Wells Fargo & Company (NYSE: WFC) has agreed to sell its retirement plan services unit to Principal Financial Group (Nasdaq: PFG) for $1.2 billion in an effort to streamline its business after a series of scandals were made public. The transaction, which is expected to close early in the third quarter of 2019, will create one of the largest retirement providers in the industry.
Wells Fargo’s institutional retirement and trust (IRT) business had $827 billion in assets under administration and served 3.9 million 401(k) participants and pensioners in 2018.
Through the acquisition, Principal will double the size of its U.S. retirement business by the number of total recordkeeping assets, while bringing on institutional trust and custody offerings for the non-retirement market.
“The scale derived from a combination of IRT and the Principal Financial Group will benefit clients, plan participants, and team members,” said Jon Weiss, head of Wells Fargo Wealth & Investment Management. “At the same time this sale reflects Wells Fargo’s strategy to focus our resources on areas where we can grow and maximize opportunities within wealth, brokerage and asset management.”
In addition to increased scale, Principal said that it will gain a foothold with mid-sized employers as more than two-thirds of Wells Fargo’s institutional retirement assets are in plans ranging from $10 million to $1 billion.
The agreement also includes an earnout of up to $150 million tied to better than expected revenue retention, payable two years post-closing.
Late last month, Wells Fargo president and CEO Timothy Sloan abruptly ended his two-and-a-half-year reign and was replaced on an interim basis by C. Allen Parker, the firm’s general counsel.
In an unprecedented move, the Federal Reserve issued an asset cap in February 2018 to restrict Wells Fargo’s growth until its governance and risk management “sufficiently improves.” The Fed cited “widespread consumer abuses and other compliance breakdowns” as the reason for its decision.
Principal Financial Group provides more than 24 million customers with retirement, asset management and insurance services, and is headquartered in Des Moines, Iowa, with 16,000 employees located around the world.
Wells Fargo is a financial services company with $1.9 trillion in assets. Founded in 1852 and headquartered in San Francisco, the firm provides banking, investment and mortgage products and services, as well as consumer and commercial finance.