U.S. Banks Flee From Australia As Losses Mount
Barely five years after they swept into Australia, U.S. banks are sweeping out.
"U.S. banks are getting slaughtered in Australia," said Kevin Mulvaney, international banking group executive at Bank of Boston Corp. "A lot more will be forced to become specialized or pull out."
The latest casualty is Chase Manhattan Corp., which last month sold its consumer banking operation in Australia to Westpac Banking Corp. Chase's Australian unit lost $120 million last year.
Other U.S. banks have not fared much better. The Australian subsidiaries of Security Pacific Corp. and Citicorp last year lost $207 million and $28 million, respectively, forcing their parents to inject nearly $350 million in capital into the units.
Several U.S. banks have scaled back their Australian presence, including Bank of Boston Corp., Chemical Banking Corp., and BankAmerica Corp.
One Bank Shows Big Profit
In fact, the only U.S. bank that made strong profits in Australia last year was Bankers Trust New York Corp., which earned $96.3 million on some $2 billion in assets. The company's Australian unit focuses on advisory services, asset management, and other off-balance-sheet businesses.
U.S. banks piled into Australia after the government granted foreign institutions banking licenses in 1985. The Americans set up everything from merchant banking and leasing operations to joint ventures with Australian insurance companies and consumer banking franchises.
But competition increased ferociously, and banks embarked on several years of wild corporate and real estate lending.
Banks also badly overestimated the possibilities for consumer banking, ignoring the fact that most Australians live on the southeast and southwest coasts, where competition from local banks is already intense.
"You had 275 banks competing in a market the size of Calfornia," said Mr. Mulvaney. "It was a market where supply vastly exceeded demand."
Tremendously overheated, Australia's economy began sliding into a recession two years ago.
As corporations and real estate markets collapsed, U.S. and other foreign banks found themselves with billions of dollars in nonperforming loans to troubled Australian corporations such as the Qintex Group, Adelaide Steamship, and Bond Corp.
Woes Are Persistent
The problems are far from over.
"The economy may now be bottoming out, but any improvement in the bad debt position will be slow in coming and certainly will not help this year's results," Merrill Lynch & Co. stated in a recent review of Australian banks.
Experts say that given the poor state of the Australian economy, the shakeout in banking will continue.
"We'll see a smaller number of banking organizations serving the Australian market in the future," said Graham Bow, a strategic planning manager at Westpac Banking Corp.
"There are still a lot of crocodiles jumping around in the banking business at the moment," he added.