Norwest Financial Inc. has century-old roots in Iowa.
Today the business is still based in Des Moines, near the original balcony office that extended small loans to the wage earners of this important agricultural hub.
But when David Wood, Norwest Financial's chief executive, looks out his office window today, he is seeing markets stretching across Latin America.
"We see an emerging middle class, stable governments, and a good opportunity to make money," says Mr. Wood.
Last month Norwest Financial, the $8.8 billion-asset consumer finance unit of Norwest Corp., took a 5,000-mile leap into Buenos Aires, acquiring a small one-office consumer finance company, Finvercon.
What Norwest Financial hopes to do in South America is similar to what it has done in the Midwest: feed a growing demand for small personal loans from middle-income consumers unable to borrow from banks.
In 1992 the company moved into Canada, acquiring Trans Canada Credit. It now has 140 offices in 10 Canadian provinces. In 1995 Norwest Financial moved into the Caribbean by acquiring Island Finance, which has 131 offices in Aruba, Costa Rica, the Netherlands Antilles, Panama, Puerto Rico, and the U.S. Virgin Islands.
Today, Norwest Financial's prime target is Argentina. The unit is negotiating a second acquisition in Argentina and is also prospecting the terrain in Chile and neighboring countries.
Norwest Financial's strategy contrasts with that of other U.S. banks, which have been quick to acquire consumer finance companies at home but cautious about overseas ventures.
Citicorp and BankBoston Corp., the two banks with the biggest consumer banking operations in South America, focus mainly on upscale customers through classic branch networks.
Norwest Financial's main competition in the international arena is likely to come from other consumer finance companies, like GE Capital and Associates First Capital Corp., which have been steadily expanding their consumer finance activities around the world.
That could soon change. In a statement released last week BankBoston announced it has purchased a credit card and consumer finance business in Uruguay, indicating that it, too, is going after similar business.
When discussing South America, Mr. Wood talks of a region of the world where the consumer banking industry is not meeting the needs of consumers.
"Banks haven't gone aggressively after consumers and smaller lines of credit, and when they have they are still very restrictive on their terms," Mr. Wood said. "The middle-income consumer market underserved, consumers have limited choices and a limited array of products and credit."
"Finvercon gives us a foothold from which we can expand," said Bob Silvernail, senior vice president responsible for the company's Caribbean and South American operations. "It's a good company that makes money, and we think it has good prospects."
Norwest Financial is clearly moving into fertile terrain. Consumer finance in South America remains fragmented and spread across many small and midsize companies. Loans are usually for short periods at interest rates of up to 60% to 70%. Credit decisions are mainly based on salaries, and repayments generally are deducted from payrolls.
"Almost 99% of credit is extended on a payroll deduction basis," Mr. Silvernail observed. "We plan to look a little closer at a customer's capacity and profile and expand credit limits and maturities."
Typically, local finance companies also demand down payments of as much as 50%.
Exporting techniques fine-tuned over decades in the United States could give Norwest Financial an edge when it comes to beating the local competition.
As part of the move into Argentina, Norwest Financial plans to shift credit evaluations to a broader set of criteria and extend the lengths of loans to as long as 36 months, from the current 12 to 18 months.
The company also plans to open additional offices, link up with local retailers, and expand into credit cards and lending in the real estate, home equity, and automobile sectors.
Like many analysts, Andre Cappon, president of the CBM Group, says Norwest Financial is on the right track.
"People in Latin America want to consume, they need to borrow, and the only place they can get credit from are consumer finance companies," Mr. Cappon said.
But he said Norwest Financial faces a fair amount of risks.
"The question is: How do you balance the margins against the risk?" he said.
Those risks, he added, could include a high rate of loan defaults if local economies turn sour and unemployment rises, as well as internal fraud.
Norwest Financial executives acknowledge those risks, among others. Training reliable local management will take time, they said, and Norwest Financial will be far more dependent on local management if a problem crops up than it would be at home.
"You can't exactly get in a car and drive over if there's a problem," Mr. Wood said. "You don't have the luxury of using your own people to shore up management."
Risks also include fluctuations in currency exchange rates and changes in the political systems.
Analysts say Norwest Financial's earlier forays into the international domain have reduced the risks it faces.
"Keep in mind they've been active in the Caribbean since the acquisition of Island Finance," said Joseph Duwan, a banking analyst with Keefe, Bruyette & Woods Inc. "They've got a successful track record operating overseas."
If Norwest Financial's gamble succeeds, analysts said, the payoff could be big.
"They can get margins that are unheard of elsewhere," Mr. Cappon noted. "The key for them is to do it right."
