CoreStates Financial Corp. has led several U.S. banks to the United Kingdom in an effort to jump-start that country's fledgling asset-based lending industry.
Congress Financial Corp., the Philadelphia bank holding company's asset- based lending subsidiary, in February purchased Burdale Holdings Ltd., a small trading firm, for an undisclosed price.
Congress is using Burdale as the platform for its British operations.
Other banks don't want to be left out of this U.S. invasion of the United Kingdom. In recent months, BankAmerica Corp. has opened an asset- based finance subsidiary in London. And Bank of New York has also set up shop.
Robert I. Goldman, the New York-based chief executive of $3.1 billion- asset Congress Financial, said he watched the U.K. market for about three years before deciding to purchase Burdale. The price was not disclosed.
"It's an increasingly important business," Mr. Goldman said. "We think the same elements of opportunity in the U.S. also exist in the U.K."
In the United Kingdom, the business of lending to high-risk borrowers and securing those loans against inventory, receivables, and other non- real-estate collateral is still in its infancy.
But in the United States, there is a $169 billion market for such loans, which generally carry higher interest rates than conventional corporate loans because the borrowers are a greater credit risk.
The fatter margins of these loans have proved too tempting for most U.S. lenders to resist.
Even the likes of heavyweights Merrill Lynch & Co. and Salomon Brothers are vying for the same business which CoreStates, a $45.5 billion-asset regional bank, has dominated for years.
But across the Atlantic in the United Kingdom, where the country's six major domestic banks have kept their focus firmly on traditional lending, asset-based financing has remained virgin territory.
Dennis Levin, the chief executive of Burdale, said the group would be extending loans from $1.65 million to $30 million for companies with yearly revenues ranging from $6.6 million to $330 million.
Burdale, co-founded by Mr. Levin five years ago, focuses on private businesses involved in importing, distribution, manufacturing, and retailing.
During 1996, Burdale produced revenue of $58 million - a figure Mr. Levin predicted would increase dramatically with the help of Congress Financial's deep pockets.
Mr. Goldman said a growing number of CoreStates' U.S. midsize corporate clients have been expanding overseas to places like the United Kingdom.
But U.K. banks, which tend to be more conservative than their U.S. counterparts, have been nervous about lending to the riskier, more specialized businesses of midsize companies.
Because there is as yet no track record for assessing risk in this particular business, the big banks have been slow to assume that risk by starting from scratch.
Mr. Goldman is betting that this will change if CoreStates and other U.S. newcomers make a success of the market.
"I think you'll find there's a herd instinct;, everybody will follow," he said.
To some extent, U.S. banks like CoreStates are taking a gamble with the United Kingdom, given the country's past attitude about asset-based finance.
In the 1980s, a handful of U.S. lenders came to the United Kingdom looking to make their fortune in this business. All failed.
Bruce Jones, deputy executive director of the New York-based Commercial Finance Association, a trade association representing asset-based lenders, believes most of these lenders were too inexperienced in the ways of international finance.
Many suffered culture shock as they sought to impose an American-style business on the sensibilities of the British finance community.
"In the 1980s some went over there and did not do well," Mr. Jones said. "I think it was a different culture ... and I think the American banks that went over were inexperienced. Then in the late 1980s the bank industry hit a hard time, and our business suffered too," Mr. Jones said.
Hoping to avoid the mistakes of the past, CoreStates is drawing on the expertise of the British finance specialists at Burdale.
BankAmerica Corp. has recruited a U.K. finance expert to start its London subsidiary from scratch. It has hired Paul Hancock, who was formerly head of sales and marketing for Lloyds Bank's factoring operation in London.
Companies that traditionally turn to asset-based lenders are those which commonly need to borrow a sum of money in excess of their cash flow.
Traditional corporate lenders tend to look at the immediate strength of that borrower's balance sheet and cash flow.
For most midsize companies that are cyclical in nature, the balance sheet can disguise the true worth of their assets and their future earnings potential.
This is where the commercial finance companies step in.
These specialists examine the underlying assets that will serve as loan collateral.
If that collateral is deemed sufficient, then a deal is usually struck. An important and complicated part of this assessment involves determining whether anyone else has first lien-the right to claim collateral in a default.
In most of Continental Europe, laws governing liens are practically nonexistent-which is why the United States has tended to focus on the United Kingdom, where governance laws are similar.
BankAmerica's Hancock estimates that the U.K. market has a potential size of roughly $1 billion over time.
That potential is acknowledged by specialists based in the United Kingdom. John Leonard, a London-based banking analyst with Salomon Brothers, said: "The U.K. does have a good, vibrant, small business community.
"It's an area that hasn't received as much focus as consumer banking. There has been a focus on reducing risk. But I think people looking for yield are changing their risk perimeters."
If this proves to be the case, the U.K. market could be in for some serious competition.
There are already signs that the rest of Europe, too, may be opening up.
Mr. Jones says the Commercial Finance Association is a working member of a United Nations commission focusing on international trade law. This group is meeting in Austria in October to discuss standardizing lending practices for the international community.
"That's going to have a tremendous impact and is also going to increase business," Mr. Jones said.
He shares a view of the global marketplace already aggressively exploited by the big investment banks: "The world is getting smaller, and anyone in business today is going to miss the boat if they don't look globally."
Ms. Miller is a writer based in London.
