HONG KONG -- With the recent congressional approval of the General Agreement on Tariffs and Trade, and President Clinton's talk of a trade block with Asia, more American banks are working to position themselves as trade finance players in the region.
But while big money-center banks on the coasts have long been established in Asia, regional banks, lacking those operations, face two big problems: cost and know-how.
To combat such obstacles, two U.S. banks this fall announced partnerships with more established players in the region, to provide letters of credit for their corporate customers.
The moves by First Union Corp. and First Bank System Inc. are different in design.
But both illustrate the creative steps being taken by a growing number of regional banks to get a piece of Asia's letter of credit business and retain corporate customers that might otherwise turn to different sources for their trade finance needs.
"Asia is not the type of place you can go into cheaply . . . and it takes a good bit of time to obtain the knowledge needed to be a big trade finance player there," says Daniel Taylor, president of the U.S. Council on International Banking. "Establishing alliances like these is really the wave of the future."
First Union will attack Asia's markets through a joint venture trade finance company with Hongkong Chinese Bank Ltd. The venture, known as First Union HKCB Asia Ltd.. combines the $74 billion-asset Charlotte, N.C.-based bank's corporate portfolio with the Hong Kong bank's regional connections and expertise.
The entity, which initially will be staffed by employees of the Hong Kong bank, is expected to produce $1 billion in annual volume by the end of the decade. Profits will be split equally between the two partners.
Garrett Siegers, a First Union vice president and Asia-Pacific region manager, said the bank wants to be able to serve the growing share of its corporate clients that are doing business in Asia.
"Some of our good customers were doing everything with First Union except their [Asian] business" Mr. Siegers said. "We want to be relevant to our customers' needs."
First Union sees little risk in issuing letters of credit in the Far East, Mr. Siegers said. "It's a product we do here in the United States. We're merely moving to be more competitive."
But, he added, "it's new, unexplored territory for First Union, and very expensive. The wisest way to enter the market is with a partner who knows it intimately."
First Bank officials were thinking much the same thing when they announced the opening of an "unstaffed" trade finance office in Hong Kong.
The Minneapolis-based bank will use the services of CoreStates Financial Corp., a long-established trade finance player in the region, to process its letter of credit business while keeping a lid on costs.
"We concluded that it's really not necessary or advisable to establish an expensive office with our own personnel," said Peter Raskind, First Bank's senior vice president of corporate products. "We're creating a [trade finance] capacity without incurring substantial expense."
FBS Trade Services Ltd. is a registered Hong Kong corporation with a legal presence but no office or staff. The goal, Mr. Raskind said, is not to become a big player in Asian trade finance but simply to issue letters of credit for the bank's current customers under the First Bank label.
"We want to be a full-service bank for our big clients . . . to very smoothly and seamlessly extend that to Hong Kong without introducing the name of another bank" Mr. Raskind said. He declined to estimate how much letter of credit volume the relationship would generate.
Behind such moves is the explosion in U.S.-Asia trade, which has been spurred by greater governmental cooperation, booming economies, and technology improvements. The region is home to several nations currently sporting double-digit growth rates.
The biggest boost in such trade is coming not from multinationals, but from small and midsize companies that already have established relationships with regional banks.
"The financial services side has historically been dependent on being either where the exporter or importer is to facilitate the exchange of documents," said Steven Nichols, Hong Kong-based senior vice president for global trade services at CoreStates.
"What we're seeing with today's technology is that all this business is up for grabs."
But that doesn't make it easy, or cheap, for newcomers.
The letter of credit business is still paperwork intensive, requiring manpower and a presence. But staffing costs and rents in the region are often prohibitively steep, while institutional expertise and relationships are vital to success.
Despite such barriers, the numbers make it tough for regional banks to look the other way.
In 1993, merchandise trade -- both exports and imports -- between the U.S. and its 10 biggest trading partners in Asia totaled a whopping S361.6 billion. Japan accounted for 43% of that amount. China, Taiwan, and South Korea each registered totals of more than $30 billion.
"It's an enormous market," said First Union's Mr. Siegers, "and those numbers are only going to get bigger."
Two separate governmental initiatives -- GATT and the Asia-Pacific Economic Cooperation forum, or APEC -- are both aimed at lowering trade tariffs and other barriers.
If they are successful, more banks will likely find the siren call of Asia's booming markets too strong to resist.
"As time goes on, there is going to be increased emphasis on regional trade pacts," said Daniel Bloom, executive director of the Bankers Association for Foreign Trade. "And that's going to create a lot more opportunities for bank trade finance."
Mr. Bloom estimated that about 30 U.S. banks are now involved in Asian trade finance. But some bankers say their actions go beyond mere government initiatives.
"It's a business decision, pure and simple," said First Union's Mr. Siegers. "Our customers are telling us that Asia is where they are heading, so that's where we are going."
First Bank is one of at least five banks that are now, or soon will be, using CoreStates as a middleman for their Asian letter of credit needs, according to Michael Heavener, CoreStates executive vice president and head of the company's international group.
"We are presently talking with a number of banks who are looking hard at our operations [in Asia!, and think it would fit nicely with their business," Mr. Heavener said.
The $30 billion-asset bank has a long history of trade finance, stemming back to last century when its home base of Philadelphia was a key trade port.
Today, CoreStates employs about 400 people in 10 offices across Asia. It owns small equity stakes in several Asian banks, including the Bank of East Asia in Hong Kong, Bangkok-based Multi-Credit Corp. and Hana Bank in Seoul, and maintains correspondent relationships with more than 500 banks in the region.
Mr. Nichols said that CoreStates finances about 20% of all exports under letters of credit in the region. About 66% of CoreStates international revenues in 1993 came from Asia.
Mr. Bloom of the foreign trade group said that a bank doesn't need a presence in Asia to compete. "Trade finance comes in all shapes and sizes, and you don't necessarily have to have an office there."
But Mr. Siegers disagreed, citing the importance of business relationships. "In Asia especially, it's important to be in the market.
"We're sending a signal that First Union has its sights set on the market, and that we'll be there for a long time:"
Mr. Engen is a freelance writer based in Minneapolis.
