Wells Fargo (NYSE: WFC) To Purchase Factoring Business from GMAC

Wells Fargo & Co (NYSE: WFC) announced on Wednesday that it would be purchasing GMAC’s North American factoring business for an undisclosed value. The deal is expected to be completed by April 30, 2010.

GMAC’s factoring business operates by purchasing and collecting accounts receivable or by advancing cash loans for a percentage of the full value of the receivables, giving the company a margin when the funds are repaid by the customer. Wells Fargo will also acquire GMAC’s customer service application that is used to manage the company’s credit relationships.

GMAC’s North American factoring portfolio has about $4 billion worth of annual volume in factored receivables and about 150 small and midsized clients. Currently the company’s factoring portfolio is operated by the commercial services division of GMAC Commercial Finance Group. After the deal is complete, GMAC’s factoring business will be merged with the Trade Capital wing of Wells Fargo Trade Capital.

On face, acquiring GMAC’s factoring operations appears to be a solid opportunity for Wells Fargo. Working with accounts receivable funds keeps capital moving and creates some level of added liquidity. The addition of GMAC’s clientele may also provide a halo benefit to Wells Fargo as GMAC clients may eventually capitalize and other products and services offered by the bank.

The move is less desirable for GMAC, whose decision to sell the business has come out of the company’s weak financial health. GMAC has been disposing of several of its business operations to generate capital. The troubled firm is now hoping to focus solely on its core automotive lending business.

Major losses incurred by its troubled residential mortgage unit, Residential Capital, forced GMAC to obtain multiple loans totaling $17 billion under the Troubled Asset Relief Program from the U.S. government in 2009.