The spectacular growth of foreign banks in the United States has come to an abrupt halt, according to Federal Reserve Board statistics.
The U.S. assets of foreign banks remained flat in the first half of this year, ending nearly two decades of growth, often at double-digit rates. As recently as last year, foreign banks' assets grew by 8.8%.
The turnaround primarily stems from a conscious decision by Japanese banks to pull back in U.S. markets.
The Fed's figures show that foreign banks held $860.6 billion in on-shore U.S. assets at midyear, down slightly from $860.7 billion yearend 1991.
That slight decline was roughly in line with the experience of U.S. banks. But different dynamics were at work among the two groups.
The absence of asset growth at U.S. banks stemmed largely from the recession, which crimped loan demand, and from the after-effects of credit problems.
But foreign banks present a more complicated picture.
The U.S. assets of Japanese banks fell 6%, or $25.8 billion, to $402.1 billion. The reasons; capital shortages, rising problem loans in the United States and at home, and unwillingness to continue building market share by making low-margin loans.
Others' Assets on the Rise
Meanwhile, the assets of other foreign banks--mainly big European institutions -- rose 6%, or $25.7 billion, to $458.5 billion.
"The Japanese are going through a fundamental, long-term rethinking of their participation in this market," said Lawrence Cohn, a bank analyst at PaineWebber Inc.
"Europeans are picking up the slack," Mr. Cohn said. "The Swiss and Germans in particular have targeted the kind of business they want to do, and it's mostly large, investment-grade corporate lending."
Market Share Flat
The net effect is that foreign banks, after years of making steady inroads in the U.S. market, have hit a plateau, at least for now.
Foreign banks held 22.6% of total U.S. banking assets and 18.9% of total loans at June 30, virtually unchanged since year-end 1991.
Total U.S. loans by foreign banks fell 1.2%, to $407.2 billion, from $412.3 billion at the end of last year. Deposits also fell nearly half a percentage point, to $442.5 billion, from $444.5 billion.
Foreign banks' share of business loans rose 1 percentage point, to 35.5%. Their share of total deposits rose by one-tenth of a percentage point, to 16.3%.
Picking Up the Slack
The Fed's figure demonstrate how other foreign banks are moving in to make up for the Japanese pullback.
In California, for example, Japanese banks have slashed assets by 8%, or $8.8 billion, since yearend 1991, but total foreign bank assets fell by only $7 billion.
The shift was even more dramatic in New York.
Total assets of Japanese banks booked through New York offices fell nearly 5%, or $13.5 billion, while total assets of all foreign banks in New York rose nearly 2%, or by $10.8 billion.
Bankers and analysts said large, well-capitalized European banks are among the only foreign banks that are growing in the United States.
"We are continuing to expand our business in the U.S. in traditional banking areas and in specialty areas such as project finance," said a spokesman for Switzerland's Credit Suisse.
The Swiss bank's expansion, the spokesman added, follows its ambition to strengthen its position in the United States. He also said expansion is a result of "a weakness in the ability of other banks to lend."
But even European bankers say weak economic conditions globally are forcing them to take a hard look at the U.S. market.
"Everyone in the banking system worldwide is concerned about capital adequacy, so everybody's putting more emphasis on return on assets," said Frederick Hertel, general manager for Austria's Creditanstalt Bankverein in New York.
But observers also said that the reduction in foreign bank lending and other activities had failed to produce a significant improvement in pricing. "Pricing's up a little, but it's still not that good," said PaineWebber's Mr. Cohn.
The Fed figures, compiled from quarterly data supplied by foreign bank agencies, branches, subsidiary commercial banks, and New York investment companies, do not include loans to U.S. borrowers or other assets booked offshore in places like the Cayman Islands.
A recent Fed survey found that foreign banks book nearly as much offshore as they do through their U.S. offices.