Wells Fargo to Buy Prime Brokerage Firm

Wells Fargo & Co. (WFC), the most valuable U.S. bank, agreed to buy Merlin Securities LLC, a prime brokerage that serves hedge funds and other clients with as much as $2 billion in assets.
The purchase is Wells Fargo’s first foray into prime brokerage services and the bank will use the business as a foundation to expand, said Christopher Bartlett, head of equity sales and trading at the San Francisco-based lender. Prime brokerage includes services such as lending, clearing trades and record-keeping that help hedge-fund managers run their firms. Bartlett, who spoke in an interview, and a company statement issued today didn’t disclose terms.


Wells Fargo, positioning itself as one of the nation’s largest home mortgage lenders, has missed out on the the boom. The bank features a far smaller investment bank than most of its big Wall Street rivals, opting to cater more to consumers than corporations and hedge funds.


But with the acquisition of Merlin, Wells Fargo is making a significant move to broaden its business.


“This transaction enhances our ability to meet customer needs and generate earnings for our shareholders, all while adhering to our disciplines of prudent risk management and controlled growth,” John Shrewsberry, head of Wells Fargo Securities, the firm’s investment banking business, said in a statement.


The bank did not disclose the terms of the deal, which is subject to regulatory approval. Wells Fargo expects to close the takeover in the third quarter of 2012.


Merlin has some 500 clients that come with the deal — largely hedge funds. The company, based in both San Francisco and New York, is known as a midprime broker, meaning it does not serve the heaviest hitters in the hedge fund world.

“Together, our clients will have access to a greater range of products and financial resources that will augment the open architecture solutions that Merlin currently provides,” one of Merlin’s managing partners, Stephan Vermut, said in the statement. “Wells Fargo is the perfect partner for Merlin and its clients.”


Merlin focuses mainly on the equity markets, but Wells Fargo is seeking to expand the list of services to fixed-income and commodities trading. Wells Fargo will also inherit Merlin’s roster of roughly 100 employees.


“Their team members have extensive experience in this industry and we look forward to adding their expertise to our platform,” Chris Bartlett, head of equity sales and trading at Wells Fargo Securities, said.


Merlin was advised by Greenhill & Company and the law firm Arnold & Porter. Wells Fargo Securities was its own financial adviser and Morgan Lewis was its legal counsel.