Wells Fargo sees double-digit profit growth in Canada

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As Canadian banks turn increasingly to the United States for expansion opportunities, San Francisco-based Wells Fargo & Co. is moving in the opposite direction: Canada.

The U.S. bank is seeing low double-digit profit growth here at a time when the domestic economy is flirting with recession and commodity prices remain well off their highs, suggesting that the bank's strategy of broadening relationships with U.S. and Canadian companies does not depend on a humming economy.

"If customers have foreign-exchange needs or hedging needs or equipment needs or investment-banking-advisory needs, that's how you can grow at a faster rate than the underlying economy," said Tim Sloan, president and chief operating officer at Wells Fargo, during a visit to Toronto.

"If the Canadian economy picks up, I don't think our growth is going to double or anything like that."

After Wells Fargo completed its acquisition of General Electric Co.'s commercial-distribution and vendor-finance units earlier this year, it gained a total of $32-billion (U.S.) in assets – and about 10 per cent of them were in Canada.

In addition, it gained about 400 Canadian employees through the deal, tripling the bank's head count in this country to 600.

The expansion adds significantly to Wells Fargo's capabilities in wholesale banking, which appeals in particular to U.S. companies doing business in Canada and Canadian companies doing business in the United States – and bolstering the bank's position as a U.S. nexus.

But it comes at a time when Canadian banks are gravitating toward the United States with large deals that significantly expand their own capabilities.

In November, Royal Bank of Canada completed its $5-billion acquisition of Los Angeles-based City National Bank, enhancing RBC's ability to serve wealthy clients on both sides of the border.

Last month, Canadian Imperial Bank of Commerce announced a $3.8-billion deal for Chicago-based PrivateBancorp Inc., expanding CIBC's U.S. footprint.

In both cases, the deals were the largest ever undertaken by either bank, underlining the importance of expansion when the U.S. economy is performing better than most other areas of the developed world and growth opportunities are hard to spot in Canadian retail banking.

But Wells Fargo's focus on Canadian wholesale banking means it does not rely on a resilient housing market and rising consumer debt. Instead, it wants to offer more things to more corporate customers by branching out beyond the staples of treasury management and credit and into other products.

Within wholesale banking, the average Wells Fargo customer has 7.5 products from the bank, but 40 per cent of the bank's customers have more than 15 products, highlighting the benefits of broader relationships.

These relationships extend into the struggling Canadian energy sector, where executives say they are benefiting as global competitors back away.

"Clearly, the economic challenges in Alberta, because of the decline in energy prices, have had an impact on the overall business," Mr. Sloan said. "This is a difficult cycle, but historically we have found that this is the period where you can grow the most because you are open for business. And some of our competitors are not."

As commodity prices in general start to moderate, and crude oil prices rise toward $50 a barrel, Mr. Sloan is seeing more consolidation, acquisitions and sales.

Mr. Sloan doesn't see Wells Fargo acquisitions of its own though. "You can't run your business as if you are going to grow by acquisition," he said. "You have to look at your plans for growth and say, 'We are comfortable with our ability to grow organically – and then if an acquisition comes along, terrific.'"