Bank of Boston Corp. is taking a new approach to building its overseas operation.
Once content to focus on wholesale banking, the company has turned its overseas spotlight on fee-based activities such as capital markets and institutional pension and retail fund management.
Moreover, a banking company long known for its emphasis on Latin America is actively expanding its Asian operations, particularly in China, India, Hong Kong, and Taiwan. Last year alone, Bank of Boston financed $6.5 billion worth of trade from Asia, and that business is growing by about 30% annually.
"Asia is starting to trade more actively with other parts of the world, like Latin America," said William J. Shea, Bank of Boston's vice chairman and chief financial officer. "We want to connect those trade flows."
This is a whole new style of business for a bank steeped in tradition.
With 100 offices in 24 foreign countries, the $46 billion-asset Bank of Boston has long been one of the most internationally oriented U.S. financial institutions.
Unlike most U.S. banks, which scrapped their international commercial banking networks in the 1980s in favor of investment activities, Bank of Boston kept the focus on traditional banking - until recently.
"Disintermediation is occurring on the corporate lending side in Latin America," said Mr. Shea. "It all comes back to what the customers want, and clearly this is changing our emphasis in terms of how we earn our money."
Since last year, the Boston-based bank has built up capital market and trading activities, hiring Ignacio Sosa from Bankers Trust New York Corp. to serve as Bank of Boston's managing director for emerging-markets sales, trading, and research.
It has also opened a representative office in Bombay, India; a bank in Mexico City; a joint investment bank in Manila, and a branch in Bogota, Colombia. The bank is also awaiting approval to open an office in Peru later this year and is looking to acquire local banks in Argentina and Brazil.
Mr. Shea declined to comment on rumors that Bank of Boston is also looking to acquire a bank in Mexico. He did say the bank hopes to recover six branches in Cuba and millions in deposits seized by the Cuban government in September 1960.
Mr. Shea emphasized that Bank of Boston has set no specific deadline for its expansion. But judging from the bank's financial performance, the latest round of international growth is well under way.
Revenues from international operations have climbed sharply over the last few years, to $764 million, or 27% of total revenues in 1995, from $621 million in 1994 and $492 million in 1993. Net profits have increased equally fast, rising to $128 million, from $112 million in 1994 and $59 million in 1993.
In yet another shift, Bank of Boston is increasing overseas investments for its own account in promising foreign companies through BancBoston Capital, its equity investment arm.
BancBoston capital has invested more than $1 billion in 250 companies around the world, including, most recently, $16.5 million into a German management buyout fund sponsored by MeesPierson, a Dutch merchant bank, and BHF Bank, a German merchant bank.
Mr. Shea expressed satisfaction with some results. He said that in Argentina, where the bank owns 45% of Previnter, a pension fund, along with AIG group and a local bank, Bank of Boston has built up a $350 million annuities portfolio in two years, equal to 10% of total annuities in Argentina.
The bank also manages approximately one-third of a total $1 billion in Argentinian mutual funds. And in Brazil, the bank manages $3 billion in mutual funds out of a total of $89 billion.
Mr. Shea said the bank has yet to achieve a main goal - expanding its Latin distribution network, most likely via acquisitions.
Bank of Boston was frustrated when Argentina's government nullified its acquisition of Banco Integrado Departamental, along with 93 branches.
"We're not disadvantaged" as a result of the failed bid, Mr. Shea said, "and we're looking at other opportunities as Argentina's banking system consolidates and other banks look for extra capital."
The latest surge in international activity at Bank of Boston was caused by the pending acquisition of BayBanks Inc., a Massachusetts retail bank.
The acquisition, Mr. Shea said, will reduce Bank of Boston's operating earnings from international activities to around 12% of the total, down from the 20% the bank seeks to maintain. As a result, he added, the bank has ample room to expand outside the United States.
Acquiring BayBanks and solidifying the bank's U.S. retail and middle- market corporate base, "helped us think more about global opportunities," Mr. Shea said.
Analysts see reason little to disagree.
"I don't think there's any doubt that one of the advantages in the BayBanks acquisition is that it creates an opportunity for them to grow their Latin American franchise and still keep the overall Latin earnings contribution from becoming too dominant," said Lawrence Cohen of PaineWebber.
A stronger capital base has also given Bank of Boston more leeway.
"There was a time not too long ago when capital was a scarce commodity in banking," Mr. Shea noted. "BayBanks has given us the capital we need to explore opportunities to expand our franchise."
Bank of Boston's ongoing commitment to international expansion is all the more remarkable given the ups and downs of the last decade.
During most of the 1980s, the bank's offices in both Brazil and Argentina juggled hyperinflation and high interest rates. In the late 1980s, the bank was forced, along with many other U.S. banks, to write off hundreds of millions in problem Latin loans.
By and large, however, tenacity has paid off. Even in Latin America, where many economies have been on a roller coaster for more than a decade, net profits have held steady, climbing to $98 million last year from $83 million in 1994, and from $56 million in 1993.
Mr. Shea remains unfazed by either the severe recession in Argentina that followed a financial crisis and a run on bank deposits or forecasts that Brazil may be heading for a financial meltdown.
Argentinian depositors looking for a safe haven for their money were quick to park it with Bank of Boston. As credit grew scarce and interest rates rose sharply, the bank profited not only from a boost in inexpensive funding but from higher margins as well.
"We believe we can manage in any kind of environment," Mr. Shea said.
"We never expect things will move in a straight line but we see a process of adjustment continuing in Latin America and elsewhere. I don't see great storm clouds gathering on the horizon," he added.
Analysts concurred.
"With the massive shift in economic circumstances of much of the continent over the past few years, this company's longstanding operations in Argentina, Brazil, and Chile are positioned to benefit," Salomon Brothers Inc. said in a report last month.
"Although economic stabilization requires significant changes in business mix and orientation, we believe the bank's mangers are proving up to this task, even when economic backsliding required rapid adaptations."
