Enlarge This ImageProblems for bank customers often have a way of becoming problems for banks. But when a small business in rural Arkansas came to Regions Financial last year looking for help, the issue was what one might describe as a good problem to have.
The customer had landed a large contract with a global firm to manufacture pipe bundling equipment for a project in Mexico. Although it was nice to attract new business in a slow year, the company wouldn't be paid until production was complete- and it would take nearly a year to manufacture the equipment.
Regions came up with a line of credit that would finance up to 75 percent of the ongoing costs to fill the order, allowing the manufacturer to hire the employees and purchase the materials needed for the job. And because the credit line was backed by the U.S. Export-Import Bank, a government agency that helps fill gaps in private export finance, 90 percent of Regions' exposure was guaranteed, offsetting most of the perils of lending against inventory, along with the repayment risks associated with foreign receivables.
Against a backdrop of record U.S. export activity, Regions, like other banks around the country, has recognized the huge demand for trade finance services, and the benefits of providing them. Financing importers and exporters that buy or sell products in emerging markets around the globe can offset weaker loan demand in other business lines as the U.S. economic recovery plods along. And offering such services to business customers tapping into foreign markets for the first time can minimize the chances of their defection to other banks that might better accommodate their growing needs.
"I can't say enough about how much of a focus this is for us now," says Carson Strickland, vice president and global trade sales manager at Regions, which is ramping up its trade finance activity in a quest to be one of Ex-Im Bank's top producers. "Trade is growing faster than the U.S. economy."
The $130 billion-asset Regions, based in Birmingham, Ala., has seen 15 percent annual growth in trade finance revenue for the past two years, and it expects growth to at least match that pace for the next several years. The uptick in traderelated business has been strong enough that Regions recently brought on two additional trade officers, increasing the size of its trade sales team to seven.
The ripple effects of the sovereign debt crisis in Europe serve as a stark reminder of the complexity and volatility of a globally connected economy. But for banks willing to help facilitate the movement of goods around the world-a prospect made more palatable by Ex-Im Bank's guarantees against working capital loans and the like-trade finance can be a useful instrument for meeting a new imperative of the post-crisis era: deepening relationships with customers.
In the case of technology firm Ruckus Wireless, its banking relationship grew along with the company's international reach. When Ruckus formed in 2004, Asia and Europe were the only places in the world where mobile carriers used infrastructure that was compatible with the start-up's technology for transmitting Wi-Fi through TV signals. The Sunnyvale, Calif., company, which has relied on Silicon Valley Bank for several years to provide letters of credit and other traderelated services, now has employees in 24 countries and customers in 80 countries.
"We've raised $51 million in venture capital, but we've also used working capital loans and letters of credit from Silicon Valley Bank when we've needed it," says Ruckus' Chief Financial Officer Seamus Hennessy. "They are tools in our toolbox to be able to expand internationally."
