Wells Fargo Capital Finance Doubles Down on the Middle Market (as appeared in TSL Express on November 5, 2018)

Q&A with Jim Marasco, leader of Wells Fargo Capital Finance (WFCF) loan originations, Kevin Gillespie, executive vice president and head of Middle Market Asset-Based Lending at WFCF, and Mike Marcolina, WFCF Middle Market Originations team leader. 

Please tell our readers about the new Middle Market ABL group at Wells Fargo Capital Finance and some of your immediate and long-term goals for the group.
MARCOLINA:  We merged our factoring and Middle Market ABL sales teams this year after we took a long, hard look at opportunities to serve our middle market clients and grow our asset lending business. From the outset, one of the things we knew for sure was that we were the dominant financial services provider to U.S. middle-market companies. In fact, we knew from Barlow Research that Wells Fargo had the most primary banking relationships with middle market companies from $25 million to $500 million in annual sales. Yet we had not invested enough in educating the marketplace about our strengths. We identified a core need in our middle market strategy that needed to be fixed— creating a more streamlined customer experience and process. We knew that meant removing complexity while providing consistent transparency and clarity about our products to ensure that we matched the right products with our customers’ business needs.

GILLESPIE: Adding to Mike’s point, we also decided to approach the middle market with three priorities: commitment, accountability, and simplification.

I was excited with the idea of leading middle market asset-based lending, because I knew we could do better for our customers and team members by simplifying our go-to-market strategy. Before this opportunity, I led the domestic factoring businesses at Wells Fargo, which is an important part of our middle market product offering. Also at that time, our Business Finance group brought its extensive experience in ABL to all our clients, including those in the lower middle market.  As we took a step back, we realized having two specialized groups targeting the same customer base was limiting our growth and creating a choppy customer experience. At the end of the day, we had the right leaders, the right product and the capital to support our customers but we needed to simplify our approach.

A perfect example of this leadership is our hiring of Rich Cini as the head of credit for Middle Market ABL. Rich has been in the ABL business for over 25 years with various responsibilities, including sales, portfolio, and underwriting. He will be a huge asset for us in managing our risk and finding sound solutions for our customers.

MARASCO: We have always been dedicated to the middle market space, but recognized the need to refine our model to make it easier for our customers to access our full suite of lending solutions. Delivering Wells Fargo’s array of lending products and services through a single platform will result in a better customer experience while allowing us to build on our already sizeable base of middle market customers.

Are there any plans to expand to different industries or focusing on one industry more than the other?
MARCOLINA: We have well-established specialty industry platforms in factoring services with strong teams for staffing, apparel, government, and transportation. Our focus is to continue to invest in those specialty areas, while expanding our core ABL expertise to bring a broader and standardized set of funding solutions to commercial banking clients with financing needs under $30 million.

Why did Wells Fargo decide this was the right time for the changes you have mentioned?
GILLESPIE: We are always looking at ways to be more efficient. The combination of these two businesses was actually the result of a work stream in our management committee, which meets regularly to analyze and review our business strategies. This led us to take a broad look at all of our Capital Finance businesses to determine where we could streamline and make it easier for our customers and our team members. It is important to be sure that we are providing the best lending services and products, which play an important role in the U.S. economy.

It is a competitive market right now, and we are in it for the long haul. We thought the timing was right for us to refocus on the middle market and provide a critical source of capital to the market.

It is also important that we are prepared for the next downturn. We want to be able to more seamlessly handle our clients if and when they go through a period of financial distress.

MARCOLINA: We spent a lot of time looking at our processes, and we determined we had to deliver responsiveness consistently to our customers. That meant removing roadblocks in order to be nimble with quicker response times.

We are doing a lot behind-the-scenes work right now to ensure that we have an efficient process to deliver a consistent product. We felt like the solution was not just going to be about just more salespeople on the street. It was about making sure that our process works end‑to‑end.

MARASCO: We have consistently been the number one book runner in the syndicated loan market — large ABL. That said, the large ABL market is limited and does not have the same growth characteristics as the middle market. This change in strategy reflects our belief that we can leverage Wells Fargo’s position as the leading middle market bank to increase our market share in the middle market space while also diversifying our portfolio.

If I was a customer, what do you think would be the most obvious difference I might see? Is it the simplification of the process? 
MARCOLINA:  I think you would see two things. First is simplification without losing the advisory mindset. Second is that the people we have in market from an originations and relationship perspective are still best in class. We have invested in putting the right people in place and ensuring that they can work with customers to develop solutions that address customers’ need for a reliable liquidity source. It is important that customers feel like we are engaged and committed to the process, not skipping steps.

Finding that balance is what customers are going to see as an immediate value. Maintaining your share and relevance as the dominant provider is hard. When you get to the top of that list, people should expect more out of you. We are rising to that challenge and doing it in a way that allows us to differentiate without losing that additional touch.

GILLESPIE: Middle market lending, whether it is asset-based lending or factoring, is not a transactional type of lending. It is relationship-based lending. We are a trusted advisor to these companies in addition to being their working capital provider.

The average length of our customer relationships is approximately 10 years and it is critical for us to develop a deep understanding of their individual businesses and day-to-day operations. The more knowledgeable we are the better equipped we are in helping them reach all of their business goals and navigate any challenges that may arise.  We pride ourselves on providing value to our customers well beyond our product offerings.

MARASCO: It is a very important goal for Wells Fargo that we align similar products and teams to make us more customer-centric in how to we go to market, this helps us ensure we are meeting our customers business goals and helping them succeed financially. Our strong alignment within Wells Fargo’s Wholesale Bank allows us to meet the needs of companies as their needs and circumstances change.  It is quite common for companies to transition from a commercial banking structure to an ABL facility and back.  The ability to provide an efficient and seamless transition is a strength of ours —and a huge benefit to our customers.

What can lenders expect in the near term as far as general market conditions?
MARCOLINA: It certainly continues to be an aggressive, competitive marketplace. What we hear anecdotally is that customers are trying to find ways to look on the horizon and find those people who are going to be long-term providers and have a commitment to the industry.

GILLESPIE:  I agree. I think that is critical in terms of our staying power here. The economy has been strong, and it has been a competitive banking market. Part of our strategy is to make sure we position ourselves to react when economic growth starts to slow creating some stress on our customers.

You have changes going on right now in many different areas, such as the tariffs that importers are navigating right now, a rising interest rate environment, the political climate and changing consumer buying habits. These issues can create challenges to all middle market companies.

MARASCO:  Adding to Kevin’s comments, the benign economic cycle is beginning to show signs of fatigue. Having been an active lender through many cycles, we know how to help our customers navigate through challenging times. Our customers rely on us to provide guidance and advise when they need it most. That experience has made us a valuable partner and resource for middle market companies.