1998

Conseco and Household Announce Major Buys

April 8 — Two giant finance companies startled the industry Tuesday by announcing premium-priced deals that would radically reshape specialty lending. The announcements left the market awaiting a wave of further deals.

First, Green Tree Financial Corp., the recently troubled manufactured- housing giant, announced an agreement to sell itself to the insurance company Conseco Inc. for $7.6 billion, or $52.928 a share, well above the Monday closing price of $29 a share. The newly merged entity would have more than 11 million customers and managed assets of $60 billion.

A few hours later, Household International said it would pay $8.6 billion for Beneficial Corp., or $150 a share, well above analysts' early estimates of about $120 a share. Beneficial put itself on the block in February. The combined entity would have more than $62 billion in managed receivables and 30 million customer accounts.

Observers said the dealmaking represented the natural progression of change in consumer finance. The end result, they said, will be a handful of megasize nonbank institutions that offer a full menu of products to consumers, in addition to super-specialized niche players.

"Consumer lending businesses have been extraordinarily high-growth in the past 10 years," said Edward E. Furash, chairman of Furash & Co., Washington. "Now we have a situation where everyone is carrying around multiple lines of credit." Consolidation was inevitable, because the prospects are "not strong enough to keep up the growth rate of volume."

"Traditional categories and traditional companies are disappearing," said Conseco's chief executive Stephen C. Hilbert in announcing the Green Tree deal. The combined company will be a "financial services juggernaut," he said, focused on middle America.

Deals are happening now in the specialty finance sector in part because the industry has taken some hits in recent months.

Writedowns by several major companies, most notably Green Tree, made investors wary of the reliability of earnings estimates. Capital markets for these companies tightened and stock prices fell, creating a bargain- basement atmosphere.

Money Store, a veteran home equity giant, was the first to sell, going to First Union Corp. for a higher-than-expected $25 a share. The deal has had a "snowball" effect, said Jennifer Scutti, an analyst with Prudential Securities. "People are getting panicky as they see other acquisitions happen around them-now is the time to strike."

"The spirit is really carpe diem," said a hedge fund investor about the intensity and pricing. "Get all you can."

Green Tree embraced that philosophy, observers said, with a deal that one analyst called "astounding." The almost $53 a share is above the company's 52-week high of $49.8125.

Conseco's CEO, Steve Hilbert, justified the purchase prices by the cross-selling opportunities that the acquisition provides, and by Conseco's lower cost of funds. Green Tree was recently downgraded by Standard & Poors, making it difficult for the company to secure short-term financing.

Mr. Hilbert said the deal would reduce expenses at Green Tree by $40 million.

Lawrence Coss, the controversial Green Tree CEO, will remain at the helm of the company indefinitely, he said in a conference call on the deal. "I signed a contract in blood," he quipped. "I'm staying around as long as I can to make a contribution."

Conseco and Green Tree are making much of their similarities. Both have "precisely the same culture and the same target market, middle America," said Mr. Hilbert. Both CEOs also founded their companies with minimal personal investment and emphasize entrepreneurial sales skills. "We haven't even closed the deal yet, and we're already integrated," he said.

Outside observers said the companies were a good fit, but were skeptical about Conseco's ability to cross sell and reduce expenses enough to justify the price paid. Green Tree shares climbed sharply on the news, hitting a high of $44 during Tuesday's trading, closing at $39. Conseco stock was hit hard by the news, with shares trading as low as $48.375, down from Monday's close of $57.75, to close at $49.375.

Investors were also skeptical about Household's ability to wring value from their $150 price for Beneficial. The company traded as low as $137.3125 during the day, down from Monday's close of $146.75, and closed Tuesday at $140.75.

"The cost savings they are going to need to get are going to be very high," said analyst. "Will they be able to maintain the revenues?"

Household expects to wrench $450 million in annual cost savings from the deal and take a $1 billion charge at the close, expected in the third quarter.

Finn Caspersen, CEO of Beneficial, would be chairman of the combined company. Beneficial's stock hit a high of $139.50 during the day, up from Monday's close of $130.50, and closed Tuesday at $137.9375.

Some veteran players were surprised by the one-two punch of the Household and Green Tree deals, especially in the wake of Monday's Citigroup announcement.

"What is it, a full moon?" quipped J. Terrell Brown, CEO of United Companies, a long-time specialty finance company in Baton Rouge, La., that has recently been the subject of merger rumors.

The acquisition frenzy, though, is really reflective of buyers' need for more volume, he said. "A lot of companies have hit the wall on internal growth," he said.

Although deals in the sector are expected to continue, not all companies are subject to being bought.

"The properties that have been sold to date were the best platforms," said E. Reilly Tierney of Fox-Pitt Kelton. "I would hate to see a me-too wave, where the mediocre companies sell at high premiums."

1980

Polite, Professional But Accused of Bullying

NEW YORK, Nov. 25 — The final weeks of Chrysler Corp.'s effort to restructure its debt were the most public of the long negotiations. Reports appeared daily in major newspapers on the status of two dozen lenders that were refusing to sign the restructuring agreement.

That coverage provided the public with a rare glimpse of the long, acrimonious debates within the banking industry, but it left images that are disturbing and misleading. It appeared to many people that a handful of giant money center banks used thinly veiled threats to bully smaller banks into joining the restructuring, with these smaller banks heroically opposing the will of a powerful few.

Those images reveal the intensity of the effort at persuasion mounted by the company and the banks, but they do not give a complete picture. Certainly, arms were twisted and friendships were stretched during the push to sell the credit. To a far lesser extent there was bullying.

But most of the persuasion was polite and professional, emphasizing the costs of a Chrysler failure to the country and to the individual bank. The message communicated to every reluctant bank was that if one bank failed to join the credit, Chrysler would go under.

The talks were meticulously planned by the company, the bankers and their lawyers. Beginning in mid-May, Manufacturers Hanover had begun keeping detailed tallies of the position of every bank in every Chrysler and Chrysler Financial credit.

In June the central responsibility for collecting that information passed to Debevoise, Plimpton, Lyons & Gates, Chrysler's lawyers. But the bank and the law firm worked together closely, and the bank kept a parallel computerized tally that was posted on the walls of MHT's 15th floor "war room."

In weekly meetings at Debevoise Plimpton, the company, the lawyers and the bankers would discuss the status of the individual banks that had not yet signed the restructuring agreement. A bank that remained undecided or opposed would receive telephone calls from carefully selected individuals who knew someone at the holdout bank or had a business relation with the institution.

The calling effort involved hundreds of individuals. John F. McGillicuddy, the chairman of Manufacturers Hanover, spent days on the phone in June, as did dozens of less senior bank officers. Richard H. Cummings, vice chairman of National Bank of Detroit, spent days flying in to talk with smaller banks in the U.S., while top officers of a number of the major foreign participants called their counterparts at European holdouts to woo them to support of the plan. Many of the lawyers were on the phone constantly, and of course the financial teams at Chrysler and Chrysler Financial were pressing their case with the hundreds of lenders that had called on the company regularly for years.

Selective Clout

The pressure was focused on the holdouts with the largest credit commitments, leaving less important banks in the uncomfortable position of not knowing whether their opposition was even being noticed. The calls that came were cordial. "We were asked if we had any questions about the credit and were reminded of the importance of keeping Chrysler in business," says an executive of one bank that made the holdout list.

As larger holdouts swung to the credit and the list of holdouts decreased, pressure built. More attention could be focused on individual banks. If the bank, the company and the new law teams were stonewalled, suppliers to Chrysler were enlisted. Some called holdout banks with which they did business, while others telephoned individuals they knew at companies whose top executives were directors of holdout banks.

Once again, the message was cordial, just a reminder of the potential costs for the supplier — and hence the bank board member's firm — if Chrysler went bankrupt. Where necessary, Chrysler encouraged calls to individual banks by state and local government officials, Congressmen from the region and Treasury staff members. In a few especially difficult cases, the Secretary of the Treasury called to talk with chief executives of holdouts.

The holdout banks were never asked to pass judgment on Chrysler's creditworthiness. From August until June the case for restructuring Chrysler's debt was a compelling argument that the cost of bankruptcy today was greater than the cost of aid today. The Carter Administration's support of the plan was justified by that logic; many of the money-center banks used very similar calculations.

The implicit argument was that Chrysler, somehow, could pull itself out of its slump and, through a dynamic change in philosophy, product lines and operational efficiency, work an industrial miracle to reverse its failing fortunes.

The Cost of Going Under

But the likelihood of that was not the question posed to individual bankers in June. Many of them firmly believed, and continue to believe, that Chrysler will not survive, but despite this they signed the restructuring.

These bankers measured the potential costs of opposing the Chrysler aid package and found them more staggering than any costs they might incur from a Chrysler failure. For most of these banks no one needed to spell out the costs of opposing the debt restructuring.

The holdouts knew that a decision to oppose the restructuring would cost them participation in other nationally syndicated credits. They realized that many corporate treasurers and major lenders would feel uncomfortable dealing with a bank that had pulled out on Chrysler. But, as one lender said, "We had decided we could live without national syndications if we had to. That was not what stopped us."

What stopped the holdouts were costs that were far harder to estimate.

Many banks had to consider the potential suffering in their community. Local Chrysler dealers faced bankruptcy, suppliers to Chrysler would lose business, and several hundred thousand union members would lose jobs.

Who Will Play Villain?

That suffering would eventually hurt the banks. The general business environment of the community would suffer, leading to failures of additional bank customers, and these losses would probably be amplified by retaliation by other businesses and unions.

Federally chartered or regulated banks also worried that they might face more subtle retribution from their regulators, considering that the chairman of the Federal Reserve was on the Loan Board along with the Comptroller of the Currency's boss, the Secretary of the Treasury.

Perhaps the most potent pressure, though, was the fear of becoming known as "the bank that pulled the plug on Chrysler." To be described as one of several banks that would not go along was bearable, but as the list of holdouts shrank, the possibility of standing alone in a very harsh public spotlight persuaded many lenders to sign the credit.

With the press watching closely, it was obvious that the names of holdout banks could easily become public. And as the identities of individual holdout banks appeared in print, the fear of being revealed as a villain grew.

One of the most important early conversions to support of the restructuring was prompted by this nonfinancial pressure. First Security Bank of Utah had filed suit in January, 1980, to recover money loaned to Chrysler, thus becoming one of the first banks to take such a step. Other bankers thought First Security might be an unyielding opponent of the credit because Utah's economy is not highly dependent on the auto industry, and the bank's top executives had expressed strong philosophical objections to a government bailout.

No One Gets Out

But two weeks before the final holdout capitulated, First Security quietly dropped its opposition — according to the bank, without prodding. "I don't think we got calls from suppliers or other lenders. If we did, they were not important to our decision," says Mason Smith, executive vice president of the Salt Lake City bank. "Although the bank had objections, we did not want to be known as the bank that threw 600,000 Americans out of work," he said.

First Security had reached a judgment that other banks would arrive at more slowly: the major banks were prepared to allow Chrysler to go bankrupt rather than let some smaller banks out of the credit.

This critical point had been made consistently since the early days of negotiations in August. It was reinforced by the wording of the consent letter for joining the credit. The letter committed the signer bank only if every other lender agreed to the credit.

In many past credits, however, a last minute modification of a credit agreement had allowed one or two banks to slip out. And in a credit the size of Chrysler, it seemed impossible that a single small bank could force bankruptcy.

Hours before Peoples Trust Bank of Fort Wayne, Ind., dropped its opposition to the restructuring, its president, Hiram Nally, expressed the sentiment of many of the holdouts: "I can't believe that this credit has been structured so that one or two tiny banks could throw Chrysler into bankruptcy. I find the whole thing incredible." Nally, like officers of other holdout banks, found himself in a test of will with the major lenders.

Never to Be Seen Again

Each of the holdouts had hoped that not signing the debt restructuring would force the major banks to either buy out the smaller bank's loan to Chrysler, or grant it a last minute concession for signing.

The unmovable resolve of the major banks was surprising, and may never be seen again. "I don't think this is a precedent that will change the way credits are negotiated in the future," said one lawyer. "Chrysler is a special situation."

He pointed to the U.S. government involvement, the coincidence of the company's problems with an election year, the massive size of the company, the tremendous number of banks, and the large presence of foreign lenders. In a credit missing any one of these factors, the money-center banks might not have been able to win support from the smaller banks and, seeing the possibility of failure, might never have pushed for unanimity.

But the success of the push it still critical for "if it had gone the other way and one or more banks had been allowed out, it would have been a damaging precedent," he says.

The combination of pressure from other lenders, the company and the government turned the holdouts into media stars. But their positions were based largely on self-interest, not a quest for justice.

Several of the holdouts bargained hard for concessions, saying they would join the credit if they could only keep a setoff or, in at least one case, a portion of the setoff. Others did not want to cough up interest they had collected since early 1980, as required by the restructuring plan.

This haggling, say both the major lenders and Chrysler executives, got them nowhere. There were no special considerations, "so far as we know," said one banker.

Knapp under Pressure

The motives of a few banks went beyond obvious self-interest, however. One of these, American National Bank & Trust Co. of Rockford, Ill., was a surprisingly firm holdout. Its president, David W. Knapp, had made a credit judgment against joining the restructuring, which was the basis of his opposition.

He stuck to that position despite the fact that a large Chrysler plant sits in a neighboring community, and even though as a lender to Chrysler Financial Corp., he would be in much better shape after the restructuring than lenders to Chrysler. The interest rate on his loan was not to be affected and the credit was being moved from unsecured to secured. But he was facing a four-year extension of a loan under an open line of credit, and he was not happy that his loan was being linked with the less creditworthy loans to Chrysler.

As one of the handful of banks that refused to join the Chrysler Financial revolving credit in the Fall of 1979, but kept a line of credit open to the finance company, he had more reason to object than many other lenders, for his class of banks was not organized and had little or no representation during the speedy renegotiation of Chrysler Financial's debt.

Knapp says he came under intense pressure from the company, from other banks and unions. He even received an anonymous bomb threat, but he has not suggested that the lenders, the company or any other organization was behind that.

He now declines to discuss the pressure. "That's all behind," he says. "There is nothing to be gained from talking about it." When informed that other holdouts downplayed the pressure put on then, he asked, "Well, did they get a call from the Secretary of the Treasury?"

For the Good of Banking

Although Knapp says he signed under pressure, another important, unpublicized holdout, Banco de Vizcaya, a Spanish bank, insists it ended up signing for the benefit not of the bank but of the international banking system. Raymond Surguy, the bank's representative in New York, said, "It was clear from the very start that Chrysler was too important to allow it to go bankrupt."

The final bank to agree to the restructuring was Deutsche Genossenschaftsbank AG, a large German institution, which had infuriated many lenders in mid-May by seizing an $8 million deposit of Chrysler's. Setoffs, said one banker, "were a dime a dozen." But DG Bank's timing and its resistance to returning the deposit were upsetting. The seizure came just days before the final difficult talks in Washington, when it was clear that a settlement was close.

Assuming that the German bank would see its error, the other lenders kept the setoff quiet for weeks, but when DG refused to yield, they began discussing the setoff more openly, and newspaper reports appeared. "We gave them time to act," said one banker, "but they would not respond."

The DG Ploy

The intransigence of DG pushed its name to the head of the list of European holdouts, leaving it ultimately as the last major bank to join the credit.

The bank disclosed its decision to join the restructuring to the other lenders at an evening meeting on Thursday, June 19. The following morning the last domestic holdouts dropped their opposition to the restructuring, but no formal announcement was forthcoming regarding DG Bank.

At midday some domestic lenders began to express concern that a snag had been hit in gaining approval from the German bank's headquarters. The snag was caused by one last attempt by DG to evade the terms of the restructuring; when papers arrived in New York, the recipients discovered that DG Bank planned to keep the $8 million it had set off, apparently returning negotiations to the previous deadlock.

Frantic calls went to Frankfurt but DG's entire senior management was in Hong Kong attending a special session of their board. More calls ensued, including some person-to-person talks between McGillicuddy and a senior German executive at the session in Asia. Finally, after 5 p.m. on Friday, June 20, approval from DG reached New York.

The public announcement that DG had signed was made too late to be reported on the evening news, but early enough to meet the deadline of the Saturday papers, which minimized the negative publicity afforded DG's signing, and prompted some speculation about the intent of the bank's last minute ploy.

Who Saved Chrysler?

Ironically, a Michigan paper on Saturday ran a headline stating that a German bank had saved Chrysler. In addition to mistakenly singling out the German bank as a saviour [sic], the paper was wrong in implying that the debt restructuring had secured Chrysler's health.

The fact is that the debt restructuring signed in June at an elaborate international ceremony, electronically linking cities in various nations, did not definitively and finally save Chrysler.

Some bankers who have carefully studied Chrysler's finances are convinced that it will fail before the end of this decade. Recently, they have begun questioning whether the company will survive through the first quarter of 1981…

The U.S. bank committee is continuing to meet regularly to discuss Chrysler's progress, and its members now include some of the more active foreign banks. Their doubts remain. One of the members, who considers himself an incurable optimist, cannot shake the insecurity. "If Chrysler survives through 1983," he said recently, "there will be wild applause."

1983

Banks Weigh Entry into the World of Commerce

NEW YORK, Jan. 21 — "Everybody's standing around the barroom, waiting for the fight to begin."

That's how Jack A. Norris, president of the Heller Trading Corp., characterizes the mood of the banking industry regarding the new commercial powers granted by the Export Trading Company Act of 1982.

Only last week the Federal Reserve Board released its proposed regulations to implement the new law, and already bank activities are heating up.

• Security Pacific Corp. this week formally notified the Federal Reserve System of its plan to form an export trading subsidiary.

• In Chicago, Walter Heller International Corp. — a $6.5 billion-asset international financial services firm — has incorporated an ETC subsidiary and plans to file its notification to the Fed in the near future.

• And BankAmerica Corp. officials say they have definite plans to form an ETC subsidiary some time in 1983.

The legislation's ambitious goal was to re-establish America's status as a world-class exporting nation, through the creation of large-scale export trading companies. And to make them effective, it modified the Glass-Steagall barriers between banking and commerce to permit banking companies to own or invest in ETCs.

If it accomplishes its aim, bank holding companies — through ETC subsidiaries — in a few years may be engaged in some startlingly different lines of business.

In 1990, for instance, a Citicorp or a Wells Fargo might be buying electronic goods in America, modifying them for export, holding them in inventory, shipping, insuring, and selling them overseas through its own sales and distribution network. A Chase or a Morgan might head an ETC consortium to build a new city in the Far East involving architects, builders, suppliers, insurers, and shippers.

"They called it the export trading company act," one former banker currently in the exporting business notes. "But what they should have called it was 'the commercial business experimentation act.'"

The new business opportunities granted to bank holding companies by the legislation are indeed sweeping. Activities permissible for ETC subsidiaries under the act include: exporting, importing, barter or countertrade, market research, advertising, marketing, insurance, shipping, and taking title to goods.

Another section of the act provides antitrust protection for joint ventures and business agreements. Although attorneys are divided on whether these provisions were needed and how well they will work, Congress' intent is clear: As long as U.S. businesses combine in order to export, and receive a Commerce Department certificate authorizing the activity, they will be protected from most types of antitrust action.

Banking companies are limited to investing 5% of their consolidated capital and surplus in an ETC subsidiary as equity. They may extend a further 10% as credit. But even under those constraints sizable subsidiaries are possible. BankAmerica, for instance, could theoretically start up an ETC with about $250 million in capital and $500 million in credit.

Reasons for Caution

When the Export Trading Company Act was passed in October, some exporters and other observers had anticipated a wholesale rush into the business by bankers, and they were dismayed when it did not materialize.

Many bankers, however, feel that caution is in order. Trading of goods and services — especially the authority to actually take title to merchandise — is an entirely new field for them, they note. Ancillary lines of business such as freight forwarding, customs brokering, and ocean marine insurance are also alien.

Bankers perceive other constraints as well. Those frequently cited include: The lack of trading expertise in the banking industry, along with the differences in "corporate cultures" between the two businesses; the bleak near-term outlook for world trade, and the current outcries concerning international lending; and the welter of new-business opportunities that will become available to banks in the deregulatory eighties.

Many bankers also were waiting for the Fed guidelines before proceeding further in their planning processes. There was some fear that the regulator would follow a restrictive course, and would so burden bankers with limitations and disclosure requirements that ETC subsidiaries would be unattractive.

Release of the proposed regulations last week, however, has apparently ameliorated those fears. For the most part, bankers agree that the Fed appears to be living up to the spirit of the act.

And the pioneers are already moving. While aware of these negative aspects, they are determined to get started. Even among the banks that officially say they have no current plans for an ETC, there is considerable enthusiasm for the concept among planners.

Many of the larger bank holding companies already perform many trade-related functions in different divisions. And some feel an ETC might be a logical extension of those services — a "flagship" entity for world trade. Trading could also help defray the massive capital expenditures the first tier of international banks has made both in overseas offices and in telecommunications capability.

Security Pacific's new subsidiary will be named the Security Pacific Export Trading Co., and the firm is keeping all its options open, according to Joseph Feghali. Mr. Feghali is the president of Security Pacific's Edge Act subsidiary and has been responsible for ETC planning.

"This is not a shut deal," he said recently when asked about the possibility of a joint venture. "But we feel that for a start, it is better for us to have our own, 100%-owned company."

The Fed notification process involves sending an application to the local Reserve Bank, which checks it for completeness and then forwards it to the board in Washington. Security Pacific has then taken that first step.

According to Mr. Feghali, the company's application envisions offering "the full range of services" permitted under the act. Application will also be made to the Department of Commerce for a certificate of review specifying the ETC's anticipated business.

Mr. Feghali declines to be too specific about the business strategy of the ETC subsidiary, as plans call for a chief executive officer to be hired from outside the Security Pacific organization, who will in turn hire his own people.

But natural areas of interest for the California-based company, he agreed, would be in exporting for local middle-market customers to markets such as the Pacific Rims.

"We followed the act from A to Z, and maybe that's why we are a little ahead of everybody," Mr. Feghali said.

Heller Plans to File Soon

Chicago's Walter Heller International Corp. qualifies as a bank holding company through its ownership of American National Bank & Trust Co. The company recently incorporated its ETC, Heller Trading Corp., and plans to file its notification with the Fed after it has had a chance to comment on the proposed regulations.

Heller has been talking with existing American export firms about potential joint ventures, according to CEO Jack A. Norris. "And we will be talking to some more," he adds. He envisions a full-service organization, which would include taking title to goods, and anticipates using Heller's domestic and international offices — in 24 countries on six continents — as physical bases for ETC activities. The holding company, Mr. Norris notes, could earmark as much as $18 million in capital to the ETC under the law.

Working Hard at BankAmerica

BankAmerica also plans to set up an export trading company this year. "I can't tell you just what it will look like, but we're working hard on it," senior vice president Peter M. Nelson said in a recent interview, adding, "I keep telling myself that we are only bound by the limits of our imaginations."

Mr. Nelson's background includes stints in the company's corporate planning office and national lending division, and he is currently listed as Washington representative. Although he declines to discuss his future plans, sources close to the bank say he has in fact been picked to head the export trading subsidiary.

Mr. Nelson envisions a gradual move into the trading business. "There are disciplines and skills involved here that banks don't really know much about," he said. "The channels of distribution of banking services have been clearly defined by legislation, and in this activity, there are all kinds of other channels of distribution that bankers have never thought about and have to learn about. So it is a new business — totally new."

Current plans call for a de novo subsidiary. "I don't think we're going to put $200 million in equity on the table in the beginning. Our approach will be to start slow and grow it," Mr. Nelson continued. "But if the right kind of joint venture came along with someone with experience, we would clearly do that, even if it required some bucks."

Going Slowly in New York

Most of the other major banks are being vague about their plans concerning the new trade powers, and a few have said that their ETC plans have been put on "back burner" status for the present. Not one, however, will go so far as to say it has ruled out the possibility of forming an ETC subsidiary.

Citicorp is a major question mark. Rumors about that the company is planning to form an ETC in the near future, but officially, Citi will say only that it is studying the Fed's regulations.

Several major bank holding companies plan to enhance their current range of services, both to exporters and to nonbank exporting firms, while studying the act more closely. Chase Manhattan Corp., Marine Midland Banks Inc., and First National Boston Corp. put themselves in this category.

In the past, Chase had been a major booster of the legislation, and some observers were disappointed that it did not move quickly to set up an ETC following the bill's enactment. But Chase officials maintain that the company's support of the act was based on a philosophical belief that the banking industry should not be excluded from export trading, rather than on any specific business plans.

For the present, Chase aims to assist its customers who are involved in exporting — both producers and export trading companies — through the services is already provides. These include market intelligence, advice, and financing, according to Arnold F. Lessard, vice president in charge of planning for the company's trade and export finance group.

Some of these activities are already centered in the trade group, Mr. Lessard said, and creating a separate entity within the company to focus them could be a possibility. "It might take the form of an ETC. That's an open option. We have to be looking at that, and we are."

Marine Midland's strategy is similar: "To develop and expand our banking relationships with existing export trading and export management firms, and to use our existing export finance capability," according to Charles F. Mansfield Jr., senior vice president in the trade finance department there.

But at the same time, he said, "We will assign resources to determine the long-range attractiveness of the ETC as a stand-alone, bank-affiliated business."

First National Boston Corp. moved into the export business a year and a half ago with the acquisition of a market research and trade consulting firm, the core of its current world trade group. Through a small staff in Boston and in Portland, Maine, along with partners in 37 countries, the group provides market research and business advisory services.

According to senior vice president Ogden White Jr., the company's policy is "to stick with our role to be of service to the exporting community. But we will continue to look, and when we get a better grasp of the dynamics [of export trading companies] we will continue to evaluate whether we should go from the shallow to the deep end of the pool."

Chemical New York Corp. has formed a task force to study the act's significance. "We have come to no conclusions," vice president John A. Aloisio said recently, "but there is interest in various parts of the bank."

"It would be a natural extension of our existing international middle-market program," he continued. "And of course, there is interest in it in our corporate sector, because of the possibility of joint venturing with some of our clients."

Some of the stiffest competition for bank-affiliated ETCs may come from the emerging general trading companies outside the banking industry, such as General Electric Trading Co. and Sears World Trade Inc.

These two are the largest, and were formed last year before the ETC act's enactment. They need not apply to the Fed, or concern themselves with its regulations, although they may seek certification under the Commerce Department program.

General Electric's wholly owned subsidiary, for instance, aims to be selling some $1.5 billion worth of non-G.E. goods by 1987. And Sears' plan seems equally ambitious. By last month, it had about 100 employees assigned to the trading subsidiary. And it recently hired Frank C. Carlucci — formerly the number-two man at the Pentagon and a former U.S. Ambassador — to head the operation.

Most observers feel it will be several years before the major trends in ETCs become apparent, but the participants are clearly excited by the possibilities. And most see increasing bank involvement in trading.

"Bankers are like ants," says one international banker who has followed the legislation. "Everybody has been waiting for someone else to move, and once the first few banks start ETC subsidiaries, everybody — every major bank — will follow."