For more than a decade, Florida's foreign banks have relied mainly on private banking for their daily bread and butter.
But as customers shift deposits into higher yielding mutual funds and other investments, the banks are scrambling to build up their asset management programs.
They are also turning to trade finance as an alternative source of revenues. But the change is occurring slowly.
Bankers estimate that around 70% of the business foreign banks do still revolves around private banking. Trade finance accounts for only 30%.
Sharp Drop in Deposits
But the ongoing shift in customer funds into other investments is highlighted by the sharp drop in deposits at foreign banks over the last few years.
According to the Florida state division of banking, deposits at Florida's foreign bank agencies fell by nearly 9% to $8.45 billion, in the 12 months ended June 30.
To be sure, much of the money hasn't gone far. In fact, bankers say a lot is going into mutual funds offered by banks.
"Only a small portion has gone home," estimates Robert G. Duckworth, group senior vice president for international business at Barnett Bank of South Florida and current president of the Florida International Bankers Association.
A Shift to Asset Management
"The rest has moved out of CDs [certificates of deposit] and into higher yielding investments managed by the banks."
"Banks are shifting away from just taking deposits to asset management," says Timothy Reed, senior adviser to Banco Popular del Ecuador.
"Many either manage their own mutual funds or have contracted to sell them under private labels."
The Ecuadoran bank, for example, runs its own mutual fund for investment in that country. The fund consists of 37% of central bank bonds, 50% of other Ecuadoran bank paper, and the remainder in corporate bonds.
So, at least a portion of the earnings banks are losing is being regained through management fees.
Looking for Alternatives
Nonetheless, bankers are worried enough to begin seriously looking for alternative profits.
Most say they see trade finance, and trade finance related operations, as the most promising source on the horizon.
And of those already in the business, many are expanding the range of trade finance transactions they perform. These include forfeiting, discounting bills of exchange, nonrecourse trade finance, trade finance on an open account basis, trade finance backed by guarantees from the U.S. Export-Import Bank in Washington, and pre-export financing.
"Today, everybody's concentrating more on trade finance," says Horst Herrmann, senior vice president and general manager for Deutsche-Sudamerikanische Bank in Miami.
New Competitors Moving In
Deutsche Sudamerikanische, Florida's second-largest foreign bank agency with more than $1 billion of assets, increased its fee-driven, trade finance-related operations by more than 60% over the last year.
But foreign banks aren't the only ones concentrating on trade finance.
As the business grows, bankers and analysts say, new competitors are moving in.
"All large regional banks that concentrated mainly on domestic business and stayed away from Latin America in the 1980s are trying to get back in," says Manuel Lasaga, president of the Miami-based consulting firm Strategic Information Analysis and a former senior international economist with Southeast Bank.
"There's a lot of competition emerging from small, foreign-owned banks offering trade lines. Regional banks, too, are looking more aggressively at Latin America," he added.
"Local banks can also offer [retail] banking services the agencies don't, and the regionals have recognized that international trade finance can be a profitable part of their business."'
Figures from U.S. banks bear out his assessment.
Barnett Bank, a major force in Florida, boosted its Latin country bank lines by 150% over the last year and plans to increase them by even more in the future, according to Mr. Duckworth.
Barnett, he adds, is even doing business on a secured basis with countries in Central America that it wouldn't have considered as little as a year ago.
But bankers, foreign and U.S., also argue they will all likely share a larger piece of a bigger pie.
"We have our own niche, we don't compete with U.S. banks," says Robert Marcuse, general manager for Banque Sudameris, a Paris-based consortium bank.
"We're here to serve South American clients, correspondent banks, or U.S. corporations who feel we can give service in South America."
"Our business is domestic," says Mr. Duckworth.
Fairly Recent Phenomenon
"We look to service our own customers who export and import with Latin America."
"They [foreign banks] work with exports and importers in their home countries."
"If Ecuadoran and other agencies were not around, trade finance with many Latin countries would not get done because U.S. banks don't want that business," Mr. Reed adds.
The foreign banking presence in Florida is still a fairly recent phenomenon.
As recently as 1977, Florida barred foreign banks from doing business in the state.
That changed in 1978, when the state passed laws allowing foreign banks to open up agencies.
Unlike federally chartered foreign bank agencies which are barred from taking deposits, Florida allowed foreign bank agencies to take deposits from nonresidents and otherwise engage in all activities allowed to U.S. banks.
Israel Discount Bank was the first foreign bank through the door in 1978 and was quickly followed by Bank Leumi, another Israeli bank, and Britain's Standard Chartered Bank PLC.
Since then, 50 foreign banks have set up agencies and representative offices and seven have opened Edge Act banks. Most settled along Brickell Boulevard, the gleaming high rise "Bankers Alley" built just south of downtown Miami in the 1980s.
More in the Wings
Others, including 11 state or federally chartered U.S. banks such as Republic National Bank of Miami, Intercredit Bank, and Pacific National Bank, are either owned by foreign banks or foreign private investors and are spread across the city.
Among the most recent arrivals: Banco Popular del Ecuador, Spain's Banco de Sabadell SA, and London-based Singer and Friedlander Ltd. More foreign banks are in the wings awaiting Federal Reserve Board approval of their applications.
They include Brazil's Unibanco-Uniao de Bancos Brasilieros SA and Banco Bandeirantes, as well as Banco Nacional de Mexico and Banco de Chile.
The arrival of foreign banks has spurred development of Miami as an attractive regional financial center and hub for Latin American customers.
|A Real Magnet'
"Miami has become a real magnet for Latin America and a prime intermediary for trade with North America, Europe, and Japan," says Mr. Reed, the Ecuadoran bank's adviser. It's got good communication good transport and good travel links. The service is more personal, costs are lower, and everybody speaks Spanish," adds Mr. Herrmann.
Bankers add that the city is well placed to grow as an international financial center.
"Business with Latin America is still growing and there's plenty of room for expansion," says Mr. Reed.
And if democracy comes back to Cuba, bankers like Barnett's Mr. Duckworth predict that "Miami's role as a banking center could multiply sevenfold."
Still, bankers and analysts sound a note of caution. Tighter legislation passed by Congress under the Foreign Bank Supervison Enhancement Act in 1991 has made it harder for foreign banks to obtain licenses.
"We won't see many new players until the Fed gets its act together," Mr. Lasaga predicted.
Bankers also say Miami's development depends heavily on business with Latin America.
"Whatever happens in Latin America will influence what happens here," says Mr. Marcuse. "If the present favorable tendency continues in Latin America, Miami will become a real financial center."
