UPDATE 2-Wells Fargo's focus on energy shows growth strategy

Fri Jul 11, 2014 6:23pm EDT
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(Updates with most recent figure on Smead Capital's assets)

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. 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 gas.

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 activities.

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.   Continued...