acquisition allows Wells Fargo to enter the prime brokerage space, something it's been examining since December 2011. Included in the deal are Merlin's 500 clients and over 100 employees who regularly service various hedge funds and other financially based companies within the capital markets. According To Merlin's website, "Merlin provides hedge funds in the under-$2B marketplace with best-of-breed reporting, analytics, and transparency tools. Merlin's open architecture platform and multi-prime solutions offer the tools, techniques, and resources hedge fund managers need to demonstrate their business edge".
Why Should Investors Care?
Not only has WFC been looking to enter the prime brokerage market place since December 2011, it has been looking to enhance quarterly and annual growth in an effort to attract more shareholders. WFC currently trades at around $33.70/share and yields 2.6% annually, not to mention it carries a P/E ratio of 11.64 making it a very cheap stock. That being said, the last few quarters haven't been all that stellar with three out of the last four barely beating estimates.
One of the biggest benefits to both shareholders and investors in regards to the acquisition of Merlin is revenue. For the June and September quarters analysts are calling for $21.09 billion and $20.74 billion, respectively. That being said, the Merlin deal may not impact the June quarter, however September may actually benefit depending on the closing date of the transaction. I think WFC's annual revenue estimates for 2012 will see a 2% - 3% increase due largely in part to the revenues this acquisition will generate. The estimates are calling for $83.84 billion in revenue, and based on the number WFC could easily generate $84.25 billion or higher for the year.