Strategic alliances between banks are terrific in theory, but they sure can be hard to implement.
As with joint ventures, the partners often find they are competing for the same customers, or they believe one party is getting more out of the deal than the other.
But an alliance struck three years ago between Los Angeles-based First Interstate Bancorp and London-based Standard Chartered PLC is keeping both sides happy.
Now two other institutions, San Francisco-based Wells Fargo & Co. and Charlotte, N.C.-based First Union Corp., are setting up similar arrangements with other foreign banks.
David C. Holman, executive vice president at First Interstate, and Andrew Hunter, president and general manager for Standard Chartered in the United States, say one reason they are happy with the deal is that each bank got something out of it from the start: a large reduction in operating costs.
"We got rid of our infrastructure costs and got an international network at the same time," says Mr. Holman.
Adds Mr. Hunter: "The prime rationale was to allow Standard Chartered to focus on international business and let First Interstate focus on domestic business. We were conscious that many (strategic alliances) hadn't succeeded, so we went into it with more realistic expectations."
Revenues, the other main target of the venture, are also growing.
Though neither executive will disclose how much in extra earnings the alliance generates, both say business from referrals is growing at "double digit" rates annually. Though both banks deny there is a merger in the offing, they are continuing to link their activities worldwide.
First Interstate, for example, offers international banking services such as trade finance, foreign exchange, derivative products, and retail banking services outside the United States to its middle-market corporate and retail customers.
Meanwhile, Standard Chartered turns its own customers over to First Interstate when they need business or retail banking services in the United States.
With trade and travel between the United States and Asia growing quickly, both banks expect business referrals to keep growing.
Ties between the two banks are the outcome of an alliance struck three years ago when First Interstate sold its overseas network to Standard Chartered, saving tens of millions of dollars in annual operating costs. The deal included First Interstate's international corporate finance, treasury, and trade finance operations, as well as 22 offices in 17 countries, 700 employees, a London-based securities unit, and $600 million in assets.
Standard Chartered, for its part, shut down private banking offices in Miami and New York, sold its asset-based finance company in Chicago to LaSalle Bancorp, and turned its domestic securities sales and trading activities in Los Angeles over to First Interstate. About the only office it kept up and running in the United States was its New York-based corporate finance and trading operations.
Elsewhere, the British bank simply moved U.S. units, such as the Los Angeles-based treasury and trade finance activities, into First Interstate headquarters on Wilshire Boulevard.
Standard Chartered's linkup with First Interstate follows an unhappy history of trying to expand on its own in the United States by acquiring U.S. retail banking units in California and Arizona.
Reversing policy, the $57 billion-asset British bank sold off San Francisco-based Union Bank to Bank of Tokyo in 1988. That same year, it sold off United Bank Corp. of Arizona to Citicorp for $153 million, or less than half of what it had paid to acquire it in 1987, after discovering millions of dollars of nonperforming loans. (Standard Chartered has since sued Price Waterhouse for failing to adequately examine United Bank's books before the purchase.)
First Interstate also reversed direction in the late 1980s, opting to expand and develop its local retail banking operations.
The current arrangement permits both banks to offer customers an enormous international and domestic reach. Though based in London, Standard Chartered runs an extensive network around the world that includes a strong presence in Southeast Asia and offices in remote places like Sharjah (one of the Arab Emirates), Malawi (an African nation), Macau (an island in the South China Sea), and Western Samoa.
First Interstate, with $56 billion in assets, had 1,137 offices at yearend and operates banks in California, Alaska, Idaho, Montana, Oregon, Washington, Arizona, Texas, Nevada, New Mexico, Colorado, Utah, and Wyoming.
Bankers from both institutions say the large transfer of staff from First Interstate to Standard Chartered, and vice versa, was a key factor in helping make the alliance work.
"We had a core group of people who are now sitting in extremely senior levels at Standard Chartered who help bridge the two cultures," says Mr. Holman.
In fact, so many Yanks, as they call them, moved over to Standard Chartered that the British bank wound up winning the two banks' annual softball game two years in a row.
Regular meetings and joint planning between Malcolm Williamson, chief executive at Standard Chartered, and William E.B. Siart, First Interstate's chief executive, are equally important. Among the plans now on the drawing board: linking the two banks computer systems so that they can communicate on corporate accounts, developing joint cash management programs, and expanding retail banking services.
In a first step to launch a joint international retail banking program under the name "Passport Banking," First Interstate is offering checking accounts, money market accounts, remittance services, credit cards, and mortgage and personal loans to customers of Standard Chartered.
Standard Chartered, in turn, is offering personal banking services to customers of First Interstate outside the United States.
If imitation is the sincerest form of flattery, Standard Chartered and First Interstate are getting lots of compliments.
Wells Fargo announced earlier this year that it plans to set up a jointly owned trade bank, called Wells Fargo HSBC Trade Bank, with HSBC Holdings PLC, another London-based bank with an extensive network of offices in Asia and around the world.
A spokeswoman for Wells Fargo declined to discuss details of the agreement, pending regulatory approval. But the bank stated in a release earlier this year that the plan is to capitalize the joint subsidiary at $50 million, of which $30 million will come from Wells. The main goal of the joint venture is to provide Wells customers with greater access to international markets and HSBC customers with U.S. banking services.
A third bank, First Union, announced in February that it has formed a joint venture with Indonesia's Lippo Group. First Union executives said that the deal gives them a ready-made infrastructure they can use to market the North Carolina bank's services in Asia.
In a similar arrangement, First Union last October set up another joint venture with Hongkong Chinese Bank to provide trade finance to importers and exporters in the United States, China, and Hong Kong.
Analysts believe the First Interstate deal with Standard Chartered is logical, even if they have doubts about how much extra income the arrangement actually generates.
"The concept makes sense, " said David S. Berry, a banking analyst with Keefe, Bruyette & Woods Inc. in New York.
"Banks are discovering they can't do everything, and there's an encouraging trend to determine what the core competencies are and focus on them."
As a result, he predicted, other banks are likely to embark on similar "divestitures, acquisitions, strategic alliances, and joint ventures, mechanisms that can deliver services customers need without an infrastructure to support them that is 10 times as big as the business going through it."
Says Christopher Ellerton, a banking analyst with SG Warburg in London: "It makes more sense for Standard Chartered to get business referrals from First Interstate than butting their heads against the wall trying to compete domestically with American banks."
