Cost cutting, streamlining, and tougher U.S. regulations reduced the number of U.S. offices of foreign banks to 915 at midyear 1994, from 966 a year earlier, according to American Banker's latest annual survey.

The sharp decline, down from a high of 1,080 offices five years ago, affected almost every category of offices - including agencies, branches, representative offices, and commercial banking subsidiaries.

Only three banks - Banco de Chile, South Korea's Koram Bank, and Hong Kong's Dah Sing Bank Ltd. - opened full banking offices.

Meanwhile, 21 banks - from Japan, Australia, Spain, Switzerland, Austria, Bahrain, Egypt, France, Italy, Netherlands, New Zealand, Norway, United Arab Emirates, and Britain - closed offices.

However, this doesn't mean foreign banks aren't interested in doing business in the United States anymore, observers say.

Canada's Bank of Montreal, for example, is continuing to look for acquisitions, while Bank of Ireland, Amsterdam-based ABN Amro Holding, Britain's National Westminster Bank PLC, and Royal Bank of Scotland all acquired U.S. institutions during the 12-month period ending June 30, 1994.

More recently, National Australia Bank, that country's biggest, announced it had reached an agreement to acquire Michigan National Corp., an $8.7 billion-asset bank based in Farmington Hills, Mich.

Other foreign banks are seeking to get a foot in the door. According to data published by International Banking Regulator, an affiliate of American Banker, nine foreign banks have obtained approval from state regulators to open offices.

However, these banks still need approval from the Federal Reserve Board, which is required by the more stringent rules of entry set under the 1991 Foreign Bank Supervision Enhancement Act.

Among the banks eager to open offices: Argentina's Banco Frances del Rio de la Plata, Thailand's Bank of Ayudhya Public Co., Bank of Cyprus, and Hong Kong's Liu Chong Hing Bank Ltd.

Another 19 applications to state banking authorities to open offices are pending.

Analysts like Gary Kleiman, a consultant who tracks foreign banks with Kleiman International Consultants Inc. in Washington, points out that the 1991 act's tougher requirements have dramatically slowed the entry of foreign banks into the United States.

"The Foreign Bank Supervision Enhancement Act is obviously an impediment," Mr. Kleiman says. "You'd see a lot more activity if it weren't for the act."

Adds Lawrence R. Uhlick, executive director and head of legal and external affairs at the New York-based Institute of International Bankers, "We believe the Federal Reserve should be given more flexibility under the Foreign Bank Supervision Enhancement Act to permit the entry of international banks from countries that are making significant progress toward achieving a system of comprehensive, consolidated supervision."

Observers point out that most foreign banks closing offices in the United States are from Europe and Japan, while the majority of those opening or seeking to open offices are from developing countries, or the so-called "emerging markets."

"There is a clear geographic bifurcation occurring among foreign banks," Mr. Kleiman notes.

Big European and Japanese banks, he says, are cutting back on the geographic spread of their offices and using technology to do business from a single location instead.

Others, which had hoped to build local business outside New York City, found they were unable to make much headway and that the cost of operating offices in Atlanta, Los Angeles or Chicago outweighed the profits.

Meanwhile, banks from countries like Argentina, Mexico, Brazil, Taiwan, Slovenia, China and Thailand, are lining up to open U.S. offices as a prelude to getting their foot in the door and building a base they can use for further expansion.

"Banks from emerging markets are doing what institutions from developed countries did 10 to 15 years ago," says Mr. Kleiman.

"They're opening offices as a prelude to further operations."

And, in another sign that foreign banks are not pulling out of the U.S. market, their total onshore assets, or assets booked at U.S. offices, are on the rise again after falling slightly by 1.6% to $872.7 billion over the previous twelve months. According to the American Banker survey, total assets of foreign banks were up 2.4% to $893.7 billion at midyear.

Still, executives like Mr. Uhlick are at pains to emphasize that the increase in assets doesn't necessarily mean foreign banks are increasing their hold over the U.S. market, especially when it comes to commercial and industrial loans.

Citing data compiled by Loan Pricing Corp., a New York-based information service for trends in bank lending, Mr. Uhlick notes that as of Sept. 30, "nine of the top 10 agent banks for originating syndications based on volume were U.S. banks." U.S. banks had more than 80% of the market, he added.

"The real measure of competitiveness in the wholesale market is who originates commercial and industrial loans, not who holds them on the balance sheet," Mr. Uhlick says.

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