Continuing a buying spree, CompuCredit Corp., a subprime credit card and specialty finance company, will add auto lending by acquiring a Wells Fargo & Co. unit.
CompuCredit, of Atlanta, did not say how much it would pay for Wells Fargo Financial Consumer Auto Receivables of Lake Mary, Fla. The deal, announced late Wednesday, is expected to close in the first quarter.
It does not signal an exit from auto lending for the San Francisco banking company. Wells Fargo Financial of Des Moines, its consumer finance unit, would remain a significant player through its Wells Fargo Financial Acceptance.
That Philadelphia outfit has more than $8 billion in receivables, about 580,000 customers, and 3,000 employees in North America and Puerto Rico. It focuses on franchise dealerships with the major auto manufacturers and lends directly to consumers.
By contrast, the unit CompuCredit agreed to buy lends at nonfranchise, independent dealers and has just $133 million of assets and 270 employees. It operates in 40 states through 12 branches, three processing centers, and a national collection center in Lake Mary.
The business “represents less than 2% of our overall auto-lending receivables,” said Tom Shippee, the president and chief executive of Wells Fargo Financial, in a press release. Selling it “allows us to focus on our core auto-lending businesses.”
The business lines that Wells will retain provide strong cross-selling opportunities, a spokesman said.
David Hanna, CompuCredit’s chairman and chief executive, said in a separate press release that the purchase will provide “a terrific platform and team for long-term growth.” Rick Potter, the auto unit’s president, is to stay on.
Over the past year CompuCredit has entered the payday lending business by buying two companies. It now operates nearly 500 storefronts.
In the second half the company and several partners purchased two portfolios of credit card receivables worth about $1.2 billion. Last year it opened a debt collection service that buys nonperforming loans.
Wall Street analysts gave the latest deal mixed reviews.
In a report released Wednesday, Moshe Orenbuch of Credit Suisse First Boston raised his 12-month target price for CompuCredit shares to $30, from $25, and reiterated an “outperform” rating, citing his “increased confidence in the opportunities available to CompuCredit.”
But Sameer Gokhale, an analyst at Bear Stearns & Co. Inc., wrote that he worries the company may be diversifying too quickly.
“It is important for CompuCredit to fully integrate prior acquisitions and operate them profitably for some period of time before making acquisitions in completely new lending businesses,” he wrote in research note issued Wednesday. “CompuCredit has yet to demonstrate that it can generate stable earnings and steady growth in earnings from its numerous acquisitions.”
Mr. Gokhale also questioned whether CompuCredit, with “higher funding costs and fewer economies of scale” than Wells, can run the business better than Wells has. Jay Putnam, the director of finance at CompuCredit, said that its managed earnings — a measure not in accordance with generally accepted accounting principles — have been stable.
“We are not going to go out and do deals that cause our multiple to drop,” he said. “I don’t know what company does that.”
