Wells Fargo Capital Finance … The Building of an ABL Powerhouse
In this issue, we explore the “new” world of Wells Fargo Capital Finance in a roundtable discussion with seven of its senior-most executives. Here we learn how the acquisition of the former Wachovia Capital Finance group has resulted in an ABL powerhouse that’s certain to prove the whole can indeed be greater than the sum of its parts.
Peter E. Schwab, Group Head & CEO
Henry K. Jordan, President & COO
Scott R. Diehl, President, Commercial Finance Group
William J. Mayer, President, Commercial Finance & Retail Group
Michael E. Fishman, Executive Managing Director, Loan Originations
David C. Ciccolo, Division Manager, A/R & P/O Finance Division
Stuart M. Brister, President, Trade Capital Finance Division
For those who keep a keen eye on the news reported from key players in the commercial finance arena and to the readers of ABF Journal who have caught on to the fact that we tend to concentrate on “headliners” in the industry, a profile of the newly named Wells Fargo Capital Finance (WFCF) may come as no surprise. As an idea that has been in the works for over eight months, we were more than delighted when the standalone entity of Wells Fargo agreed to move the project forward. Admittedly, we were a bit daunted when the company offered up seven of its most senior executives to give us their take on what the formation of WFCF will mean to its borrowers, parent company, employees and to the ABL industry at large. However, we jumped at the opportunity.
We learned the following in our interviews: While the names and faces are no doubt familiar, to think of Wells Fargo Capital Finance as Wells Fargo Foothill + Wachovia Capital Finance might prove to be a misguided conclusion in the final analysis.
An Important Relationship Engenders Creativity
“The fact that we’re owned by Wells is a very important thing to me,” says Peter Schwab, group head and CEO. “They’ve left us as a standalone business while many other banks have taken asset-based lending and made it a product line within the bank.” Schwab, a 27-year veteran of the Wells organization and its predecessor companies, is quick to point this out as a difference in approach rather than a criticism of his competitor’s decisions. Yet he values the fact that this relationship allows his team to bring creative solutions to customers that fit within some clearly established parameters.
Schwab adds, “We get tremendous support… I could easily talk about the fact that Wells has all the capital in the world, but what I most appreciate is the way they look at our business. We have our own board made up of our senior people and senior people from the bank. All that could change, but it hasn’t because we’ve performed well … it’s a two-way street.”
Henry Jordan, WFCF’s president and chief operating officer sees it similarly. Jordan, who joined The Foothill Group in 1984, comments on the success derived by providing out of the box solutions. “One of the things we’ve done really well as a company is understanding our borrowers’ challenges and meeting their needs,” he says. “By meeting those needs, we’ve been able to fill some voids in the marketplace and identify various niches. Our ability to get bond with our borrowers and get deals done with Wells’ capital and the ability to run as independently as we can given the regulated nature of banking … it’s really been a fabulous marriage.”
Unifying the Best of Two Worlds — And Then Some
In the fourth quarter of 2008, some of the darkest days of the financial crisis, Wells Fargo announced it would acquire Wachovia at a price north of $15 billion. While it might not have been the driving force of the acquisition, the opportunity to integrate two legacy institutions like Foothill and Congress Financial presented a host of unique opportunities for the two ABL shops. Jordan remembers that he and his fellow executives seized the moment to create a unified shop from a clean slate. He recalls, “We said to ourselves, ‘Let’s take the old Congress, the old Foothill and the old Norwest Business Credit as well as our factoring business and figure out a way to recreate them from scratch.’”
Jordan explains the Wachovia integration offered the chance to embark on a two-to-three-year process in which everything from how audits are conducted to which technology to use could be examined. But still, the task at hand was and is formidable, involving aspects like frequent travel and updates to keep team members informed, coordinating project rollout schedules with projects in process at the bank level and, from time to time, having to think quickly on one’s feet as unexpected events occur. “The most important thing is to keep your people informed. What really drives our business is our people, for my personal efforts are about developing the team. That’s proven to be an effective way to motivate and keep really good people in the organization. I’ve had to expand my quarterly visits and that takes more time than it used to, but Pete and I think it’s really important.”
Given the combined capabilities made possible by the fully integrated shops, Jordan says the effort has been worthwhile. Scott Diehl, president of WFCF’s Commercial Finance Group agrees. “I believe the investment banking capabilities that came with the Wachovia side of the merger have been very accretive to our business … the ability to provide additional capital formation products from the investment bank has been a huge pickup for our ABL franchise,” the 26-year industry veteran notes.
Diehl’s counterpart William Mayer, who serves as president of WFCF’s Commercial and Retail Finance Group, more than shares this enthusiasm. Mayer comments, “I think that’s been the absolute biggest home run for us, at least as far as our retail group goes. These folks have a great track record and we’ve been busy doing a lot with them … stuff that we were never able to even talk about before. Today we can go out to a Bain Capital or KKR … it really doesn’t matter who the sponsor is … and we can literally speak to the gamut of financing capabilities that a retailer or a sponsor might need. So far, it’s been tremendous.”
As the executive managing director for loan originations, Michael Fishman explains his group has teamed with the investment bankers to provide combined solutions to customers. “So far, we’ve done quite a few high-yield deals along side an ABL,” Fishman says. “And that,” he adds, “fits in quite nicely with our strong cross-sell culture. We have our core ABL business, but we also have a number of specialized, more industry-focused businesses as well … all so that we can be relevant to our clients, our referral sources and private equity groups. We strive to be creative and do different things. We’ll continue to do the core business well, but also do things around the core business that are unique in the market.”
Along with investment banking expertise, Wachovia, with its strong presence on the East Coast, brought along the pluses associated with an expanded footprint. But since Wachovia’s East Coast presence and strong investment banking capabilities were sure to have been identified as critical synergies well before the merger, thereby making the benefits readily anticipatable, ABF Journal wondered if the acquisition provided any surprising or unanticipated benefits. Jordan points to one such example, “We were in the process at Wells Fargo Foothill of building a loan system from scratch. Wachovia Capital Finance brought a system of 90% of what we were attempting to create … we were able to lay down our pencils on a time-consuming and expensive process.”
Anticipatable or not, David Ciccolo, who is division manager for WFCF’s accounts receivable and purchase order financing group, is more than excited at the opportunities afforded by an expanded East Coast presence. “If you take our Government Services group, which is based in Virginia as an example, they were out of the Wells footprint and in the heart of Wachovia territory. Today, that group has been able to put solutions in place for a number of government contracts … it’s significant when compared to the past. Beyond that, we’ve greatly extended our referral base for new deals coming into the group across the board.”
A New Name Brings It All Together
We asked Schwab, “What’s in a name?” and he had a lot to say on the topic. He explains, “You have to go back to the acquisition of Wachovia. When the deal closed, we ended up with four companies, each with a different name. We felt we needed to unify under one brand to identify our business as the asset-based lending arm of the bank. Let’s face it, I had a lot of skin in the game with the Foothill identity, but we were merging two great companies together. So we thought if we took the branding of Wells and combining the Capital Finance from the Wachovia side, it would really tell the story of what we’re about for people.”
Schwab points to the perhaps less obvious benefit of shedding past identities, which has everyone talking about one company versus a collection of legacy companies. He says, “We all now have a different moniker with which to speak … a different language, if you will. And our new name, Wells Fargo Capital Finance has us speak that way.”
For Stuart Brister, president of Trade Capital Finance, the new name packs a powerful punch. Brister explains, “As far as Wells Fargo Capital Finance is concerned, I think we’ve now put together the largest bank-owned asset-based lending shop and to me, it’s a powerhouse in and of itself. It matches up with a bank that is also extremely strong and when you bring the two together, you get a very powerful entity.”
Fishman concurs. “It makes sense to combine the groups and really leverage the size and scale of our ABL business to the market and bring it all under one name to create a cohesive brand identity to the outside world. We wanted to eliminate the confusion caused by creating a lot of different names that may have some overlap within them. By creating one brand, the marketplace now knows we have all of these capabilities and our clients and prospects don’t have to worry about which one of these businesses will provide the right solution … they’ll find it under the combined asset-based group.”
Internally, Fishman explains, by being branded with one identity, all of the groups are brought closer together to operate more efficiently and more collaboratively.
With the initial steps toward integration and unification complete, we asked about the company’s priorities going forward. Schwab acknowledges that as WFCF moves toward full integration, some challenges will continue. “I tell people here all the time that I see this year as equally challenging. As a top priority, we have to make sure all those decisions we made last year were the right decisions. And frankly, I expect there may be some tweaking involved. Another priority — and it’s not too terribly interesting — is we’ve got to get one unified loan system in place for our ABL business and another one for our two factoring units. We’re at work on that.”
We asked Schwab if anything keeps him up at night, and with his characteristic directness he told us the following: “Not really, and we know that this is going to be a very telling year for us. We’ll need to grow the business 10% to 12%, we have to keep tweaking, making sure our credit committees are working well and at the same time making sure we can get things approved with speed. That’s the normal stuff… So does it keep me up at night? Not really.”
Diehl sees Corporate Finance’s top priority as keeping its collective eye on what has always mattered. “Quite simply, our priorities are to continue to service our existing customers, to stay relevant in the marketplace, to gain more customers and to keep providing them with products that are helpful to their businesses … basically keeping in tune with our cross-sell mantra.” The Corporate Finance world encompasses about 1,000 customers in agented deals valued at $30 million and above. Diehl explains, “We also have a buy-side business through syndicated finance, which buys into other moderately or widely syndicated transactions. And we have a couple of businesses that are offshoots of the core ABL business … Lender Finance, which of course lends to other finance companies in a variety of different sectors, a technology finance group and a specialty finance unit, which was designed to be able to reposition itself over time.
“We’ve been in a couple of different spaces and now we’re in three different portfolios, one being the hospitality space. That space has been pretty inactive recently, although I think our performance has been pretty good. We’ve also been in the healthcare space and the media space. And our securitization group is a business that’s been growing nicely.”
By comparison, Mayer’s Commercial & Retail Finance Group includes the combined Wells/Wachovia retail finance portfolio, the former Wells Fargo Business Credit and the Trade Capital, or factoring business. “We talk about three businesses, but there are really four operating businesses when you include our standalone Accounts Receivable/ Purchase Order Finance business. And what’s really exciting, because it’s brand new, is we now have a junior capital business. I’ve recently hired Mike Murray and Adam Salter to set up this new venture for us that will focus on the consumer and retail space to provide tranche B loans.
In terms of managing the many moving pieces that fall under the Commercial & Retail Finance Group, Mayer sees his top priorities — in fact literally every function and activity in which the group engages — falling under one of four categories: growth, risk management, productivity and compliance. “Compliance is on there because we’re a bank,” Mayer says. “They are like four legs of a stool and everything we do should fit into one of those legs. I tell my people every day if you’re doing something you can’t figure out which leg it fits into, it’s probably not very important and you should move on. And, I think the other priority is cross-selling because we are really putting full-court press on that. And of course, there’s integrating the GMAC business since that just closed a few weeks ago and filling the vacated spot that Marty McKinley left when he retired. We’ll be looking to fill that spot in the coming weeks.”
But all in all, Mayer feels pretty good about things these days. “Call me crazy, but we’re starting to see some positive things out here. I look to our retail portfolio because it’s a bellwether and retailers like Tiffany and Home Depot have said publicly that they are increasing their inventories. I know that there are still some issues with housing and commercial real estate … but I can tell you, we’re seeing some good things from the consumer end of it.”
Looking beyond the very big boundaries of Wells Fargo Capital Finance, Diehl takes a minute to commend the asset-based lending community for a job well done. “I’d like everybody in ABL to know, particularly since we finance a lot of smaller finance companies who are at the core of getting credit out to small businesses, I think that we’re in a sector that has been the most ready, willing and able to lend of any of the different products that banks have. I think we as ABL professionals should be proud of that.”
Schwab shares Diehl’s view of the asset-based lending’s place in reputation in the financial service industry. He says, “I think ABL comes through as a responsible lending group and on the whole, we did pretty well given everything that was going on last year. And that’s a big win for the industry.”
Stuart P. Papavassiliou is senior editor of ABF Journal.