Analysts estimate $500 million price, off sharply since mutual fund scandal

Wells Fargo & Co. said Wednesday that it is buying the assets of Strong Financial Corp. the Wisconsin financial-services firm that was deeply involved in the nation’s mutual fund trading scandal.

Last week the Securities and Exchange Commission ordered the company’s founder, Richard Strong, to personally pay $60 million in penalties for his rapid-fire trading of the mutual funds the company managed, a practice that regulators say can drive up costs and dilute returns of long-term investors. He also was banned for life from the securities industry, and the company was fined $80 million.

San Francisco-based Wells Fargo, the nation’s fifth-largest bank, got a bargain because of Strong’s actions, analysts said.

It’s very cheap, said Richard Bove, managing director with brokerage firm Hoefer & Arnett. Four months ago, we were talking $1.5 billion for the property. Then it came down to $1 billion.

The Strong name, prominent in the industry for 30 years, may not survive.

Wells has an excellent name, an excellent reputation, Bove said. Strong has a tarnished reputation. Logic tells you what they will do.

With the deal, Wells Fargo gains 420,000 household accounts and $34 billion in assets, $27 billion of that in Strong’s 70 mutual funds. Strong’s assets have declined about 20 percent since September, when New York Atty. Gen. Eliot Spitzer identified it as one of four firms that allowed hedge fund Canary Capital Partners to make improper trades.

After the buyout is completed early next year, Wells Fargo expects to have $217 billion in assets under management through its Wells Capital Management unit, which will absorb the Strong acquisition and rank among the 20 largest mutual fund companies.

The purchase will provide significant benefits for both companies and their clients, Mike Niedermeyer, head of Wells Fargo’s investment management business, said in a written statement.

The mutual fund industry has been rocked by accusations of preferential treatment for some hedge funds. The Securities and Exchange Commission recently reached settlements totaling nearly $1 billion with Bank of America Corp. and Janus Capital Group Inc.

But Strong, based in the Milwaukee suburb of Menomonee Falls, is the first fund forced into a merger because of the scandal.

Richard Strong owns 85 percent of the firm. His settlement with regulators does not preclude him from reaping millions in profits through the sale.

Job-loss tally uncertain

It was unclear Wednesday how many of Strong’s 1,075 jobs would be lost.

We want to retain as many of the talented people as possible, but we do expect some duplicate positions will have to be eliminated, said Strong spokesman Drew Wineland, who said Wells Fargo has committed to keeping its call center staff of 175 in Menomonee Falls.

Professionals who do lose their jobs won’t carry a stigma from their time at Strong, one executive search manager said.

When you are recruiting at certain professional levels, the hiring employer is sophisticated, said Jim Piper, managing director of Stanton Chase International. I don’t believe it will have a major impact, even on fairly senior people.

Piper said the collapse of the Andersen accounting firm is an example. Its accountants went on to find good jobs elsewhere or started their own firms.

Village has other businesses

Menomonee Falls, population 32,000, is not financially dependent on Strong. The community is home to the headquarters of retailer Kohl’s Corp. a Harley-Davidson Inc. plant and several large office parks.

But the company was a generous donor to community causes, said Jefferson E. Davis, the village’s president.

They certainly have improved the quality of life in Menomonee Falls, Davis said.

Davis said Strong volunteers and money supported local theater, ballet and the school district.

Just about every time somebody had their hand out, Strong gave them money, Davis said.

The bank has no Chicago branches but employs about 250 in the area.

Strong assets

Wells Fargo’s acquisition of Strong Financial Corp. would put the banking giant among the top 20 mutual fund companies in the U.S.

WELLS FARGO & CO.

Financial-services company providing banking, insurance, investments, mortgage and consumer finance through more than 5,900 branches internationally.

Founded: 1852

Headquarters: San Francisco

Employees: 143,000

Customer households: 23 million

Investment adviser serving individuals, retirement plans, financial advisers, institutions and foundations.