Norwest takes international route to profits with trade finance push.

Exports, Norwest Corp.'s Darin Narayana says flatly, "are the best news the economy has had in a long time."

They've been good news for Norwest, too.

The nation's 13th-largest bank, with $55.3 billion in assets, registered a 27% increase in outstanding letters of credit during 1993, posting more than $500 million in total business.

Mr. Narayana, executive vice president in charge of international and large corporate business, predicts the increase this year will be "about the same."

One of only a score of banks in the United States that are seriously involved in trade finance, Minneapolis-based Norwest launched a two-pronged drive several years ago to develop international business. The bank believed that U.S. trade with the rest of the world could only continue to grow.

Exports have indeed grown, but the countries that turned out to be the biggest buyers came as something of a surprise.

"There are more companies exporting, but what's interesting is that the bulk of exports are going to emerging, rather than mature, markets," says Mr. Narayana. "And it's clear that the need for trade finance is still increasing."

Unstable Countries Avoided

History has often shown that dealing with emerging, or developing, markets can be a risky business. But Mr. Narayana is quick to emphasize that for Norwest, growth in trade finance does not mean increased lending to politically unstable countries with shaky economies.

In fact, the bank's main strategy is to help companies reduce risks and accelerate cash flow from exports without committing its own balance sheet.

"We do engage in some short-term transactions, but we don't take on medium-term risk in emerging markets," Mr. Narayana says.

For medium-term transactions, or loans with durations longer than one year, Norwest uses private insurers and the Washington-based U.S. Export-Import Bank for guarantees.

Equally important, he says, is helping companies evaluate and minimize risk in import-export.

"Trade finance today means helping exporters mitigate risk by structuring transactions and using export insurance," he noted.

Strategic Locations

Norwest supplies trade finance through seven banking units around the United States, many of them acquired in recent years.

Offices are located in Colorado, Iowa, Minnesota, and New York, which are the four largest U.S. markets for trade finance.

Overseas, the bank's branches in Argentina, Brazil, Taiwan, and Hong Kong are helping Norwest extend its trade finance operations to emerging markets in Latin America and Asia.

In addition, the bank is thinking about setting up a subsidiary in Mexico.

Technology Driven

Norwest is unusual because it is one of only a handful of U.S. banks active in trade finance. The reason: Many American banks lack experience in international transactions, and most local and regional banks are also reluctant to venture outside the domestic market.

In addition, the spiraling costs of technology needed to deliver the services required by exporters and importers has proved to be a powerful deterrent to developing trade finance.

"It's a business that's increasingly technology driven," Mr. Narayana notes.

That, he adds, means Norwest constantly needs to maintain what he calls "competitive parity" with other banks in providing electronically delivered services.

"We don't see any need to be superior, and it's expensive to be inferior, so we go for parity [in technology]."

Still, Mr. Narayana himself appears surprised by U.S. banks' reluctance to become more involved in trade finance.

"It's really fascinating that while American banks have fairly sophisticated domestic cash management products, that's missing when it comes to international," he observes.

Far-Flung Network

Trade finance covers any one of more than 120 separate transactions ranging from letters of credit, cash transfers, documentation verification, cash management, and foreign exchange. It requires an extensive network of correspondent banking relationships around the world.

As recently as the 1980s, many U.S. banks, including large money-center banks that were active in the business, pulled out of trade finance because of its labor-intensive, low-profit nature.

This, in turn, opened up opportunities for foreign banks, many of which already specialized in providing trade-related services.

Demand Is Up

More recently, U.S. regional banks, which previously had little interest in developing their trade-related transactions, are now reinvestigating the business in response to demands from customers.

"A number of banks are stopping, taking a look at this business, and saying: We have to do something," Mr. Narayana observes. "International sales by U.S. companies as a percentage of total sales is growing, so either you supply trade finance or you lose a customer."

Nonetheless, the gap between services offered by money-center and large superregional banks and the rest of the banking system remains substantial.

"What's emerging are global banks and banks that are fairly large superregionals with international operations, like NationsBank, Bank of Boston, CoreStates, and First Interstate," Mr. Narayana remarks.

"After that, you've got mom-and-pop shops."

International Background

Mr. Narayana is particularly well placed to track developments.

Born in Hyderabad, India, and educated at the University of London and University of Wisconsin, the 49-year-old executive joined the Northwestern National Bank of Minneapolis, Norwest's predecessor, as a management trainee in 1969.

He subsequently moved to the bank's international division, becoming vice president in 1974 and senior vice president in 1980.

In 1986 he became manager of the bank's international corporate banking group and in 1992 was named executive vice president in charge of Norwest's world banking department for national and international corporate business.

As the outgoing president of the Washington-based Bankers Association for Foreign Trade, Mr. Narayana played a major role promoting trade-related banking services, picking up powerful backing from the current administration in Washington.

In a personal letter last month, President Clinton commended him for helping to promote U.S. trade and making "this country more competitive in the global market."

A Rare Breed

Mr. Narayana says his top priorities included making BAFT the leading U.S. international banking organization in the United States, making trade-related services more easily accessible to small and medium-size companies, and training bankers to handle international transactions.

Good international bankers, Mr. Narayana and others complain, are hard to find these days.

"The banking community was so preoccupied over the last few years with LDC debt, right-sizing, consolidation, and boosting capital [that] it attached little importance to training people in trade finance," the banker said.

"Now, all of a sudden, people are saying, holy cow, we don't have many trained trade people just as the need for them is getting bigger."

Just the Beginning

With exports of manufactured goods up last year between 5% and 6% to approximately $480 billion, and imports up an equal amount to around $600 billion, Mr. Narayana predicts that opportunities in international trade are only just beginning.

Trade finance "is moving now, and there's been a late recognition that people will have to pay more attention to it," he said.

"It's the now game in banking."

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