Since our report last year on the rising tide of trade finance, more banks have responded to record levels of U.S. exports by beefing up offerings for customers involved in international trade.
Huntington Bancshares recently established a dedicated international banking division and lured a top commercial banking executive away from Fifth Third Bancorp, itself on a trade-finance expansion path, to run it. Late last year Huntington was also named a preferred lender by the Export-Import Bank of the United States-a designation that allows it to finance more overseas deals.
Citigroup, already a major lender to large exporters, is working more closely now with smaller firms as well as expanding relations with the Ex-Im Bank, the U.S. Small Business Administration and other federal agencies that encourage trade.
Bankers say they are strengthening their trade-finance units because business customers are demanding it. Those that have seen their domestic sales flatten now view overseas sales as crucial to their sustained growth, says Sam Moore, the head of trade sales and finance at Fifth Third in Cincinnati.
"Trade is central to the needs of our client base," Moore says. "To be really relevant in today's marketplace a bank needs to have international capabilities that it can deliver."
Rajiv Goswami, the head of international banking for Citi Commercial Bank in the United States, says the surge in exports is being driven largely by midsize firms covering a broad range of industries, from agriculture to pharmaceutical supplies to scrap metal.
Most large banks have representative offices in foreign countries. Citi just announced plans to set up shop in Iraq, for example. But some industry watchers worry that most banks-especially small institutionsaren't going far enough in their efforts to meet their clients' export ambitions. "More and more companies are looking to export, and banks are going to have to address their ability to provide financing," says Bill Houck, the regional director of the SBA's Middle Atlantic office of international trade. "But for right now most community banks are sticking to what they know."
At a time when all banks are starving for new sources of revenue, many see trade finance as an obvious line of business in which to expand. Total exports of U.S. goods and services reached a record $2.2 trillion in 2012, and that figure is expected to rise as developing countries such as India, China and Malaysia continue to grow. It helps, too, that the federal government has been sweetening incentives to exporters as part of the Obama administration's stated goal of increasing exports to roughly $3 trillion by 2015.
"If you are a middle-market company in the U.S., where [gross domestic product] is growing at 2 percent to 2.5 percent, then you can either fight it out here or go to markets that are growing at a rate of 8 percent to 10 percent," says Peter Hughes, a Long Island consultant who advises banks on working with middle-market companies. "The demand for export finance is going to go up dramatically and will continue to grow dramatically."
A shortage of experts may be hampering growth in banks' trade-finance efforts, but Hughes, managing partner at CLB Advisory in Dix Hills, N.Y., says it's worth it for banks to develop the necessary talent because the returns on cross-border business are higher than average.
Businesses involved in international trade are mainly "concerned about selling to their clients, so they are not going to nickel-and-dime you on every wire transfer or letter of credit," Hughes says. With a customer like that, he says, return on capital can be as high as 30 percent.
Hughes points to Huntington as an example of a bank that is taking advantage of the opportunities in global trade. The Columbus, Ohio, bank has long offered letters of credit and other fee-based services to business clients, but it wasn't until it hired Sheila Spradlin Reich away from Fifth Third in November that it had a division dedicated to trade finance.
Spradlin Reich has since hired four bankers, each fluent in a foreign language, and has strengthened the bank's foreign-exchange capabilities so that it can better advise clients on currency risks.
Huntington also uses guarantees provided by the Ex-Im Bank to make more working capital loans to manufacturers or to help overseas firms buy goods and services from the bank's clients. The result: according to Spradlin Reich, the international banking division's revenue in the first four months of 2013 more than doubled from the same period last year.