Argentine bank opens a beachhead in N.Y. to support growth abroad.

The Argentines are coming.

After sitting on the sidelines while other foreign banks were expanding through the 1970s and 1980s, Argentina's Banco de Galicia y Buenos Aires has launched ambitious plans to develop its business in the United States.

"Our economy is improving; we're Argentina's biggest private bank; and we need access to this market," says Hector Arzeno, general manager of Galicia's recently opened New York branch.

Galicia is not the only Argentine bank in New York, nor the only one seeking to expand in the United States.

Two of Argentina's large state-owned banks, Banco de la Nacion Argentina and Banco de la Provincia de Buenos Aires, have branches or agencies in the United States, as does Banco Rio de la Plata, a privately owned Argentine bank.

Two others, Banco Roberts and Banco Frances del Rio de la Plata, are seeking approval to open New York representative offices, and institutions such as Banco del Sud may issue American depositary receipts.

But for Galicia, having an office in the United States is especially critical.

"It's a big advantage for them because they gain a good image compared to other [Argentine] banks and it opens up opportunities," observes Jose A. Mendez, a banking analyst at Boston Inversora de Valores, the Buenos Aires-based brokerage unit of Bank of Boston.

"The difference now is that they can open accounts [in the United States! and offer services," he says.

As one of Argentina's fastest-growing banks, with more than half its assets denominated in U.S. dollars, Galicia badly needs access to U.S. capital markets for funding.

It also needs a U.S. office to expand its operations in Latin America and to offer its customers - Argentine companies and private individuals - an expanded range of services.

"A lot of things are done from New York," Mr. Arzeno observes.

"It's easier to develop business with countries like Mexico from New York than from Buenos Aires."

Galicia also hopes to use its U.S. office to act as an intermediary in securities transactions for its customers in the United States and Argentina.

"There's a lot of appetite for Argentine securities," Mr. Arzeno says.

"We're a market maker in Argentina, and being here allows us to help develop business for the head office back in Buenos Aires."

Opening the branch in New York this month caps a long struggle by Galicia to obtain regulatory approval to do business in the United States.

Like other banks, Galicia saw its application put on hold after Congress passed the Foreign Bank Supervision Enhancement Act three years ago, tightening up requirements on foreign banks seeking to enter the United States.

Information included in the bank's final application for a branch license make a pile of papers more than three inches thick.

Final approval came last July only after innumerable exchanges of questions and answers among Galicia, U.S. regulators, and Argentina's central bank.

However, Galicia has been steadily paving its entry into the U.S. market.

In November 1993, Galicia became the first private Latin bank to raise funds on the U.S. domestic capital market by issuing a $200 million, 10-year Yankee bond.

In another pioneering move the same year, the bank became the first private Latin financial institution to issue registered stock in the United States, raising some $60 million of fresh equity.

Fed approval of Galicia's application brought to a close a 15-year hiatus in activity during which Argentina, along with most other Latin American countries, defaulted on its foreign debts and sank into economic turmoil.

The crisis proved devastating for the country's banks.

"Prior to the implementation of successful stabilization plans, these [Latin] economies experienced protracted high inflation and instability for a number of years," remarks Andre A. Cappon, president of CBM Group Inc., a New York-based management consulting firm.

"In such conditions, the banking system and the `money economy' typically became atrophied," he says.

Mr. Cappon adds that, according to estimates, "97% of Argentina's financial system was `exported' in the 1980s to offshore banking centers, from where it was invested back in Argentina via bank debt paper, Eurobonds, and equities."

As a result, he notes, local banks were unable to make money from traditional banking activities such as lending and turned instead to speculative trading and making money off the float they handled on funds transfers.

In many ways, therefore, Galicia's expansion underscores a return to normal banking. As Argentina's economy picks up steam, so does Galicia.

Within the last two years, Galicia's deposits have nearly tripled, to S3 billion, and its assets have more than doubled, to $4.7 billion.

Net earnings have also nearly doubled, to $71.6 million for the year ended June 30, from $60 million in 1993 and $43 million in 1992, giving Galicia a healthy 16.46% return on average equity and a 1.8% return on average assets.

The Argentine bank is likely to grow even faster. "Galicia is more retail-oriented" than most other private Argentine banks, notes Jose Garcia-Cantera, a banking analyst at Salomon Brothers Inc. in New York.

"Development of the middle class in Argentina will likely result in a substantial increase in earnings," Mr. Garcia-Cantera predicts.

Mr. Garcia-Cantera notes that loans as a share of gross domestic product are only 19% in Argentina, compared with 39% in Mexico and more than 51% in Chile.

Galicia, therefore, has ample room to grow. He adds that, as consolidation among banks continues in Argentina, Galicia is likely to come out a winner.

According to Mr. Arzeno, Galicia's New York general manager, treasury operations and asset-liability management, international trade finance, and short-term lending for up to 180 days will be the most important components of his branch's business.

The New York branch, he adds, will also help Galicia diversify its own assets, preventing the bank from being too heavily concentrated in Latin America.

The branch will also provide banking services for the growing number of Argentine visitors to the United States.

"Trade between Argentina and the United States is growing dramatically and will continue to grow," Mr. Arzeno predicts.

However, unlike U.S. banks with large trade operations that focus heavily on financing imports to the United States, Galicia will concentrate its energy on U.S. exports to buyers in Latin America and on intra-Latin trade finance.

This is a lot trickier, since any bank issuing a letter of credit to a buyer outside the United States needs to be able to evaluate that buyer's creditworthiness. Galicia, with its extensive business network in Latin America, is well placed to do this.

"They've targeted the most profitable part of the business," remarks one U.S. banker.

Although Galicia may still be relatively unknown in the United States, Mr. Arzeno himself is no newcomer.

Born in Buenos Aires, he first arrived here in 1974 as a trainee at J. P. Morgan & Co. Two years later, he joined Republic National Bank of New York as assistant treasurer in charge of Argentina, Chile, and Venezuela.

In 1978, he left for London and a two-year assignment with one of the Argentine government banks, then returned to New York to join Argentine Banking Corp., an Article 12 New York investment bank.

In 1982, Banco Espanol de Credit acquired Argentine Banking Corp. Mr. Arzeno was subsequently transferred to Madrid, where he became the youngest general manager in Banco Espanol's history.

He returned to the United States in 1990 to complete a course in advanced management at the University of Pennsylvania's Wharton School.

He later joined Galicia's representative office to help the expansion effort into the U.S. market.

While the office was being set up, Mr. Arzeno says, he "spent every weekend commuting between New York and Madrid." Just thinking about it fatigues him now.

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