09/23/2011

Size of Wells Deal Shrinks by $600 Million

Wells Fargo’s planned contribution of loans to an upcoming securitization with RBS and GE Capital has shrunk by about $600 million, reducing the deal’s size to some $1 billion.

Wells was originally expected to supply roughly $800 million of fixed-rate commercial mortgages to the collateral pool. But now it is likely to kick in only about $200 million, according to market pros.

The bank was mum about the change in plans, but the move was evidently prompted by the recent blowout in commercial MBS spreads. In some cases, borrowers decided not to close loans because the market volatility resulted in rates that were less favorable than had been anticipated, according to people familiar with the matter.

In other cases, borrowers switched to balance-sheet loans from Wells, a move that enabled them to get lower rates. Sometimes the borrowers themselves pushed for the switch, and sometimes Wells encouraged them, so it could avoid securitizing loans at unfavorable prices.

“I think Wells needed assets for its balance sheet, so the move made sense on different fronts,” said one longtime lender.

RBS is now expected to be the largest contributor of loans to the deal, with Wells and GE rounding out the pool. The transaction is on track to hit the market next month.

The trio teamed up on a $1.5 billion offering that priced in July. Wells supplied 78.9% of the collateral pool balance. RBS kicked in 14.3%, and GE provided the remaining 6.8%.

Wells has the largest portfolio of commercial real estate loans in the country, giving it greater latitude to shift loans to its balance sheet than most other lenders. The bank had $124.7 billion of commercial, multi-family and construction-and-land loans at the end of last year, far ahead of No. 2 Bank of America, which had $77.1 billion, according to Trepp.

Wells has been actively originating and acquiring loans this year. This month, it struck a deal to buy about $3.3 billion of performing loans from a $9.5 billion mixed-quality portfolio shopped by Anglo Irish bank.

CMBS spreads started blowing out in mid-June, fueled initially by concerns about the Greek debt crisis and later by signs of a weakening U.S. economy. The sharp drop in prices left lenders saddled with underwater loans, prompting them to pull back from fresh originations. The slowdown has reduced the flow of CMBS transactions to a trickle, with few remaining in the current pipeline.

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