Cincinnati's Fifth Third Bancorp takes a decidedly old-fashion approach to business, and nowhere is that more apparent than in the bank's international department, which makes a point of eschewing derivatives.
"We're a little different than most banks," said Fifth Third vice president Tim Chamberlain, who runs the international side of the bank. "We've done some swaps, but don't have a lot of experience in it."
The few swaps that the department has done, Mr. Chamberlain added, were brokered for a customer, with the bank taking no position for itself.
"They were very small," he said. "We basically hedged both sides of the deal."
The majority of its international activities revolve around making loans, extending letters of credit, and forward contracts.
"We do everything that the bank does, but on an international level," said Mr. Chamberlain. "Standby letters of credit are a large part of our international business."
The bank's standby letters of credit -- which are conditional commitments issued to guarantee the performance of a customer to a third party -- totaled $398.8 million last year.
Relatively Small Segment
Fifth Third's foreign exchange forward contracts -- which guarantee future delivery of a foreign currency at a specific price -- amounted to $161.2 million in 1993, up from $94.9 million the previous year.
Fifth Third's commitments to extend letters of credit -- which are issued to commercial customers for a period of a year or less to facilitate trade payments in foreign and domestic transactions -- totaled $17.7 million last year.
"We offer standard international products," Mr. Chamberlain said. "We can book time deposits in 23 major currencies. We do U.S. dollar lending. In fact, we can do lending in any convertible currency."
While it may seem strange that a bank with nearly $5 billion in foreign exchange volume doesn't hedge its risk with swaps, Mr. Chamberlain said it is all part of the bank's conservative approach to its Midwestern market.
Finds Its Own Place
Fifth Third, which operates mainly in Ohio, Kentucky, and Indiana - but also has branches in Florida - sees itself as a niche player in a market dominated by superregional and money center banks.
"Our competition out here is not midwestern banks," Mr. Chamberlain said. "A lot of the money center banks work this area hard."
"We are focused on the middle market here," said Mr. Chamberlain. "Most customers don't have a need for [derivatives] now. But we've done a few transactions."
Still, the bank is seriously looking into the possibility of increasing Fifth Third's position with those instruments.
"Options are an area we are seriously looking at," he said. "We'll probably do something in that area within the next two years."
"You have to offer a full line of products," he said.
More Trading Activity
Mr. Chamberlain also said the international department has stepped up its proprietary trading in recent years.
The department employs three full-time traders, he said, who mainly specialize in the Canadian dollar, the yen, and the German mark.
On the client side, most of the department's trades are under $5 million.