(Updates with most recent figure on Smead Capital's assets)
By Peter Rudegeair
NEW YORK, July 11 Wells Fargo & Co is
angling to cash in on the U.S. energy boom, as the
fourth-largest U.S. bank looks for new avenues of revenue growth
to overcome a slump in mortgage lending, its traditional driver
The bank is increasingly looking for lending, investment
banking and investing opportunities in the oil and gas sector.
It says it now employs the largest staff of petroleum engineers
of any U.S. bank. And unlike many of its other divisions, which
are primarily focused on the U.S. market, Wells Fargo's energy
business has expanded internationally to places such as Aberdeen
in Scotland and Calgary, Canada.
"We have the biggest and most-focused business in that
space," said Chief Financial Officer John Shrewsberry in an
interview on Friday. He said Wells Fargo has 400 employees
dedicated to serving energy companies.
Shrewsberry said the bank finances companies across the
energy sector. These include companies specializing in
exploration and production, those that own and operate pipelines
and barges, and those that refine and process oil and natural
Wells also says it is now the top underwriter of high-yield
bonds and syndicated loans for oil and gas companies.
Additionally, it has $500 million to $600 million in direct
equity stakes in energy firms through its merchant banking
Wells Fargo's push into the energy sector provides a window
into how the San Francisco-based bank plans to make up for the
decline in mortgage income, which plummeted in 2013 as a
refinancing boom came to an end. The bank has said its 89 other
businesses, ranging from auto loans and credit cards to wealth
management and investment banking, would eventually make up for
the lost revenue as the economy accelerates.
"They're out on the sea in their boat and they've pitched
their sails," standing ready to benefit from economic growth,
said Tony Scherrer, director of research at Smead Capital
Management. The Seattle-based investment firm has $966 million
in assets under management and owns Wells shares.
But so far growth has been tepid, with those other
businesses failing to fully offset the decline in mortgages. In
the second quarter, mortgage banking revenue was $1.7 billion,
down 39 percent over the same period last year. Because of the
diminished demand for home loans, both revenue and fee income at
the bank has fallen for four consecutive quarters on a
The energy sector has been one of the brighter spots in the
U.S. economy over the last few years, thanks to the shale oil
and gas discoveries and the fracking boom. It has made millions
for wildcat drillers, mineral-rights holders and oil-and-gas
firms and supercharged economic growth in North Dakota, Texas
and other parts of the country.
Wells Fargo's energy banking revenues have increased at a
compound annual growth rate of 23 percent to $1.04 billion in
2013 from $690 million in 2011. Net income has grown at a
similar pace, though Wells does not break out those numbers.
Wells Fargo, which has had a presence in energy banking for
40 years, touts the diversity of the business. Around 45 percent
of that revenue comes from loans to energy companies, while a
quarter comes from investment banking services.
A part of its strategy is to bank a lot of smaller energy
firms in the hope it will be able to sell them more of its
products and services as they grow, said Mike Johnson, head of
Wells Fargo's corporate banking, in May.
This practice of cross-selling is already paying some
dividends. In 2012, Wells Fargo acquired a $3.5 billion
portfolio of energy loans and a team of bankers from BNP
Paribas. It has since increased the number of products that
unit's clients used to 8 from 5 in 2013.
Shrewsberry said many large energy clients have also
recently tapped the bank to handle their wealth management
needs. He declined to give the identity of the clients.
(Reporting by Peter Rudegeair; Editing by Diane Craft and Gunna