CoreStates' overseas business keeps growing and growing ...

Back in the 1970s when most U.S. regional banks were closing offices around the world, CoreStates Financial Corp. stayed put.

The Philadelphia-based bank's determination to stick to international business has paid off.

Today, CoreStates runs one of the largest international networks of correspondent banks among U.S. financial institutions.

Revenues from international operations, says Michael Heavener, who is the executive vice president in charge of them, have been growing at approximately 10% compounded annually for the last three years, and could reach $100 million in 1994.

Growth Continues

Meanwhile, the range and volume of business CoreStates does with correspondent banks in 46 countries is still growing.

Last year, for example, CoreStates had $722 million in outstanding commercial letters of credit, making it the sixth-ranking bank in trade finance after Citicorp, BankAmerica Corp.; Chase Manhattan Corp., Chemical Banking Corp., Bank of New York Co, Inc., and Bank of Boston Corp. That's up from $421 million at the end of 1990.

Over the last two years, CoreStates has opened offices in Jakarta, Milan, Madrid, Santiago, and Buenos Aires, along with branches in Taipei and Tokyo. Three more offices will be opened over the next 18 months in Shanghai, Koala Lumper, and Mexico City.

Emphasis on Service

Still, CoreStates' top priority is doing more business through its existing relationships, rather than expanding its network of correspondent banks much further.

"The services you provide are more important than the number of correspondent banks," Mr. Heavener says. "You want active, not dormant accounts."

CoreStates is increasingly involved in advising on, issuing, and processing letters of credit on behalf of correspondent banks in other countries. This business replaces one that simply processes letters of credit issued by other banks.

"We increasingly find ourselves leveraging off our correspondent banking business to develop letter-of-credit business," says Mr. Heavener. "What was basically a correspondent banking business is now expanding into trade finance,"

Back-Office Business

Going one step further, CoreStates hopes to provide so-called "third-party sourcing," by handling back-office services such as check clearing, payments and letters of credit for other banks. CoreStates does this for foreign banks with branches in the United States that don't have the resources or management to set up their own back offices.

Mr. Heavener says CoreStates is already "in the early stages of actively operating several such arrangements" and is in the process of talking to a "significant" number of possible customers. But he declines to identify any of the institutions.

The bank hopes to boost its international operations even more by applying experimental imaging technology to international check clearing.

The Bigger the Fewer

Part of what makes the business so attractive for CoreStates is that as it expands its international operations, it finds itself increasingly alone with a few other big regional and money center banks as competition.

"The number of U.S. banks that are important players in international correspondent banking is declining," Mr. Heavener observes. "There are fewer higher-quality providers of international correspondent banking than there were five or six years ago."

One reason for this is the difficulty banks have moving in and out of businesses that they decide later to get into again.

"You need infrastructure, processing capabilities, and you have to invest in technology to get scale," Mr. Heavener observes.

Another, more subtle, issue is the training and retaining of qualified professionals who can advise on a broad range of products.

To stay in the business, banks must also maintain technology capable of performing increasingly complex high-speed transactions, including-short term finance and foreign exchange.

Employees Doubled to 800

Testifying to the growing importance of international business, CoreStates decided 18 months ago to integrate its international processing units into a single operation, adding 400 staff to the more than 400 already working for the international unit both in the United States and overseas.

It also hired four professionals away from Bankers Trust Corp. to strengthen its existing team of 60 relationship managers.

"The market is demanding more information delivery, more computer applications, and more relationship managers," says Mr. Heavener. "You need quality products, but customers also want a single manager who knows all the products.

To be sure, the international operation at CoreStates accounts for only a small part of total earnings. At most, analysts estimate, it equals 15% of CoreStates wholesale banking pretax profits of $445 million this year.

Nonetheless, international has proved to be a small but profitable niche business and CoreStates plans to build it further aS a logical outcome of its historical legacy as a supplier of check-clearing services to U.S. banks.

A Century of Clearing

Since the turn of the century, CoreStates' and its predecessor, Philadelphia National Bank, have been among the largest check-clearing hanks in the United States. The bank is still big in the clearing business, processing more than 800 million checks last year.

Philadelphia National Bank eventually extended domestic check-clearing operations into the international domain. Although the bank legally changed its name to CoreStates in the 1980s, the bank is still better known outside the United States as Philadelphia National Bank.

"What we did was take our existing infrastructure into the international markets," says Mr. Heavener.

Invested in Overseas Banks

Starting in the late 1960s and early 1970s, the bank began acquiring minority positions of 5% to 20% in select foreign banks and financial institutions.

Among them: Banco Internacional de Panama S.A., Germany's Joh. Berenberg, Gossler & Co., South Korea's Hana Bank, and Austria's Internationale Bank fuer Aussenhandel A.G.

Relationships and contacts with financial institutions in other countries have given CoreStates a useful entry ticket to developing business.

"The bank believed that affilliating ourselves with high-quality customers would offer our own customers access to other markets," Mr. Heavener says.

The stakes acquired have also proved to be profitable investments and have been retained as much for their market value as for the relationships they bring.

Foreign Lending Cut

But CoreStates has let some of its overseas holdings go. As part of a more focused approach to building the bank's position in electronic transfers and processing, CoreStates two years ago sold off its Australian merchant bank to State Street Bank. CoreStates has also trimmed overseas lending.

"They had a lot of things overseas for a long time, but they're starting to pursue a strategy that leverages their expertise more effectively," says Anthony R. Davis, an analyst with Dean Witter Reynolds in New York.

Most recently, much of CoreStates' international development is taking place in Asia, reflecting growing cross-Pacific commercial links.

Of the 1,200 correspondent banks CoreStates does business with, 45% are in Asia, 38% are in Europe, and 17% are in Latin America.

A breakdown of international revenues shows where most of CoreStates business is coming from. Roughly 66% last year came from Asia, 23% from Europe, and 11% from Latin America.

"Our activity is a microcosm of U.S. dollar-based trade," says Mr. Heavener.

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