Wells Fargo said Tuesday it had agreed to sell its retirement plan services business to Principal Financial for $1.2 billion as the bank continues to shed businesses in the wake of its fake-accounts scandal.
As of Dec. 31, 2018, Wells Fargo’s Institutional Retirement & Trust division had $827 billion in assets under administration and served 3.9 million 401(k) participants and pensioners.
“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,” Jon Weiss, head of Wells Fargo Wealth & Investment Management, said in a news release.
The deal will double the size of Principal’s U.S. retirement business by total record-keeping assets. The Des Moines, Iowa-based company had about $627 billion in assets under management at the end of last year.
Principal said that after the merger, it will serve 7.5 million U.S. retirement customers and gain a “strong 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.
As American Banker reports, Wells Fargo has been paring smaller business lines since the fake-accounts scandal in its retail banking division erupted in 2016.
“Problems have since emerged in more units, prompting the Federal Reserve to ban Wells Fargo from growing until regulators are confident in executives’ ability to oversee their operations,” the publication noted. “That’s added to pressure on the firm to shed some units and focus on those where it can earn the best returns.”
In 2018, the bank announced deals to sell 52 branches to Flagstar Bancorp, as well as a $1.7 billion deal to offload its Puerto Rico auto finance business to the local unit of Popular.
Principal also provides asset management and life insurance services but CEO Dan Houston said retirement was “at the heart of our business and core to our future.”
“This [acquisition] will be a powerful combination for customers, employees, and shareholders as we solidify our place as a top-three leader in the U.S. retirement market,” he said.