Wells Fargo (NYSE:WFC) continues to press ahead with its strategy of expanding inorganically as the bank recently announced the acquisition of BNP Paribas’ North American reserve-based and related diversified energy lending business.  This is Wells Fargo’s third major acquisition announcement in the last 2 months, with the country’s largest bank in terms of market capitalization snapping up Burdale Financial Holdings Limited and EverKey Global Partners last December (see Wells Fargo’s on a Shopping Spree, Picks up Burdale from Bank of Ireland). This latest move will add almost $3.9 billion in largely U.S.-based outstanding loans to Wells Fargo’s portfolio and will strengthen the bank’s lucrative energy banking business. Barclays (NYSE:BCS), JPMorgan Chase (NYSE:JPM) and UBS (NYSE:UBS) are other prominent lenders to the energy industry.
We maintain a $30 price estimate for Wells Fargo’s stock, which is in line with current market prices.
European Banks’ Loss is Wells Fargo’s Gain
European banks have been cutting down on their assets over recent months, with the ongoing debt crisis in the Eurozone forcing banks to tighten up their business model. The trend intensified when a review of all major European banks by the European Central Bank necessitated an infusion of additional capital into many of them. With market conditions hardly conducive to raise cash through debt or equity origination, non-core and non-profitable asset sales is the strategy of choice among the European banks.
And Wells Fargo is making the most of opportunities coming its way. The bank arguably showed the most profitable performance among all major global banks in recent quarters when the slowdown took a toll banking sector results. Wells Fargo is capitalizing on the strength of its robust balance sheet and the record performance in 2011 to grow its portfolio and businesses.
As a part of the all-cash deal struck with BNP Paribas, Wells Fargo also secured loan commitments worth $9.5 billion besides the $3.9 billion in outstanding loans. The deal is slated to be completed in the second quarter of the year, and would add to Wells Fargo’s commercial loan portfolio detailed below.Notes:
- Wells Fargo Agrees to Acquire the North American Reserved-Based and Related Diversified Energy Lending Business of BNP Paribas, Wells Fargo Press Releases, Feb 21 2012 [↩]