Wells Fargo's Growing Footprint In U.K. Is Good News
Wells Fargo ( WFC ) opened an office in Aberdeen, Scotland earlier this month in the bank's latest step to expand its presence internationally. The bank, which has historically been almost exclusively focused on U.S. operations, first detailed plans to extend corporate banking services to 20 other countries in early 2012. Since then, Wells Fargo has increased its headcount in the EMEA region (Europe, Middle East and Africa) by more than 50% - opting for the occasional strategic acquisitions to complement its organic growth strategy.
The U.K. has figured at the top of Wells Fargo's list over recent years, and now accounts for almost 80% of its employee count in EMEA. The bank's decision to grow in Europe in general, and in the U.K. in particular, is aimed at addressing the cross-border banking needs of large- and medium-sized U.S.-based companies, as well as those of European firms that have a notable presence in the U.S., and presents a valuable growth potential for Wells Fargo - allowing it to leverage its stable domestic business for worldwide growth. With larger players like Bank of America ( BAC ) and Citigroup ( C ) cutting back on their ambitious global expansion plans, Wells Fargo looks keen to garner a larger share of the international market.
We maintain a $54 price estimate for Wells Fargo's stock , which slightly ahead of the current market price.
In early 2012, Wells Fargo detailed a list of 20 developed and promising countries where it wanted to offer full corporate banking services. Prominent locations on the list were the U.K., Germany, the Netherlands, France, China, Hong Kong, Australia, Japan, India, South Korea and Singapore. While the bank has varied levels of presence in all these countries, it has worked hardest over the last two years to grow its business in the U.K. Wells Fargo has grown the number of U.K. employees to 721 - including the three employees who will run the newly opened branch in Aberdeen. Each of the branches has been set up in commercial hubs to benefit from the industrial activity in surrounding areas. For example, the Aberdeen branch targets the oil companies on Scotland's east coast.
As we pointed out above, all of Wells Fargo's foreign loans are handed out for commercial purposes. As of now, they form a very small part of Wells Fargo's business, but there has been a noticeable growth in these loans in recent years. To put things in perspective, the bank reported less than $48 billion in average foreign loans outstanding for Q1 2014 - about 12.5% of the bank's total commercial lending portfolio, and just under 6% of its total outstanding loans for the period. In comparison, these figures were 11% and 5%, respectively, at the end of 2011.
Our analysis of Wells Fargo shows that while foreign loans are the smallest contributor to its share value, they present the fastest growth opportunity to its loan portfolio - something we capture in the chart below, which forecasts a roughly 6% annual increase in these loans over the coming years. You can understand how changes to Wells Fargo's foreign loan portfolio affects its share price by making changes here.
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