Credit Lyonnais is shuttering its private banking unit in New York amid signs that the region's affluent marketplace has become saturated with competitors.
The move, confirmed by the bank, marks the first time a major foreign bank has decided to close down its U.S. private banking unit. Many of these companies are reassessing their U.S. activities as a result of capital constraints.
"One of the lessons the foreign banks have had to learn is you can't get into the American market by simply hanging a shingle. That doesn't swing in Manhattan," said David Ross Palmer, a private banking consultant in New York.
A Credit Lyonnais spokeswoman said that the closing of the French bank's two-year-old New York operation was announced internally two weeks ago. She said that the unit's accounts will be transferred within the month to the bank's better established Miami office.
"It was a cost-efficiency decision," the spokeswoman said. A high- ranking Credit Lyonnais employee, who requested anonymity, added that bank's private banking operation in New York had been established to attract the business of visiting Latin American clients, who can just as easily be served out of Miami.
Even so, the bank's decision to fold the New York operation underscores the difficulties that some foreign players have had staking a claim in one of the most competitive investment management centers in the world.
Mr. Palmer and other observers said that a number of other European companies, including Deutsche Bank and Coutts & Co., National Westminster Bank's private banking subsidiary, have had a difficult time penetrating the New York market.
Without the willingness to advertise heavily or offer distinctive services, it's difficult for these operations to make a dent in the hotly contested region, these observers say.
For Credit Lyonnais, an institution with $340 billion in assets, the New York private banking shutdown is the latest step in a continuing effort to scale back operations. In recent years, the bank's international corporate lending business has suffered heavy losses, forcing a sell-off or reduction of many of its operations in Europe and Latin America.
Mr. Palmer expressed skepticism about the contention that Credit Lyonnais only aspired to serve visiting Latin American investors with its New York office.
"Wasn't there maybe another agenda?" he asked. "I would be surprised if they weren't at least attempting to see whether if they built it, that (U.S.-based) customers would come."
The consultant acknowledged that Latin American clients use banks outside of their countries as safe havens for cash during unsettling time. But he added that foreign banks have had difficulty making American offices worth their while without adding revenue from indigenous clients.
Credit Lyonnais' decision to close the private banking office didn't surprise some rivals.
Several contended that the unit - which manages an undisclosed amount of offshore assets - suffered from being a Johnny-come-lately in a market dominated by a host of established global private banks, ranging from Chase Manhattan Corp. to Credit Suisse.
"If you don't have a $150 billion, don't bother," said one banker, who requested that his name not be used. "I think it's a critical-mass issue."
Indeed, some private bankers said the French bank has had an extremely low profile in New York.
"In private banking, I've never run into them except in lending, but that's been primarily in the entertainment industry," said Peter E. "Tony" Guernsey Jr., managing director for domestic private banking for Union Bank of Switzerland in New York.
Barry R. Sloane, head of private banking for Credit Suisse in New York, said he wasn't even aware Credit Lyonnais had a private bank office in the city.
"That's good -- one less competitor," Mr. Sloane said.
Several bankers maintained that Credit Lyonnais was having a tough enough time competing against a smaller subgroup of European banks doing private banking business in the New York area.
"The Swiss maintain a monopoly on managing global private wealth," said one banker. "The French don't have that franchise."
It also didn't help that the French bank was trying to hold its own in America's capital city for investment management. The bank's private banking business in New York was primarily focused on asset management, not in lending for private clients.
"They have run into this propeller of 50,000 asset managers, 5,000 mutual funds, and 3,000 hedge funds," the private banker said.
James R. Kraus contributed to this report.
