NationsBank Corp. is continuing to expand abroad in advance of its pending merger with BankAmerica Corp.

Charlotte, N.C.-based NationsBank announced last week that it is setting up a Cayman Islands subsidiary as its main international banking unit, with affiliated operations in Dublin and Amsterdam.

BankAmerica, which is scheduled to merge with NationsBank at the end of the third quarter, already has an office in the Cayman Islands.

NationsBank executives were unavailable for comment on the announcement.

However, Richard Gross, president of NationsBanc Montgomery Securities, indicated to news agencies that fast growth in international business was prompting NationsBank to forge ahead on its own.

He added that the subsidiary will be used primarily to reduce funding costs and will also help NationsBank cut taxes and operate with simpler banking regulations than in the United States.

Funding from offshore locations such as the Cayman Islands is less costly because lower reserve requirements are imposed and low taxes let depositors accept lower returns.

The complex structure would also let NationsBank benefit from tax advantages. In Dublin, for example, it would pay only 10% on its earnings, compared with 35% in the United States.

The Cayman Islands unit, to be known as Nations Finance (Cayman) Ltd., will get $2 billion of initial funding from NationsBank. Of that, $1.5 billion will be used to fund the Amsterdam unit, which will in turn use $500 million to fund the Dublin unit.

All three units will use the funds to make loans and engage in swaps or other types of transactions.

BankAmerica has by far the larger international business, with operations in 38 countries. The North Carolina company has offices in 14 countries and this year bought a majority stake in Brazil's Banco Liberal.

Though NationsBank has a smaller presence abroad, its foreign operations have been growing rapidly since it began assisting U.S. corporations making investments or acquiring companies overseas.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.