Wells Fargo Bank (WFC.US) Agrees to Sell Railcar Assets to Brookfield and GATX

The Zhitong Finance App learned that Wells Fargo Bank (WFC.US) agreed to sell the assets of its railway equipment leasing business to a joint venture formed by Brookfield Infrastructure (BIP.US) and GATX Corp (GATX.US), and the bank will continue to refocus on its core loan and consulting business.

Wells Fargo said in a statement on Thursday that the sale includes its railway operating lease asset portfolio with a carrying value of about $4.4 billion, as well as a railway financial leasing asset portfolio. Wells Fargo said the deal is not expected to have a significant impact on earnings and will be completed early next year.

Wells Fargo CEO Charlie Scharf outlined plans to divest the railroad leasing business and some other assets in 2021. He tried to divest non-essential businesses and help the bank escape years of scandals. The bank then sold its asset management and corporate trust division, but in the end, the sale of railway vehicles failed to materialize.

GATX said in another statement that it has formed a new joint venture with Brookfield Infrastructure to purchase approximately 10.5 million rail vehicles from Wells Fargo. The company said Brookfield will initially hold 70% of the joint venture's shares and GATX will hold 30% of the shares, but over time, GATX has the right to buy 100% of the joint venture's shares. According to the transportation and leasing company, GATX's initial equity investment was $400 million.

Additionally, GATX said Brookfield Infrastructure agreed to directly acquire Wells Fargo's rail finance leasing portfolio, which has around 23,000 rail cars and around 440 locomotives.

According to the statement, GATX will have commercial and operational control over the joint venture's assets and manage them.

According to Wells Fargo's website, its railway equipment leasing business (including assets acquired from General Electric in 2015) has more than 135,000 rail cars and 850 locomotives. Customers use these devices to transport cement, grain, coal products, and other commodities.

GATX said financing for the joint venture was provided by Wells Fargo Securities, Bank of America Securities, Bank of Mitsubishi UFJ, and Sumitomo Mitsui Bank. These institutions provided $3.2 billion in 5-year unsecured term loans and $250 million in unsecured revolving credit arrangements.

Wells Fargo is trying to get rid of the asset cap rules that have plagued the bank for more than seven years. On Thursday, the bank took another step towards this goal by settling the 7th regulatory penalty after the US Monetary Authority terminated some of the 2015 regulatory directives.