- The Washington Times - Wednesday, May 26, 2004

SAN FRANCISCO (AP) — Banking giant Wells Fargo & Co. snapped up the scandal-scarred mutual fund business of Strong Financial, hoping to repair the damage caused by a fiasco that prompted peeved shareholders to sell their holdings.

San Francisco-based Wells Fargo will acquire assets totaling $34 billion under Strong Financial’s management in the long-rumored deal, announced yesterday. Financial terms weren’t disclosed, but industry analysts estimated Wells Fargo will end up paying between $400 million and $700 million by the time the deal is completed in seven to 10 months.

The estimated price represents a potential bargain, given that Strong Financial’s assets probably would have fetched more than $1 billion a year ago, said Hoefer & Arnett analyst Richard Bove.

The steep discount stems from the stench of scandal. Industry regulators said Strong Financial’s founder and former Chief Executive Officer Richard Strong had engaged in improper trading practices at other shareholders’ expense, turning the 30-year-old firm into a symbol of the mutual fund abuses in the past year.

Wells Fargo announced the deal six days after Mr. Strong accepted a lifetime ban from the mutual fund industry and agreed to pay $60 million to settle charges that he made $1.8 million in profits through improper fund trading. Strong Financial will pay $115 million in disgorgement of revenue, civil penalties and fee reductions.

Mr. Strong, who owns 85 percent of his privately held company, still can pocket some of the profits from the sale. Wells Fargo structured the deal so it won’t inherit Strong Financial’s potential liabilities.

Strong Financial’s disillusioned shareholders have been dumping their funds for months, withdrawing about $5 billion since August, estimated analyst Gareth Lyons of Morningstar, an industry research firm.

“The settlement and this sale are steps in the right direction, but there is still a lot of uncertainty associated with these funds,” said Mr. Lyons, who has put a “sell” rating on Strong’s funds.

By the time the deal closes, Wells Fargo probably will end up acquiring $30 billion in assets, Mr. Bove estimated. He also expects Strong’s 70 mutual funds, held by 414,000 households in 870,000 accounts, to be rebranded under the Wells name. The bank — the nation’s largest west of the Mississippi — already runs a large mutual fund operation, which is expected to swell to $103 billion in assets after the Strong deal.

Wells didn’t spell out its plans for the Strong funds, but said the bank has arranged to retain key money managers.

Mr. Lyons warned that Wells still might close some of the funds.

The fate of the majority of Strong Financial’s 1,076 employees is not clear. Wells Fargo already employs 143,000 workers.

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