Faced with turbulent markets and ailing economies, Chase Manhattan Corp.'s Asian operations are de-emphasizing their credit-related businesses in favor of more fee-based activities.
"We may have cut our risk exposure, but we are definitely not pulling back from Asia," said Robert E. Fallon, managing director for Asia at Chase.
Under Mr. Fallon, Chase reduced its lending to nine Asian countries by $6 billion, to $10 billion, during the first three quarters of 1998. At the same time, the bank began focusing on fee-based businesses in the region, including risk management, securities custody, funds transfers, cash management, mergers and acquisitions advisory, trade finance, bond underwriting, and foreign exchange.
The move is part of a plan by Chase to deploy less capital in Asia while taking advantage of its extensive network of relationships in the region. Observers said the strategy helps to distinguish Chase-which has one of the largest networks of offices across Asia of any U.S. bank-from other global banks with Asian operations.
"They can turn from lending to other kinds of products to make a living," said Lawrence Cohn, a banking analyst at Ryan, Beck & Co. "It shows the fundamental strength of their franchise. It shows they've got better depth, broader expertise, and that they're in good shape."
BankAmerica Corp. recently announced plans to scale back its activities in Asia. And Citigroup and HSBC Holdings PLC remain solidly focused on traditional consumer and corporate banking.
"Chase is a stronger bank in Asia than Bank of America, which has lost some opportunities," Mr. Cohn added.
Chase has also learned from past mistakes. During the Latin American debt crisis of the 1980s, Chase continued to lend money in the troubled region, with disastrous results. So when a financial crisis broke in Thailand in June 1997 and swept across Asia the following year, Chase took a different approach.
For Chase, the stakes in Asia are particularly high. The banking company's Asian operations accounted for nearly 10% of the $3.7 billion Chase earned in 1998, Chase sources said. The percentage is even higher when business originated in Asia but booked elsewhere is added to the mix.
Net income in the region declined by 15% in 1998 from record earnings of $324 billion in 1997, despite severe financial volatility in Asian markets, the sources added.
Mr. Fallon, who transferred to New York from Tokyo last September to run Chase's Asia/Pacific business, offered several examples of the bank's shifting focus. For instance, in South Korea-where Chase last year reduced its exposure to $2.5 billion from $5 billion-the bank's M&A advisory business is booming as a result of the economic crisis, he said.
"Prudence dictated we couldn't take a business-as-usual attitude in Korea," Mr. Fallon said. "But we've got more M&A business and had record earnings in Korea last year."
In Japan, where the economy is still floundering, Chase is developing its mutual fund management business through alliances with local partners. It is also cracking the Japanese corporate loan market, an area which was once the exclusive domain of big Japanese banks. Indeed, Chase recently syndicated a $1.2 billion loan for Mitsubishi.
"Japanese banks don't have the capital to take on any more risk exposure," he said. "And that means opportunities for banks that have good relationships with Japanese companies."
In India, Chase earlier this month struck a strategic partnership with the Housing and Finance Development Corp. and acquired a 15% investment in that corporation's banking unit in Bombay.
In Vietnam, Chase has obtained approval to open a branch in Ho Chi Minh City as part of a drive to build up operations, including clearing and correspondent banking services.
In the Philippines, Chase is bringing local borrowers to global capital markets. In the most recent deal, Chase this month underwrote a two-year, $250 million note for the Philippine central bank.
The Philippine Securities and Exchange Commission this week also approved a decision by Philippine Airlines Inc. to hire Chase to handle the bankrupt airline's financial restructuring.
In China, where Chase has applied for a branch license in Beijing, the bank is targeting big project finance transactions. In two such recent deals, Chase helped arrange several billion dollars in financing to build an automotive plant for General Motors in Shanghai and a petrochemical complex for Royal Dutch Shell in Nanhua.
"Chase is in very good shape in Asia," said Mr. Cohn. "They have a substantial infrastructure in place and this shows they can use it to turn from lending to other products."
More than 200 of Chase's 1,300 largest corporate customers are in the Asia/Pacific region, the bank said last year.
"Everyone has the impression that all Asia is in terrible shape," Mr. Fallon said. "But you can't generalize because there are big differences from country to country."
Mr. Fallon, born and raised in Boston, has spent more than 23 years in Asia. After graduating from Ohio University, he spent three years with the Peace Corps teaching English on Western Samoa in the South Pacific islands. He returned to the United States to complete his studies at Harvard Business School and joined Citibank in 1975.
"I was looking for the fastest ticket back overseas," Mr. Fallon admitted.
Citibank sent him back to Asia, where, after working in Hong Kong, he helped launch the bank's international investment banking operations from Tokyo.
During 10 years at Citi, he helped engineer the first dollar/yen swap. He left to join Drexel Burnham Lambert in 1986, where he stayed until its collapse in 1990. Mr. Fallon then spent two years running corporate finance at Bankers Trust Corp. in Tokyo.
He arrived at Chase by way of Manufacturers Hanover Trust Corp. in Japan. The bank moved him to New York in 1998.
"It was time to come back," Mr. Fallon said. "And it made sense for both professional and personal reasons."