U.S. banking giant Wells Fargo & Co. is expanding in Canada, hoping to capitalize on what it sees as pent-up demand for borrowing among companies, particularly those with cross-border and overseas businesses.
Even as Bank of Canada Governor Mark Carney has fretted in recent months about a so-called "dead money" problem in Canada, in which companies are sitting on massive stockpiles of cash and not investing due to concerns about the economy, Wells Fargo executives believe there is considerable business to be done here.
The fourth-largest U.S. bank by assets formally announced its Canadian expansion on Tuesday, a move that was telegraphed a month ago when Wells Fargo was granted a licence from federal regulators to operate as a Schedule III bank in Canada. That designation allows Wells Fargo to take deposits and make loans.
However, the bank has no plans to compete with Canada's major banks for retail clients, but will instead focus on building out a lending portfolio for commercial and corporate clients, catering to U.S. companies who do business in Canada, and Canadian companies that export south of the border.
With a strong focus on the energy and resources sector in the U.S., Richard Yorke, head of Wells Fargo's international group, said the bank saw demand from a number of wholesale clients to formally set up shop in Canada.
After Wells Fargo merged with troubled Wachovia in 2008 in a $15.1-billion (U.S.) deal, the San Francisco-based bank has been looking for ways to build upon Wachovia's business banking platform. The bank prioritized 20 countries outside the U.S. where its wholesale customers were doing most of their business, including Canada.
"Over the years, we've crystallized out international strategy in terms of what our focus ins going to be," Mr. Yorke said in an interview Tuesday in Toronto.
"Given the amount of cross-border trade and business, Canada was clearly very high on our priorities, driven by our customers," Mr. Yorke said.
Wells Fargo also plans to seek more lending, foreign exchange, treasury management and trade business with wholesale customers in Canada. In addition to its offices in Toronto, the bank has offices in Montreal, Calgary and Vancouver.
The bank, which has more than $1.4-trillion (U.S.) in assets and 9,000 U.S. branches has been eyeing Canadian expansion after it pulled back some of its operations in the wake of the financial crisis. It shut its consumer finance operation in Canada in 2010, as the U.S. parent bank looked to retool its lending business. However, it continued to operate in some niche areas in Canada, including capital finance and equipment leasing.
Despite the debate about whether Canadian corporate borrowing is mired in a slump, Wells Fargo's senior-vice president and country head for Canada, Richard Valade, said he is optimistic that industry is girding for expansion.
Mr. Valade said that although Wells Fargo's decision to expand was based more on demand from existing clients, rather than trying to time a market uptick in commercial lending, the bank is expecting the market to grow.
The dead money debate erupted in Canada in August when Mr. Carney criticized companies for hoarding cash and not investing in expansion, which he argued was hurting innovation, slowing job growth and hindering the economic recovery. However, not all businesses agree. A survey by Market Intelligence of more than 500 Canadian businesses last month revealed that 56 per cent of companies say they plan to make investments in their operations in the coming year, such as buying equipment, to enhance productivity.
Mr.Valade said Wells Fargo is comfortable expanding its wholesale business in Canada because of the demand for lending it has heard from existing U.S. customers doing business here. Like Canada, U.S. companies have spent the past few years shoring up their balance sheets, and some are now considering expansion.
"We're not coming into a market unknown," Mr. Valade said. "We know what our customers needs are because we have those customers in the U.S. and they're telling us what their needs are in Canada. We believe there is great opportunity."
Other Schedule III banks operating in Canada include Bank of America, The Bank of New York Mellon, Barclays Bank and Citibank. Wells Fargo, long considered more conservative than its peers, is among the U.S. banks to have fared the best during the U.S. financial crisis, due largely to its traditional focus on deposits and loans. It has offices in more than 35 countries including Canada.