Customers use an ATM outside a Wachovia branch bank in Charlotte, N.C.
Wachovia Corp. may not be keen to sell its asset management unit, Evergreen Investments, but the fourth-largest U.S. bank may do just that if the credit crisis worsens and its capital needs increase.
Robert Steel, hired last month from the U.S. Treasury to replace the ousted Ken Thompson as Wachovia chief executive, has said he might sell assets to help generate $5 billion of fresh capital by the end of 2009.
In an Aug. 5 meeting, management including Steel said a sale of Evergreen – which has major operations in Boston — was unlikely, UBS analyst Matthew O’Connor wrote. But experts said Steel could reconsider.
Bankers were split on how much the unit, which manages $245.9 billion, was worth, with one saying it could be sold in a multibillion-dollar transaction.
“Evergreen has never had a particularly strong reputation,” said Tony Plath, an associate professor of finance at the University of North Carolina at Charlotte, where Wachovia is based. “If Wachovia decides it needs more capital, that would be one of the first places it could look.”
Laura Fay, an Evergreen spokeswoman, said Wachovia remains committed to the business, and that Evergreen, the 29th-largest U.S. asset manager, is a strong contributor. “We are a core business for Wachovia,” she said.
Evergreen, which employs more than 350 investment professionals, oversaw $72.7 billion of equity assets, $108.6 billion in fixed in-come and $64.6 billion in the money market as of June 30.
The company’s U.S. stock mutual funds as a group are below-average performers, while its international stock funds are above aver-age and its bond funds are close to average, according to fund information service Morningstar Inc.
In June, Evergreen said it would liquidate its Ultra Short Opportunities Fund, which had been invested in asset- and mortgage-backed securities whose value tumbled.
Conflicts
Some banks like asset management because the business is not capital intensive and can provide steadier income streams than con-sumer and investment banking, which are more directly exposed to credit trends and vagaries in capital markets.
Yet offloading such businesses can help companies avoid perceived conflicts of interest from having brokers sell in-house funds.
“Doing something to partially spin off Evergreen could be a good way to separate distribution from product manufacturing, which has been a key trend in the industry,” said Eric Weber, chief operating officer of Freeman & Co, a merger advisory firm focused on financial services. “That’s an issue that they are probably thinking about longer term.”
Evergreen could attract interest from other asset managers, private equity firms and insurance companies, experts said.
“Where there is an unfortunate need to make a disposition to stabilize a bank’s balance sheet, there is an opportunity for a buyer to capitalize on below-market pricing,” said Elizabeth Nesvold, managing partner of Silver Lane Advisors, a merger advisory firm specializing in investment and wealth management. “The bottom fishers are out in full force.” (Reuters)
