November 11, 2004 - PowerPoint PPT Presentation


Title: November 11, 2004


1
Presentation to McCombs School of Business
  • November 11, 2004

Frank W. Schageman Senior Vice President,
Regional Manager Houston Commercial
Banking
Robert A. Chereck Executive Vice President,
Division Manager Texas Commercial
Banking
Developing RELATIONSHIPS. Providing SOLUTIONS
2

Agenda
  • Introduction to Wells Fargo Commercial
    Banking
  • Comments regarding banking and the financial
    services industry
  • Case study DistribuCo, Inc.
  • Q A

3
First a quiz.
  • Wells Fargos ticker symbol is?
  • WFC
  • Wells Fargos market cap. is? (within 4B)
  • 103 B /- (as of 11/4/04)
  • Wells Fargos debt rating?
  • Aaa (only commercial bank, first since 1997)
  • Amount lost in Enron debacle?
  • 0

4
First a quiz.
  • Three banks have larger market caps than WFC, who
    are they?
  • Hint pick two JPMorgan Chase/Bank One,
    Citigroup, Wachovia, Fifth Third Bank,
    BofA/Fleet, Comerica, U.S. Bank, Bank of NY.
  • Citi - 239B,
  • BofA/Fleet - 186B,
  • JPMorganChase/Bank One - 140B

5
Our Rich History
  • Established in 1852 by Henry Wells and William
    Fargo
  • Financed the first cross-country stagecoach line
    in 1858
  • Purchased First Interstate in 1996
  • Merged with Norwest Bank in 1998
  • Voted Most Admired Bank by Fortune magazine
  • Only Aaa rated bank
  • CEO, Dick Kovacevich, American Bankers Banker of
    the Year in 2003.

6
Wells Fargos 23 state territory
7
Market Recognition
  • Most Admired U.S. commercial bank Fortune
  • Best Commercial Internet Bank Global Finance
  • Among Top 100 places to work for working mothers
    Working Mother Magazine
  • Second most admired bank globally - Fortune
  • Best Bank for valuing customers time - Forbes
  • Best bank in the U.S. - SmartMoney

8
Wells Fargo Key Facts (9/30/04)
  • Assets ... 422 billion
  • Team Members ... 139,000
  • Customer Households .. 24 million
  • Stores . 5,600
  • ATMs .. 6,257
  • Market Capitalization . 103 billion
  • Only Aaa rated bank in U.S.

9
Meeting All Wells Fargos Customers Needs
SmallBusinesses(0-10MMSales)
HighNet WorthConsumers
Consumers
LargeBusinesses(500MMSales)
Middle MarketBusinesses(10-500MMSales)
BusinessBanking
PrivateClientServices
RetailBanking
U.S.CorporateBanking
CommercialBanking
10
Commercial Banking Key Statistics
  • Delivery model RCBOs (Regional Commercial
    Banking Offices) and LPOs (Loan Production
    Offices).
  • Approximately 1,900 full-time employees.
  • More than 12,000 customer relationships.
  • 65 physical office locations throughout the U.S.
  • High level of service through relationship
    banking approach.
  • Fast, local decision making on credit requests.
  • An impressive array of treasury management
    solutions tailored to the needs of each business.
  • Commercial Electronic Office (CEO)
    Internet-based portal for Commercial clients to
    access all services

1
11
Primary Delivery ChannelRegional Commercial
Banking Office (RCBO)
Key RVP Regional Vice President LTM Loan Team
Manager CSM Customer Service Manager RM
Relationship Manager RA Relationship
Associate BDO Business Development Officer TMSC
Treasury Management Sales Consultant
3
12
Typical Customer ProfileWho is our Target
Market?
  • Annual sales of 20 million to 1 billion
  • Average Asset Quality Rating (AQR)
  • Relatively low leverage
  • Established long, profitable track record
  • Well-managed
  • Attractive risk/return

5
13
Profitability MetricsHow do we manage our
business?
  • What we measure.
  • PTPP Pre-Tax Pre-Provision
  • NIACC Net Income After Capital Charge
  • How we measure it
  • ProfitMax
  • Gives decision-makers the ability to quickly
    determine the value (force-rank) any
    relationship by profitability
  • Outlines PTPP and NIACC of each relationship
  • Automatic feeds from source systems
  • Easily accessible by line staff enabling
    real-time decisions

8
14
Multi-product RelationshipsKey to Our Success
  • Key partners include..
  • Wholesale Banking
  • U.S. Corporate
  • Capital Markets
  • Equipment Finance and Asset based Lending
  • International
  • Foreign Exchange
  • Investments
  • Institutional Trust
  • Wells Capital Management
  • Private Client Services
  • Other Units as Appropriate
  • Retail, Business Banking, etc.

9
15
Impact of Cross-Selling
Average Pre-Tax Profit Per Customer (000)
Number of Products Per Customer
16
Cross-Sell SuccessForeign Exchange
Revenue MM
Impact of Euro?
17
Changing Revenue Stream
18

Case Study
19

Case Study
  • Situation Analysis
  • Background Details
  • Wells Fargos Role
  • Client Options
  • Valuation of Target
  • Loan/Credit Analysis
  • Key Risk Factors
  • Strengths Weaknesses
  • Financial Statements Ratios
  • Sources of Repayment
  • Collateral Analysis
  • Credit Analysis
  • Result

20

Situation Analysis
  • Client (DistribuCo) is a 1.6 billion revenue,
    Texas-based, private distributor of wholesale
    groceries to independent grocers and convenience
    stores.
  • Shareholders of its largest customer
    (RetailCo), a Texas-based grocery retailer,
    intend to sell.
  • RetailCo is DistribuCos largest customer
    (represents significant amount DistribuCos
    annual revenues and cash flow).

21

Situation Analysis
  • Unexpected death of of one of two managing
    shareholders at DistribuCo.
  • Large grocery chains (Kroger, HEB) and Wal-Mart
    impacting Texas grocery retail market.
  • If you are DistribuCo, what do you do?

22
Background Details
  • DistribuCo started in Texas in 1920s to serve
    the independent grocer
  • Largest grocery distributor in Texas and 9th
    largest in U.S.
  • Low cost operator in a very low margin business
    where pennies matter
  • Drivers continued success of independent
    (neighborhood) grocery stores vs. large
    chains/Wal-Mart, ability to turn inventory,
    maniacal control of costs

23
Background Details
  • RetailCo started in 1970s by two partners that
    opened first grocery store concepts in Latin
    America, Mexico
  • Opened first store in 1973 catering to
    first-generation Latin American immigrants a
    little bit of home
  • Today, RetailCo targets the fast-growing Latino
    market in Texas with 50 locations in urban centers

24
Wells Fargos Role
  • Asked by the Board and Management to identify and
    evaluate possible strategies
  • Recommend a strategy and steps required to
    execute that strategy
  • Valuation of RetailCos business
  • Underwriting of acquisition financing and
    ultimate syndication of the loan to the bank
    market.

25
Client Options
  • Passive Strategies
  • Hope that another grocery chain (that lacks its
    own captive distribution network) buys
    RetailCo
  • Hope that another grocery distributor (that lacks
    local distribution infrastructure) buys RetailCo
    (sue for peace, sign distribution contract)
  • Active Strategies
  • Shrink business assuming RetailCo business will
    eventually be lost
  • Sell
  • Buy RetailCo, vertically integrate

26
Valuation
  • Based on
  • DCF Method tested against Comparative Multiple
    Analysis and 3rd-party comparative index
  • Discount rate is a f(CAPM, after-tax cost of debt
    capital) to determine capitalization-adjusted
    cost of capital

27
Valuation
28
Key Risk Factors
  • Acquisition/Execution Risk
  • Increasing Competition
  • Thin Operating Margins
  • Management Succession

29
DistribuCo Strengths Weaknesses
  • Strengths
  • 82-year history
  • President and owner has been with the Company 45
    years
  • Largest wholesale distributor to independent
    grocery stores and c-stores in the region
  • Largest wholesale distributor to independent
    grocery stores and c-stores in the region
  • High volume with 1.6Bn in annual sales
  • 140MM in cash (pre-acquisition)
  • Only substantial debt is owed to shareholders
  • 240MM in tangible net worth
  • Solid and experienced management team
  • Weaknesses
  • Low margins
  • Customer concentration
  • Leverage will increase post acquisition of
    RetailCo

30
RetailCo Strengths Weaknesses
  • Strengths
  • 30-year history
  • Sound management team including its president who
    has been with the company for 30 years
  • Grocery chain with the most knowledge of the
    Hispanic market in the metropolitan areas in
    which it serves
  • 1.1B in sales 125MM in cash, 11MM in debt, and
    211MM in tangible net worth
  • Weaknesses
  • 2 3 net margin
  • Competition is putting pressure on sales and
    margins
  • Leverage will increase post acquisition by
    DistribuCo

31
Sources of Repayment
  • Cash Flow from Operations
  • Liquidation of Collateral

32
Financials Ratios

33
Financials Ratios


34
Collateral Analysis
35
Credit Analysis
  • History of profitable growth, free cash flow,
    liquidity and stable management teams (track
    record)
  • All growth financed by earnings/equity, little
    historical use of leverage (well-capitalized)
  • Combination of previously un-levered firms
    relatively simple from an accounting perspective

36
Credit Analysis
  • Ample ability to repay funds borrowed to purchase
    RetailCo
  • Apparent strong secondary source of repayment in
    collateral values
  • Impact of aggressive large grocery retail chains
    and Wal-Mart on ability of DistribuCo/RetailCo
    to generate free cash flow in the future (said
    another way WILL THE STRONG RESULTS OF THE PAST
    BE REPEATED?)

37
Offering Memorandum
38
Result
  • July 2004 Wells Fargo mandated to evaluate
    strategic alternatives, provide valuation and
    financing for RetailCo acquisition
  • August 2004 Provided 250 million loan
    commitment to back the acquisition
  • September 2004 Loan syndication launched to sell
    a portion of the loan to other lenders
  • Late September 2004 Loan syndication receives
    overwhelming response (raised 2x the target loan
    commitments)
  • Mid-October 2004 Acquisition completed with
    financing from Wells Fargo and Loan Syndicate
    (includes 8 participating banks)

39
  • QA

10
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Title:

November 11, 2004

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Introduction to Wells Fargo & Commercial Banking; ... Established in 1852 by Henry Wells and William Fargo ... July 2004: Wells Fargo mandated to evaluate ... – PowerPoint PPT presentation

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Transcript and Presenter's Notes

Title: November 11, 2004


1
Presentation to McCombs School of Business
  • November 11, 2004

Frank W. Schageman Senior Vice President,
Regional Manager Houston Commercial
Banking
Robert A. Chereck Executive Vice President,
Division Manager Texas Commercial
Banking
Developing RELATIONSHIPS. Providing SOLUTIONS
2

Agenda
  • Introduction to Wells Fargo Commercial
    Banking
  • Comments regarding banking and the financial
    services industry
  • Case study DistribuCo, Inc.
  • Q A

3
First a quiz.
  • Wells Fargos ticker symbol is?
  • WFC
  • Wells Fargos market cap. is? (within 4B)
  • 103 B /- (as of 11/4/04)
  • Wells Fargos debt rating?
  • Aaa (only commercial bank, first since 1997)
  • Amount lost in Enron debacle?
  • 0

4
First a quiz.
  • Three banks have larger market caps than WFC, who
    are they?
  • Hint pick two JPMorgan Chase/Bank One,
    Citigroup, Wachovia, Fifth Third Bank,
    BofA/Fleet, Comerica, U.S. Bank, Bank of NY.
  • Citi - 239B,
  • BofA/Fleet - 186B,
  • JPMorganChase/Bank One - 140B

5
Our Rich History
  • Established in 1852 by Henry Wells and William
    Fargo
  • Financed the first cross-country stagecoach line
    in 1858
  • Purchased First Interstate in 1996
  • Merged with Norwest Bank in 1998
  • Voted Most Admired Bank by Fortune magazine
  • Only Aaa rated bank
  • CEO, Dick Kovacevich, American Bankers Banker of
    the Year in 2003.

6
Wells Fargos 23 state territory
7
Market Recognition
  • Most Admired U.S. commercial bank Fortune
  • Best Commercial Internet Bank Global Finance
  • Among Top 100 places to work for working mothers
    Working Mother Magazine
  • Second most admired bank globally - Fortune
  • Best Bank for valuing customers time - Forbes
  • Best bank in the U.S. - SmartMoney

8
Wells Fargo Key Facts (9/30/04)
  • Assets ... 422 billion
  • Team Members ... 139,000
  • Customer Households .. 24 million
  • Stores . 5,600
  • ATMs .. 6,257
  • Market Capitalization . 103 billion
  • Only Aaa rated bank in U.S.

9
Meeting All Wells Fargos Customers Needs
SmallBusinesses(0-10MMSales)
HighNet WorthConsumers
Consumers
LargeBusinesses(500MMSales)
Middle MarketBusinesses(10-500MMSales)
BusinessBanking
PrivateClientServices
RetailBanking
U.S.CorporateBanking
CommercialBanking
10
Commercial Banking Key Statistics
  • Delivery model RCBOs (Regional Commercial
    Banking Offices) and LPOs (Loan Production
    Offices).
  • Approximately 1,900 full-time employees.
  • More than 12,000 customer relationships.
  • 65 physical office locations throughout the U.S.
  • High level of service through relationship
    banking approach.
  • Fast, local decision making on credit requests.
  • An impressive array of treasury management
    solutions tailored to the needs of each business.
  • Commercial Electronic Office (CEO)
    Internet-based portal for Commercial clients to
    access all services

1
11
Primary Delivery ChannelRegional Commercial
Banking Office (RCBO)
Key RVP Regional Vice President LTM Loan Team
Manager CSM Customer Service Manager RM
Relationship Manager RA Relationship
Associate BDO Business Development Officer TMSC
Treasury Management Sales Consultant
3
12
Typical Customer ProfileWho is our Target
Market?
  • Annual sales of 20 million to 1 billion
  • Average Asset Quality Rating (AQR)
  • Relatively low leverage
  • Established long, profitable track record
  • Well-managed
  • Attractive risk/return

5
13
Profitability MetricsHow do we manage our
business?
  • What we measure.
  • PTPP Pre-Tax Pre-Provision
  • NIACC Net Income After Capital Charge
  • How we measure it
  • ProfitMax
  • Gives decision-makers the ability to quickly
    determine the value (force-rank) any
    relationship by profitability
  • Outlines PTPP and NIACC of each relationship
  • Automatic feeds from source systems
  • Easily accessible by line staff enabling
    real-time decisions

8
14
Multi-product RelationshipsKey to Our Success
  • Key partners include..
  • Wholesale Banking
  • U.S. Corporate
  • Capital Markets
  • Equipment Finance and Asset based Lending
  • International
  • Foreign Exchange
  • Investments
  • Institutional Trust
  • Wells Capital Management
  • Private Client Services
  • Other Units as Appropriate
  • Retail, Business Banking, etc.

9
15
Impact of Cross-Selling
Average Pre-Tax Profit Per Customer (000)
Number of Products Per Customer
16
Cross-Sell SuccessForeign Exchange
Revenue MM
Impact of Euro?
17
Changing Revenue Stream
18

Case Study
19

Case Study
  • Situation Analysis
  • Background Details
  • Wells Fargos Role
  • Client Options
  • Valuation of Target
  • Loan/Credit Analysis
  • Key Risk Factors
  • Strengths Weaknesses
  • Financial Statements Ratios
  • Sources of Repayment
  • Collateral Analysis
  • Credit Analysis
  • Result

20

Situation Analysis
  • Client (DistribuCo) is a 1.6 billion revenue,
    Texas-based, private distributor of wholesale
    groceries to independent grocers and convenience
    stores.
  • Shareholders of its largest customer
    (RetailCo), a Texas-based grocery retailer,
    intend to sell.
  • RetailCo is DistribuCos largest customer
    (represents significant amount DistribuCos
    annual revenues and cash flow).

21

Situation Analysis
  • Unexpected death of of one of two managing
    shareholders at DistribuCo.
  • Large grocery chains (Kroger, HEB) and Wal-Mart
    impacting Texas grocery retail market.
  • If you are DistribuCo, what do you do?

22
Background Details
  • DistribuCo started in Texas in 1920s to serve
    the independent grocer
  • Largest grocery distributor in Texas and 9th
    largest in U.S.
  • Low cost operator in a very low margin business
    where pennies matter
  • Drivers continued success of independent
    (neighborhood) grocery stores vs. large
    chains/Wal-Mart, ability to turn inventory,
    maniacal control of costs

23
Background Details
  • RetailCo started in 1970s by two partners that
    opened first grocery store concepts in Latin
    America, Mexico
  • Opened first store in 1973 catering to
    first-generation Latin American immigrants a
    little bit of home
  • Today, RetailCo targets the fast-growing Latino
    market in Texas with 50 locations in urban centers

24
Wells Fargos Role
  • Asked by the Board and Management to identify and
    evaluate possible strategies
  • Recommend a strategy and steps required to
    execute that strategy
  • Valuation of RetailCos business
  • Underwriting of acquisition financing and
    ultimate syndication of the loan to the bank
    market.

25
Client Options
  • Passive Strategies
  • Hope that another grocery chain (that lacks its
    own captive distribution network) buys
    RetailCo
  • Hope that another grocery distributor (that lacks
    local distribution infrastructure) buys RetailCo
    (sue for peace, sign distribution contract)
  • Active Strategies
  • Shrink business assuming RetailCo business will
    eventually be lost
  • Sell
  • Buy RetailCo, vertically integrate

26
Valuation
  • Based on
  • DCF Method tested against Comparative Multiple
    Analysis and 3rd-party comparative index
  • Discount rate is a f(CAPM, after-tax cost of debt
    capital) to determine capitalization-adjusted
    cost of capital

27
Valuation
28
Key Risk Factors
  • Acquisition/Execution Risk
  • Increasing Competition
  • Thin Operating Margins
  • Management Succession

29
DistribuCo Strengths Weaknesses
  • Strengths
  • 82-year history
  • President and owner has been with the Company 45
    years
  • Largest wholesale distributor to independent
    grocery stores and c-stores in the region
  • Largest wholesale distributor to independent
    grocery stores and c-stores in the region
  • High volume with 1.6Bn in annual sales
  • 140MM in cash (pre-acquisition)
  • Only substantial debt is owed to shareholders
  • 240MM in tangible net worth
  • Solid and experienced management team
  • Weaknesses
  • Low margins
  • Customer concentration
  • Leverage will increase post acquisition of
    RetailCo

30
RetailCo Strengths Weaknesses
  • Strengths
  • 30-year history
  • Sound management team including its president who
    has been with the company for 30 years
  • Grocery chain with the most knowledge of the
    Hispanic market in the metropolitan areas in
    which it serves
  • 1.1B in sales 125MM in cash, 11MM in debt, and
    211MM in tangible net worth
  • Weaknesses
  • 2 3 net margin
  • Competition is putting pressure on sales and
    margins
  • Leverage will increase post acquisition by
    DistribuCo

31
Sources of Repayment
  • Cash Flow from Operations
  • Liquidation of Collateral

32
Financials Ratios

33
Financials Ratios


34
Collateral Analysis
35
Credit Analysis
  • History of profitable growth, free cash flow,
    liquidity and stable management teams (track
    record)
  • All growth financed by earnings/equity, little
    historical use of leverage (well-capitalized)
  • Combination of previously un-levered firms
    relatively simple from an accounting perspective

36
Credit Analysis
  • Ample ability to repay funds borrowed to purchase
    RetailCo
  • Apparent strong secondary source of repayment in
    collateral values
  • Impact of aggressive large grocery retail chains
    and Wal-Mart on ability of DistribuCo/RetailCo
    to generate free cash flow in the future (said
    another way WILL THE STRONG RESULTS OF THE PAST
    BE REPEATED?)

37
Offering Memorandum
38
Result
  • July 2004 Wells Fargo mandated to evaluate
    strategic alternatives, provide valuation and
    financing for RetailCo acquisition
  • August 2004 Provided 250 million loan
    commitment to back the acquisition
  • September 2004 Loan syndication launched to sell
    a portion of the loan to other lenders
  • Late September 2004 Loan syndication receives
    overwhelming response (raised 2x the target loan
    commitments)
  • Mid-October 2004 Acquisition completed with
    financing from Wells Fargo and Loan Syndicate
    (includes 8 participating banks)

39
  • QA

10
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