Wells Fargo's focus on energy shows growth strategy

Fri Jul 11, 2014 4:12pm EDT
 
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By Peter Rudegeair

NEW YORK, July 11 (Reuters) - 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 of profits.

The bank is increasingly looking for lending, investment banking and investing opportunities in the oil and gas sector. Unlike many of its divisions, which are primarily focused on the U.S. market, Wells Fargo's energy unit has expanded internationally. The bank says it now employs the largest staff of petroleum engineers of any U.S. bank.

"We have the biggest and most-focused business in that space," said Chief Financial Officer John Shrewsberry in an interview, noting that Wells has 400 employees dedicated to serving energy companies.

Wells Fargo's push into the 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 around $865 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 year-over-year basis.

BRIGHT SPOT

The energy sector has been one of the brighter spots in the U.S. economy over the past 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.   Continued...