Wells Fargo is saying goodbye to its retirement-plan business as the bank continues to grapple with penalties, legal fees and a backlash over its scandals.
The unit serves 7.5 million retirement customers across the United States, offering 401(k), pension, employee stock ownership and other services used by employers.
Wells Fargo said the deal reflects its goal of focusing resources on areas it can grow and maximizing opportunities within wealth, brokerage and asset management. The Wells Fargo business had $827 billion in assets under administration at the end of the year.
The Federal Reserve, citing “widespread consumer abuses,” imposed an asset cap on Wells Fargo in early 2018 that prevents the bank from growing its business.
Principal Financial expressed confidence that the retirement-plan business it’s acquiring isn’t stained by the deep cultural troubles uncovered at Wells Fargo.
“To the best of our knowledge, there weren’t problems in this part of the organization,” Principal CEO Dan Houston told CNN Business.
Houston said Principal conducted “extensive” due diligence over the past six months examining the business and its employees.
“We feel very good about that,” Houston said.
Last month, Wells Fargo announced the abrupt departure of CEO Tim Sloan, a three-decade veteran of the bank and its troubled culture. Wells Fargo’s board of directors promised to hire an outsider.
For the Des Moines, Iowa, based Principal, the Wells Fargo deal will double the size of its US retirement business and strengthen its foothold among mid-size employers. More than two-thirds of the accounts are from employers with plans ranging between $10 million and $1 billion.
“We’re excited. This is a real win-win for our customers and shareholders,” Houston said.
The price tag on the deal could rise to $1.35 billion two years after closing if certain revenue targets are hit.
The Wells Fargo retirement businesses are served by 2,500 employees, including US workers in Charlotte, Minneapolis and Waco, Texas, as well as overseas in the Philippines and India.
Principal signaled it plans to keep most of those workers in place after the deal closes. That is expected to occur in the third quarter if regulators approve it.
“We don’t anticipate much in the way of employees relocating to Des Moines,” Houston said. “This isn’t the center of the universe.”
Wells Fargo declined to comment beyond its press release.
Wells Fargo said it was advised on the deal by Wells Fargo Securities, the bank’s investment banking division.