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Wells Fargo Buys Energy Lending Biz

WFC IRE

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Wells Fargo & Company (WFC - Analyst Report) is boosting its energy lending business. Its banking unit, Wells Fargo Bank has entered into a definitive agreement to purchase BNP Paribas’ North American reserve-based and associated diversified energy lending business in an all-cash deal.

The deal, subject to regulatory approvals and other customary closing conditions, is anticipated to close in the second quarter of 2012. Terms of the deal were, however, not disclosed.

The purchase is expected to strengthen its energy banking business. BNP Paribas’ energy business is established and well-managed, and is based in Houston. It has nearly $9.5 billion of loan commitments and about $3.9 billion in loans outstanding. Approximately 90% of the portfolio is based in U.S. and the rest are primarily in Canada. Notably, the Wells Fargo Energy group is trying to increase its market share in the Canada market.

Earlier in February, Wells Fargo announced that it has accomplished the purchase of Burdale Financial Holdings Limited (Burdale) and the portfolio of Burdale Capital Finance Inc. from Bank of Ireland (IRE). The acquisition was part of the company’s effort to broaden its international commercial finance capabilities.

Headquartered in London, Burdale is a leading provider of comprehensive asset-based lending and operates in and across the UK marketplace. The deal is a strategic fit for Wells Fargo. It would enable the company to broaden its horizon and expand its asset-based lending business into the UK. This would in turn help the company to serve its US-based customers doing business in the UK.

Going forward, we believe that strategic acquisitions will help expand Wells Fargo’s business and improve its profitability. Its solid business model, strong capital position and expanded business through the Wachovia acquisition and its integration, expected expense management and improved credit quality will also support its profit figures. Yet a sluggish economic recovery and its impact on revenue might limit its growth to some extent.

Wells Fargo currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

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