Foreign banks' assets in the United States fell 1.6% last year to $872.7 billion, marking the first decline in more than a decade.
The decline in assets, according to American Banker's annual survey of foreign banks, covered all major banking sectors, including real estate and commercial and industrial lending.
The figures do not include loans and other assets booked by U.S. offices of foreign banks at offshore locations such as the Bahamas and Cayman Islands.
Industry officials and analysts said they were not surprised by the decline in assets, and attributed it to two factors: a decline in demand for bank credit in the United States and a longer-term trend among banks to move away from lending and toward fee-based, capital market-based transactions.
"The leveling off of total U.S. assets of international banks in part reflects the evolution taking place from wholesale lending to derivatives and other capital market activities," said Lawrence Uhlick, managing director of the New York-based Institute of International Bankers.
Looking at Return on Equity
"One thing banks are doing is taking a look at their return on equity," said Hugo Steensma, head of the Sonoma, Calif.-based consulting firm Sonoma International Capital Associates and a former executive officer in the United States with Rabobank of the Netherlands.
"They've come to the conclusion that many loans, especially to large companies, do not meet the earnings criteria."
Bankers added that the decline in assets also reflects fewer loan syndications by U.S. banks. Foreign banks have traditionally been big buyers of loans organized by U.S. banks.
"It's lower demand, more sources of credit, and banks' reluctance to put cheap loans on [their books]," Mr. Steensma said.
Japanese Banks Still Dominant
Among the survey's other major findings:
* Japanese banks continued to dominate foreign banking activity in the United States, despite a significant reduction in their U.S. activities.
As of June 30, 1993, Japanese banks held $387 billion of U.S. assets, or 43.7% of foreign bank's total U.S. assets, down 4.7% from $406 billion, or 45.2% of the total a year earlier.
* Bank of Tokyo remained the largest foreign bank in the United States, with $44.2 billion of assets. Holland's ABN Amro Holding became the fifth-largest foreign bank in the United States following recent acquisitions, moving up from ninth place.
Allied Irish Unit Fared Rest
First Omni Bank, a $584,000-asset Allied Irish Banks subsidiary based in Millsboro, Del. was the most profitable foreign banking unit with a 3.24% return on assets. Seoul Bank of California in Los Angeles was the least profitable, with minus-24.26% return on assets.
Foreign banks have offices in 24 states. New York City remained the favored location for offices, followed by Los Angeles, Chicago, Miami, San Francisco, and Houston.
For the second year in a row, foreign banks closed more offices than they opened. The total number of foreign offices fell to 965 from 988.
Among the newcomers last year: France's Banque Transatlantique, Bank of Taiwan, Spain's Banco de Sabadell, and Turkiye Vakiflar Bankasi.
However, at least part of the decline can be attributed to a slowdown in licenses by the Federal Reserve Board as a result of tougher banking legislation.
The slowdown in foreign banks entering the U.S. market, coupled with more stringent supervision of foreign banks and restrictive U.S. banking laws, has become the target of increasing criticism by foreign as well as U.S. observers and officials.
In what threatens to develop into an international diplomatic row, the European Commission voiced concern last month at plans to levy fees on foreign banks in the United States for Federal Reserve Bank examinations.
"In our view, this extra financial burden would be clearly discriminatory," the commission wrote in a letter to Federal Reserve Chairman Alan Greenspan and U.S. Treasury Secretary Lloyd Bentsen.
The fees were approved as part of the Foreign Bank Supervision Enhancement Act approved by Congress at the end of 1991. They have yet to be applied.
