AS dozens of corporations have bowed to corporate pressure and severed their relationship with the NRA, Bloomberg reports Wednesday that none other than Wells Fargo is the biggest financial institution lending money to the country’s two largest gun manufacturers.
Not only that, but Wells Fargo also has a long relationship with the National Rifle Association, inherited from banks that Wells took over. The San Francisco-based Wells Fargo created a $28 million line of credit for the NRA and operates the primary accounts for the pro-Second Amendment group, financial documents show.
On Valentine’s Day, a disturbed teenager left 17 dead when he shot up his former high school in Parkland, Fla. Meanwhile, retailers such as Dick’s Sporting Goods Inc. have implemented stricter gun rules, like increasing the age necessary to buy one, and some companies, like Delta Air Lines Inc., have cut ties with the NRA’s member-benefits program.
And Wells, of course, isn’t the only bank involved in extending long-term financing to gun manufacturers. Bowing to media pressure, Bank of American has said it would review its relationships with gun makers.
Other banks are active as bookrunners for gunmakers, sometimes jointly. Morgan Stanley helped arrange $350 million in debt and TD Securities $332.5 million, according to data compiled by Bloomberg. Bank of America Corp. and JPMorgan Chase & Co. and two other banks each arranged $273.6 million. That’s counting loans and bonds to gun and ammunition manufacturers American Outdoor Brands Corp. and Vista Outdoor Inc. since the day of the Sandy Hook bloodshed. Another gunmaker, Sturm Ruger & Co., currently has no public debt. Remington Outdoor Inc. has debt outstanding, but it was issued before December 2012.
TD Securities said the bank condemns violence in any form and shares the public’s outrage over the Florida school shooting. “We strongly support bipartisan efforts aimed at preventing these types of tragedies from happening again.” The bank declined to comment further, citing policy against speaking about customer relationships.
In total, the NRA paid $9.9 million in banking fees in 2015 and 2016, according to annual reports filed with the Internal Revenue Service. And since Wells is the biggest lender to several troubled gun manufacturers, the bank will likely be awarded their operations as part of the bankruptcy.
Remington Outdoor, a division of private equity giant Cerberus Capital Management that’s expected to file for bankruptcy this month, is saddled with nearly $1 billion in debt. Unable to pay its creditors, Remington Outdoor and the 12 firearms companies it owns will likely become the property of lien holders.
Remington Outdoor’s term loan fell to 26 cents on the dollar after the company announced its bankruptcy intention, and its third-lien bond due 2020 trades around 23 cents on the dollar.
Banks who provided Vista Outdoor with a $400 million revolving line of credit in 2016 are faring better. They reap 0.30 percentage points in a commitment fee for unused parts of the revolver. For Wells Fargo, who was credited with pledging $57.14 million, that adds up to a maximum of $171,420 each quarter when the fee is assessed assuming the credit line is unused at the time. If the full credit line were in use, Wells Fargo would stand to make 1.75 percentage points over the benchmark Libor rate. Vista Outdoor’s 5.675 percent 2023 bond traded at around 98.25 cents on the dollar as of March 5, according to Trace bond price data, and its term loan traded at 99.75.
Wells’ banking relationship with the NRA was the brought through various acquisitions.
Wells’ relationship with the NRA is a legacy acquisition from banks that Wells has acquired, Wells inherited the NRA account when it bought Wachovia Corp. Wachovia’s relationship with the NRA, in turn, came from its takeover of First Union National Bank.
The NRA’s political action committee, the Political Victory Fund, also banks with Wells Fargo, Federal Election Commission records show. Over the last three years, the political action committee has paid Wells Fargo nearly $71,000 in various banking fees.
Wells even extended a “profitable” loan to the NRA…
The NRA and Wells Fargo amended its longstanding financial arrangement in 2014, according to public records, when the lobbying group agreed to borrow $22.6 million in exchange for pledging its Fairfax, Virginia, headquarters as collateral. The building was assessed at $40.4 million last year, according to Fairfax County records, down from $57.9 million a decade ago.
It’s been a profitable relationship for Wells Fargo. The variable-rate loan of as much as $28 million carries an interest rate of 6.08 percent, according to the NRA’s most recent financial statement. That’s higher than typical commercial-mortgage rates. The NRA owed Wells Fargo $19.8 million as of Dec. 31, 2016.
One of the loans includes an interest-rate swap that is presently “in the money” for Wells. Indeed, the bank has made abut $2.1 million on paper from the swap (and that dosn’t include fees).
The firm has also recently been sanctioned by regulators in a humiliatingly public, though not actually effective, ways, like when the FED said Wells’ balance sheet would be constrained before admitting that the sanctions would be ineffective.
* * *
Given the lingering damage of the cross-selling scandal to Wells’ reputation, the company’s CEO Timothy Sloan clarified in a memo sent on Wednesday that “with respect to gun manufacturers, we have a strict due diligence process to ensure that each adheres to all state and federal laws before accepting them as customers.” The bank also said it was reaching out to customers that “legally manufacture firearms” to discuss what they can do to “promote gun safety.”
via RSS http://ift.tt/2oXCTsx Tyler Durden