Long reluctant to expand outside the United States after extricating itself from the international debt crisis of the mid-1980s, BankAmerica Corp. is back on a roll in Asia.
"The Pacific area is where new wealth is being created," says Kai S. Nargolwala, group executive vice president in charge of wholesale banking in Asia. "We sit astride that flow of wealth, and if we can tap into it that's where our growth will come from."
Figures show just how fast the bank's business is growing in the Orient. According to recently released results, Asia contributed 17% of the $651 million in profits the bank earned from corporate wholesale business last year.
That percentage would have been even higher had it not been for a number of onetime special items that boosted earnings from Latin America and Canada. The items included $36 million in gains from the sale of BankAmerica's stake in Burns-Fry, the Canadian brokerage firm.
Asia accounted for more than 8% of total 1994 net earnings of $2.17 billion.
Total assets in Asia have nearly doubled in three years to almost $19 billion, or nearly 9% of BankAmerica's total assets. And they are still climbing.
BankAmerica's two-pronged thrust into Asia is aimed at expanding both retail and wholesale banking. Around 70% of BankAmerica's business is wholesale, and the rest retail.
On the consumer side, BankAmerica is seeking to attract Asian customers by offering personal and auto loans, residential mortgages, and in the near future, credit cards. The bank is also planning to launch mutual funds and offer foreign exchange accounts, as well as loans collateralized by securities.
"We think the potential for retail is immense," says Mr. Nargolwala. "Wholesale banking will grow, but retail will grow even faster.
On the wholesale side the range of activities is even broader. The bank handles treasury-related operations and capital raising activities such as syndicated loans and project finance, through BA Asia Ltd., a merchant banking unit based in Hong Kong, and commercial banking activities like trade finance, remittances, letters of credit, and payments products.
The bank does not engage in "small-ticket lending to small businesses," Mr. Nargolwala says.
In a typical deal, last month BankAmerica helped arrange a $150 million loan with ABN Amro Bank for Dabhol Power Co. to help finance the construction of a new power plant in India.
Still another growing area is equity investments in Asian companies in ordinary shares, preferred shares, convertible notes, or other instruments that carry an equity option.
Behind BankAmerica's second coming in Asia lies a sharp reassessment of opportunities in the wake of rapid economic growth in countries like China, Thailand, and India.
The wealth produced by this growth has created a new demand for consumer banking services in societies that have traditionally dealt in cash, Mr. Nargolwala points out.
In addition, demand for capital to fund even more growth is prompting Asian entrepreneurs to turn to international banks in order to access capital markets at the lowest possible borrowing costs. Last year, for example, the bank helped arrange 59 transactions, raising more than $8 billion for Asian borrowers through loan syndications, capital markets issues, and private placements.
"We're the only international U.S. bank outside of New York City," Mr. Nargolwala observes. "And our focus has come full circle from helping U.S. companies do business in Asia to helping local companies in Asia do business in the United States."
The renewed interest in developing business abroad follows several years during which BankAmerica largely concentrated on expanding and streamlining its U.S. operations. The bank had reduced its international retail and commercial banking in the mid-1980s.
Over the last 10 years, the bank has reduced the number of countries it operates in worldwide to 36 from 80, and focused on building up U.S. and foreign corporate wholesale business in Asia and Latin America.
"We have focused our international network to emphasize the Pacific Rim, which capitalizes on our unique position as the only West Coast-based corporate bank," observed BankAmerica chairman Richard Rosenberg in the company's latest annual report.
The bank sold its Italian retail banking subsidiary, Banco d'America e d'Italia, to Deutsche Bank in 1986 and scaled back international retail and commercial middle-market banking in Europe and Latin America. Instead, Bank of America opted to develop wholesale banking services in the United States and other major financial centers like London.
But after the 1992 acquisition of Security Pacific Corp., with its large Asian retail and wholesale banking operation, BankAmerica realized it was ideally positioned in Asia to cater to exploding demand for capital, trade finance, and consumer banking services that its Asian competitors did not have the expertise or networks to supply.
Despite the reduction in international commercial banking activities, BankAmerica kept its five-decade-old network of offices that straddle 14 countries and employ 4,000 people in 22 cities.
Expansion is continuing. BankAmerica has just opened a branch in Hanoi and plans to open an investment banking subsidiary with offices in Bombay and New Delhi.
Three or four more offices will be opened over the next few years in China, where the bank already has a branch in Guangzhou and Shanghai, as well as representative offices in Beijing and Dalien.
Analysts say BankAmerica's push to expand its existing business in Asia appears well timed. "They can't rely on this alone to grow their earnings going forward, but they do have a good opportunity," said Lawrence Vitale, a banking analyst in New York with Bear, Stearns & Co. "Their timing is right in Asia, and they don't have a lot of competition."
Asia, along with non-California operations, will probably be the two fastest-growing revenue generators for the bank, Mr. Vitale estimates.
"They clearly view Asia as the area of greatest potential on a global basis for the corporate bank, and they are strategically better positioned there because of their West Coast headquarters to take advantage of that," said Carole Berger, a banking analyst with Salomon Brothers Inc. "They've targeted the Pacific Rim as a place where they have a competitive edge, and they see substantive growth, particularly in China and India.
Analysts add that though other U.S. money-center banks, like Chase Manhattan Corp., Bank of Boston Corp., Bankers Trust New York Corp., and J.P. Morgan & Co., are all moving to expand their operations, most are being much more selective. With the exception of Citicorp, they estimate, no other U.S. bank rivals BankAmerica's network in Asia.
"Bank of America is now the only money-center bank headquartered west of Chicago, and their emphasis on Asia makes a great deal of sense for them," said Raphael Soifer, a banking analyst with Brown Brothers Harriman in New York.
But Mr. Soifer adds a word of caution. "Strategically, it's a good move, but the results will depend on what sort of risks they take on in the process of implementing their strategy," he says.
In response, Mr. Nargolwala insists that BankAmerica is taking it one step at a time. Though the economies of Asian countries are by and large well managed, he points out, BankAmerica is well aware that each country has specific issues that must be taken into consideration. India, for example, has been slow to implement market reforms, while China is currently dominated by concerns over who will take power after Deng Xiao Ping dies.
That, plus the fear of setting up costly local networks without adequate revenues to justify their existence, makes BankAmerica cautious.
"We don't want to have large fixed costs, and our strategy is to take U.S. product expertise and use alternative delivery systems like the phone. We're investing, but we're doing it judiciously," Mr. Nargolwala adds.