The country’s largest bank in terms of market capitalization, Wells Fargo (NYSE:WFC) has recently opened a branch in the Dubai International Financial Center (DIFC).  This step is in the direction of achieving its two long term goals. In March last year, the bank announced its plans to expand its America-only business model geographically to 20 countries (see Wells Fargo Going Global, Finally). A few months later, the bank also expressed its desire to double the size of its asset management business within five years (see Wells Fargo Set To Double Its Asset Management Business). Dubai fits the bill perfectly when it comes to these two goals since it’s the most important financial center in the Middle East and North Africa (MENA) region and has some of the world’s largest wealth funds. Also with competitors like Morgan Stanley (NYSE:MS) and Credit Suisse (NYSE:CS) trimming their operations in the region as a part of organization-wide cost cutting measures, it seems like a good time for Wells Fargo to aim for the large potential customer pool Dubai has to offer.
We maintain a $38 price estimate for Wells Fargo’s stock, which is at a premium of about 10% to current market prices.
- How Have Price-To-Book Ratios For The Country’s Biggest Banks Changed In The Last 5 Years?
- Weak Mortgage Activity, One-Time Charge Hurts Wells Fargo’s Q4 Results As Bank Braces For Additional Headwinds
- Post-Election Rally Helps U.S. Bank Shares End 2016 On A High Note, With JPMorgan Leading The Pack
- How Are Net Interest Margins Going To Change For U.S. Banks Going Forward?
- Wells Fargo’s International Ambitions Will Have To Wait
- Wells Fargo’s Branch Network Is Bloated, But The Bank Is Unlikely To Shutter Many Branches
Wells Fargo has maintained a token front office at Dubai for fifteen years now, with a total of 12 employees on its payroll. But the bank now wants to grow its service offerings in the region by expanding the team there. The plan gels well with Wells Fargo’s goal of growing its asset management business organically by offering a series of foreign funds, as the demand for dollar-based funds in the oil-driven economies in the Middle East has been rising steadily over recent years.
The strategic importance of Wells Fargo’s decision to open its new office in the DIFC should also be noted here, as the DIFC provides firms with extremely attractive concessions like “0% income tax guaranteed for 50 years, 100% foreign ownership, no exchange controls and a legal system based on English common law”.  So not only will the Dubai-based unit rake in considerable returns over coming years, but it will be added almost entirely to the bottom line.Notes:
- Wells Fargo Targets Mideast Wealth Funds in Dubai Expansion, Bloomberg, Feb 5 2013 [↩]
- DIFC Space In High Demand, Tax News, Jan 24 2013 [↩]