Is the strength of the international department of the money-center or superregional bank a threat to the healthy competitiveness of the community bank's operation?
The top people in some larger banks seem to think so.
"The community bank is too small to have a foreign exchange desk, to handle letters of credit, or otherwise serve the local businessman who needs international banking help," is the way it has been put to me by money-center professionals. "As a result, when a business in the local bank's town needs international service, the company gravitates to us. And we o ten end up getting the whole account -- not just the international business."
"Is there anything the community bank can do to meet its customer's international needs rather than give up the account?" I asked the top foreign exchange officer of one major bank.
"I can't see anything they can do but resign themselves to this fact," he replied.
A Different View
Now this would be quite a negative report to present to the readers of the Weekly Adviser column on community banking. So I called one of my favorite local bank CEOs, told him what I had heard, and asked for his opinion. Boy, did I get a different story!
"Can large banks use international service as a wedge to steal accounts?" I asked him. His answer: "No way."
My friend's explanation should hearten the community bank reader:
"With regard to the individual traveling abroad, he can get the currency he needs cheaper overseas. But he shouldn't use much currency anyway. The person who uses his ATM card or pays with Visa or MasterCard gets the best possible bank rate."
"What if a customer needs a large amount of foreign exchange for an import transaction?" I asked.
"We will buy it for him at a money-center bank and handle the transfer to pay for his goods for a fee of pennies. In effect, he gets about the same rate as he would get going to New York directly."
Letters of Credit
O.K., then, how about letters of credit to assure that drafts will be signed and trade obligations met?"
My friend's answer: "We write our own.
"It takes little time to teach someone to handle the forms, and once we attach our name, most local people will accept the LC as solid. If they don't, we get a larger bank to co-endorse the letter and we get a bank to back the letter of credit.
"After all, we do domestic letters of credit all the time to guarantee that our customers will make lease payments, rent payments, and meet other obligations. How much harder is it to do international LCs? Any lending office should know how to do them. And with a typical return of 1% just for adding our endorsement, it's damn good business."
O.K., how do you handle time drafts where your guarantee makes the paper into a banker's acceptance that will not be paid off for, say, 90 days? Can you compete there?" I asked.
"Why should we bother?" was the reply. The amount is usually so small that a large bank wouldn't bother with it, and we don't want to handle 90-day paper ourselves if the amount is only, say, $50,000 or such."
"So, what do you do?"
"We tell our clients, Pay with a sight draft. Pay immediately instead of getting wrapped up with a 90-day piece of paper that has to be sold, and we will lend you the money to pay off the sight draft immediately.' "
My community bank CEO friend added another point. Remember, he said, most importers pay in dollars today. so there is not that much demand for foreign exchange unless you are a far larger company than the mid-market operators we deal with.
As a topper, I asked, "Well, do you ever remember having lost a relationship because your international expertise and service was inadequate?"
His answer: "Never."