DALLAS - Foreign banks are on a roll in the Lone Star State.

In the 12 months ended June 30, assets of foreign banks in the 11th Federal Reserve District - covering Texas, parts of New Mexico and Louisiana - rose more than 26% to $9.5 billion, the Federal Reserve Bank of Dallas reports.

Bankers attribute the surge to everything from a spurt in mergers and acquisitions to international investments and the Southwest's improving economy.

"Contrary to popular misconceptions, Texan businesses are very internationally oriented," says Philippe Blavier, who started up the Houston agency for Banque Paribas before becoming head of the French bank's U.S. operations. "It's an entrepreneurial environment - very dynamic, and very open to foreigners."

But Matthew C. Flanigan, first vice president and manager of the Dallas agency of Societe Generale, the largest foreign bank in Texas with over $2 billion in assets, said this hasn't always been true.

"Texans didn't have a lot of inclination to do business with non-Texan banks," he observed. "But the turmoil among domestic banks gave us a chance to establish ourselves as the same bank with the same name and the same message that we weren't pulling out."

To be sure, $9.5 billion in assets isn't an enormous amount, and foreign banks count for no more than a handful of the 865 banking companies with full-service offices in the state. Foreign banks also tend to participate in loan syndications rather than originate deals, the more profitable part of lending. But bankers and officials say business in Texas is growing faster than elsewhere.

Compared with the 26.5% increase in foreign bank lending in the 11th District, equal to $9.3 billion, business lending by foreign bank branches and agencies across the United States grew only 9% to $315 billion over the same 12-month period ended June 30.

Foreign banks are also expanding faster than U.S. banks in Texas, which increased their commercial and industrial loans 18% to $32.3 billion. That means foreign banks have built up a disproportionate share of the Texas corporate banking market, providing 20% of all commercial and industrial loans as of June 30, more than double the 9.38% share they held at yearend 1990.

Adding the $7.8 billion in business loans booked at offshore offices such as those in the Cayman Islands, foreign banks provided 25% of all business loans in the 11th district, according to Susan P. Tetley, a financial analyst with the Dallas Fed. She said the real figures may be even higher. "We really don't know to what extent banks might be making loans here but booking them at other locations," she said.

Bankers predict business will continue to expand, citing the ongoing influx into the Southwest of large corporations attracted by low labor costs, cheap rent, and lower taxes. Another reason: commitments on future loans have also increased sharply, to $14 billion, up 51.6% from the second quarter of 1994.

"We've hit some real home runs in the third quarter, and I think it's safe to say we'll be even more successful," said Don Hanna, senior vice president and head of ABN Amro's Houston agency.

Still another reason for optimism: Foreign banks are moving farther afield, building relations with smaller, less well-rated companies in Texas and firms in neighboring states like Arkansas, Oklahoma, New Mexico, and Colorado.

"The Texas economy is pretty robust," said Matthew G. Patrick, vice president at Sanwa Bank's Dallas agency. "But in order to grow, we've had to look to other areas as well."

Foreign banks' strong position in Texas is all the more remarkable because up until just 10 years ago, they weren't even allowed to do banking in the state except through representative offices that couldn't take deposits or book loans. As Edge Act corporations, they could deal only with nonresidents. Since 1985, when laws were liberalized, 23 foreign banks have set up agencies or representative offices in Dallas and Houston.

"Despite their relatively short history and limited presence in Texas, foreign banking organizations have evolved into a major source of financing for corporations in the Southwest," the Dallas Fed noted in a recent report.

Although initially attracted to Texas by its energy industry, the report said, "foreign banking organizations now provide financial services to a variety of regional corporate customers."

Japanese banks constitute the single biggest contingent among foreign banks in Texas with some 40% of total foreign assets, and French banks are next with roughly 35%.

More banks are coming. MeesPierson NV, a unit of Amsterdam-based ABN Amro, this year opened a representative office in Dallas while France's Credit Agricole has applied for approval to open a Dallas representative office to develop lending, risk management, and asset securitization in the oil and gas industry.

Not all foreign banks have stayed. Nine have shut down Texas offices since 1991, the latest being Credito Italiano, which closed a Houston representative office this year. A 10th, Daiwa Bank Ltd. was ordered in November to shut its U.S. offices, including its Dallas agency and a Houston representative office.

Foreign banks are also still somewhat restricted in what they can do. As agencies they can purchase, sell, or make loans, handle foreign exchange, issue letters of credit, notes and other banking bills, and transfer funds. But they still can't open branches, take deposits, or engage in trust activities. As a result, more than 90% of foreign banks' assets in Texas are loans, compared with only about 33% for foreign bank branches in New York.

But this hasn't prevented them from doing some very large deals. Paribas, for example, last March co-arranged with Chase Manhatten Corp. some $1.375 billion in financing for the acquisition of Dallas-based Maxus Energy by Yacimientos Petroliferous Fiscales, the Argentine oil company. That included $550 million in bridge financing, $250 million in pre-export financing, and $425 million in reserve-based term loans.

Meanwhile, Societe Generale last August underwrote and syndicated a $350 million facility to Arkansas Best Corp., a Fort Smith-based trucking company, for the acquisition of WorldWay Corp. of Cherryville, N.C.

In two separate recent deals, the bank managed a $115 million facility for Schweitzer-Mauduit International Inc., the world's largest manufacturer of cigarette papers, and obtained a mandate from a large corporation in Monterrey, Mexico, to securitize $200 million worth of receivables.

Foreign bankers said that, by and large, they don't compete with smaller local banks for retail and small-ticket business loans or with out-of-state banks that have moved into Texas since the 1980s.

"Our market is large companies with sales in excess of $200 million," says ABN Amro's Mr. Hanna.

"Most of the banks in Texas are small," noted Ms. Tetley of the Dallas Fed. "They don't lend to large corporations."

Instead, foreign bankers said they aim for a wide range of corporations that are expanding internationally and might need additional services from their bank overseas.

In one such recent deal, for example, ABN Amro leveraged its international connections to supply a $25 million letter of credit to F.C. Schaffer & Associates, a unit of Houston-based Serv-Tech Inc., to help construct an $83 million sugar refinery in Ethiopia.

"A lot of banks shy away from Africa, but ABN Amro was extremely aggressive in supporting the project," said David Tusa, Serv-Tech's senior vice president for finance and administration. "The letter of credit they supplied was critical to completing the project financing."

"We're not going to compete with NationsBank to be a core bank or handle a company's cash management," said Sanwa's Mr. Patrick. "Our advantage is (our) international network."

Even if operations are still relatively modest by global standards, profits are high. Bankers decline to disclose exact figures but said returns on business exceed those at operations elsewhere.

"Based on net after-tax income, Dallas was our single most profitable office per relationship manager," said Mr. Flanigan of Societe Generale.

Banque Paribas' Mr. Blavier said his bank has garnered the same kinds of returns. "Texas provides us with the second-largest cash flow contribution in the United States," he said.

U.S. regulators said they have few qualms about the rapid growth of foreign banks in the district. "Lending has grown across the board, but asset quality has been excellent," said the Fed's Ms. Tetley.

She noted that nonperforming loans as a percentage of total loans stood at only 0.69% at the end of the second quarter.

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