Foreign banks held $893.7 billion of onshore banking assets booked at offices in the United States, according to the latest survey by the American Banker.
That represented nearly 22% of the total U.S. banking assets as of June 30 last year, a market share virtually unchanged from 12 months earlier.
The survey found that these banks also held some $203.9 billion in commercial and industrial loans, or loans to U.S. businesses, up only slightly from the $203.4 billion for the previous period, and equal to around 33% of onshore business loans by banks in the United States.
But the real figures are actually higher. The Federal Reserve Board has estimated that if offshore assets booked in places like the Cayman Islands are included, foreign banks hold as much as 45% of all U.S. business loans.
U.S. banks, however needn't be concerned about growing competition from foreign financial institutions, experts say.
"Foreign banks may have a large share of the U.S. market but they make less money," says Andre A. Cappon, a banking consultant and president of the New York-based CBM Group Inc.
David Bodner, executive vice president in the United States for Zurich- based Bank Julius Baer and chairman of the Institute of Interanational Bankers, agreed. "The whole issue raised in the past about foreign banks stealing commercial and industrial market share was simply nonsense," he says.
"Foreign banks have been providing liquidity to U.S. banks by buying loans from U.S. banks, but U.S. banks kept the fat fees," he adds.
Still others share these views. In a study entitled "Are Foreign Banks Outcompeting U.S. Banks in the U.S. Market?" Daniel E. Nolle, a financial economist in the bank research division of the Comptroller's office, concluded the answer is no.
"Data show that foreign-owned banks in the U.S. have persistently exhibited lower profit rates than counterpart U.S.-owned banks. Subsidiaries of foreign banks have operated less efficiently than U.S.- owned banks, and in the last few years the credit quality of foreign banks plunged below that of U.S.-owned banks," he wrote.
Mr. Nolle added: "These findings call into question fears about foreign banks outcompeting U.S. banks in the U.S. market and suggest that, despite (foreign banks') having captured a substantial share of U.S. banking business, further penetration of the U.S. banking market . . . is far from certain."
Data compiled by Mr. Nolle suggest foreign banks have consistently lagged behind U.S. banks according to almost all measures of profitability.
In 1992, for example, foreign-owned banks had a 0.03% return on average assets compared with 0.95% for all U.S. banks. Return on equity, another broad measure of profitability, was only 0.41% compared with 13.21% for all U.S. banks.
Analysts have a whole list of reasons why foreign banks often lose, rather than make, money in the United States. They say lower credit quality, limited corporate relationships and products, high premiums paid for U.S. acquisitions, an inability to attract top level staff, and unfamiliarity with the U.S. market are primarily responsible for lagging performance.
Foreign banks have few lead relationships," Mr. Cappon observes. "And that means their account officers spend a lot of time knocking on doors where they don't have relationships or only marginal relationships and that puts them at a cost disadvantage."
Bankers and analysts also point out that stronger capital at U.S. banks combined with consolidation in U.S. banking has left foreign banks even further behind.
The upshot, they add, is that foreign banks are going to have to put a lot more thought into what they should be doing in the United States.
"Foreign banks have to take a hard look at what their U.S. strategies are going to be," says Michael Wiseman, a New York-based lawyer with Sullivan & Cromwell, one of the top law firms advising foreign banks.
"We can't just continue to do an extension of existing business," says Isao Matsuura, managing director at Sanwa Bank Ltd. in New York.
Still, analysts and bankers believe foreign banks have a variety of options to pick from.
Some can be niche players. Rabobank of the Netherlands, for example, has specialized in agricultural lending, while another Dutch institution, ING Bank, has converted itself into an investment bank specializing in emerging-market debt.
Others, like the big Swiss, French, and German banks, have steadily upgraded their U.S. operations to do more complex financial transactions where profits are higher.
Still a third option is to buy a U.S. bank, thereby acquiring an instant entry ticket to retail and corporate banking business.
National Australia Bank, that country's largest, did just that earlier this month, offering $1.56 billion for $8.7 billion-asset Michigan National Corp.
But even if profits are poor, foreign banks are not likely to pull out of the U.S. market.
"Big foreign banks are not going to leave, because they have to be in the United States because of the size of the market, the interconnections with the rest of the world, and because this market is a laboratory for financial innovation," says Mr. Cappon.
"And they can make profits if they do things right, hire the right people, and don't overpay for acquisitions."
