Even as Asia's financial crisis deepens, BankBoston Corp. sees big investment banking opportunities across the Pacific.
In recent months, the Boston banking company has been building up its investment banking staff as it focuses on the capital needs of midsize companies that lack investment-grade credit status.
BankBoston's foray into Asia follows a decision three years earlier to create an investment banking unit for the United States and Latin America, where the company has a long-standing commercial banking presence. And current market conditions are not fazing Ignacio E. Sosa, managing director and group head for emerging markets at BancBoston Securities Inc., the banking company's capital markets unit.
"We are investing heavily in Asia precisely because there is a crisis," he said.
For people like Mr. Sosa, who began selling and trading impaired Latin American loans at Bankers Trust Corp. in the 1980s, possibilities unfolding in Asia are very similar to those in Latin America more than a decade ago.
"Judging by what we've experienced in Latin America," he said, "crises have been good for us."
"We realized we had to move beyond lending into capital markets or see our position threatened," said Paul Hogan, executive vice chairman of the bank. "We also realized that our ability to originate transactions was far in excess of what we could keep on our balance sheet."
BankBoston has a long way to go in building its emerging market investment banking business. Though Eurobond underwritings rose from only $305 million in 1996 to $1.35 billion last year, according to Securities Data Co., that is still well below the $24 billion and $7.5 billion that J.P. Morgan and Chase Manhattan arranged, respectively.
U.S. public and private debt issues by BankBoston on behalf of Latin American borrowers show a similar rapid growth, from only $7 million in 1996 to $186 million last year.
Again, that is well below the $3.4 billion arranged by J.P. Morgan.
Business also has yet to take off in Asia, where as Mr. Hogan said the bank has so far found only a "toehold."
"Issuers and investors in Asia are still somewhat paralyzed," Mr. Sosa observed. "Issuers don't want to recognize how much they have to pay, and banks don't want to recognize how much the value of what they hold has fallen."
But he adds it is only a matter of time and that BankBoston already has several deals "in the pipeline."
Analysts say there is nothing unusual about the relatively small amount of capital market deals to date.
"I would call them a nascent powerhouse," said Nancy Bush, a banking analyst at Ryan, Beck & Co. "Keep in mind that they've only been developing their capital market capabilities over the last two years."
Unlike Morgan and Chase, which have expanded into investment banking internationally by going after business with foreign governments and large foreign corporations, BankBoston's business in Latin America and Asia is with below-investment-grade, midsize companies.
In line with this plan, the bank has put together a U.S. team that includes Mr. Sosa; Steven A. Shenfeld, managing director and group executive for U.S. capital markets; and Mary Etta Schneider, managing director and group executive for investment banking.
In February, BankBoston accelerated its buildup in Asia, hiring 14 market specialists, including Anthony Loh, a former managing director and head of fixed income from the failed investment bank Peregrine Investment Holdings, and William Overholt, former head of Asian research at Bankers Trust Corp. in Hong Kong.
The capital markets effort got a major boost last month with BankBoston's decision to buy Robertson Stephens, the San Francisco- based investment bank, from BankAmerica Corp.
Before yearend BankBoston plans to combine Robertson Stephens-a specialist in initial public offerings, convertible bonds, and mergers and acquisitions among middle-market companies-with its own growing operations in high-yield securities, asset securitization, derivatives, and loan syndications.
"This is what one-stop shopping means," said Mr. Shenfeld. "It means everything from senior debt to subordinated debt to equity."
For BankBoston, Robertson Stephens adds a potentially more profitable dimension to its international effort.
Though most of the Latin American debt business revolves around fixed- rate bonds, the fees for underwriting bonds are only around 0.5% to 1%. In contrast, fees for underwriting equity for corporations in places like Latin America range from 3% up to 6%.
Though most of Robertson Stephens' activities are U.S.-based, the firm has offices in London, Tel Aviv, and Tokyo, where it originates equity for U.S. distribution.
BankBoston executives say they not only plan to expand those operations after the deal closes in the fourth quarter but also will link them to BancBoston Capital, the bank's equity investment unit.
"Robertson Stephens looks like a domestic enhancement," said Mr. Shenfeld. "Our intention is to make it more than that."
More specifically, he and others said, BankBoston plans to use Robertson Stephens to originate and place Latin and Asian debt and equity issues and strengthen its budding mergers and advisory business in Latin America, focusing on noninvestment-grade companies in sectors such as media, telecommunications, energy, and shipping.
"There will be a broader investment banking effort in mergers and acquisitions, and we will go after equity underwriting," Mr. Sosa said.
Ms. Bush cautioned that BankBoston would find the going a lot more difficult in Asia than in Latin America, where it already has an extensive network on the ground, a recognized brand name, and a large number of corporate relationships.
"And I'm not sure whether or not they are prepared to put into Asia what it will take to duplicate what they have in Latin America," Ms. Bush said.
Even with limited exposure in Asia, BankBoston executives said they believe they are well-positioned to take advantage of changes in the market.
Excluding traditional trade finance, lending by the bank to Asian corporations will be mainly to facilitate bond underwritings or loan and bond restructurings in countries like Indonesia, Malaysia, Thailand, South Korea, China, and Hong Kong, Mr. Sosa said.
Such restructurings, he said, could involve converting loans to bonds, reselling bonds issued by Asian corporations and government agencies at a discount to institutional investors, and arranging swaps of debt into equity.
Meanwhile, BankBoston is not neglecting its traditional markets in Latin America. It plans to expand in Mexico but remains uncertain whether to buy something or build on its own.
"We don't want to buy something we'll have to spend a huge amount of time fixing," Mr. Sosa said.
In Mexico, he said, BankBoston hopes to expand in everything from commercial lending to investment banking and cash management.
"Mexico is the third-largest market in Latin America, Mexican banks have stopped lending, and foreign banks have either focused on capital markets or only lend to the top 30 Mexican corporations," Mr. Sosa observed.
"We see a huge number of companies with solid credit histories with whom we can do business.
One could easily wonder, given the speed at which U.S. banks are merging, why BankBoston is proceeding with a buildup of activities that might well be dumped or folded into some other bank if BankBoston is itself bought by a larger player, such as First Union Corp. or BankAmerica Corp.
To that, Mr. Hogan will only say: "Mergers are not in our plans. If we were planning a merge, I doubt whether we would have done the deal with Robertson Stephens."
Ms. Bush said those at the bank have "to go about their lives assuming they're going to remain independent.
But if somebody does buy them, it won't be for their New England franchise, and what they do internationally will make them even more attractive."