Wells Fargo to acquire Merlin

People MovesPrime Brokerage
27 Apr, 2012

Wells Fargo Securities is to acquire Merlin, a mid-sized prime broker, for an undisclosed price, as the San Francisco-based bank makes its first foray into PB.

Merlin’s staff will join Wells Fargo Securities while managing partners at Merlin, Stephan Vermut and Aaron Vermut, will continue to head the prime services business. According to a statement, client service for Merlin’s 500 hedge funds will not be impacted.

“Merlin’s capabilities fill an important niche in Wells Fargo Securities’ product set and connect many activities where we already have expertise in technology, custody, clearing, collateral management and execution....In addition, it provides new cross-sell opportunities for existing customers of both Wells Fargo and Merlin,” said John Shrewsberry, head of Wells Fargo Securities, in the statement.

One New York prime broker, speaking anonymously, said the transaction would enable Wells Fargo Securities to enter prime services. “Merlin has an excellent technology infrastructure and it will be leveraged by Wells Fargo. I believe technology was a big attraction. The deal will also give Wells Fargo access to more hedge fund clients,” said the prime broker.

Another expert expressed surprise at the deal, adding, “I would have thought Wells Fargo might have gone for a bigger PB player given the resources it has. Nevertheless, the Merlin brand is very strong and it gives Wells Fargo access to a lot of decent US hedge funds. Furthermore, it could be good for Merlin as they will end up getting a lot of investment from Wells Fargo – Merlin might become a much bigger player in terms of prime brokerage as it has historically been a small to mid-sized player,” he said.

In September 2011, Wells Fargo purchased LaCrosse Global Fund Services from Cargill giving the bank a complete hedge fund administration platform.  There has been a surge in M&A activity among large scale service providers. SS&C is currently debating whether to buy GlobeOp while Goldman Sachs  just put its administration business on the market.

The latest Wells Fargo deal is subject to regulatory approval and it is expected to close during the third quarter of 2012.