Aiming to stay ahead of demand for increasingly complex corporate banking services, Wachovia Corp. has struck a series of strategic alliances with foreign banks.

At the same time, the $43 billion-asset banking company is building up its capital market operations, including foreign exchange, derivatives, and structured finance.

Over the last 18 months, Wachovia has reached alliance agreements with London-based HSBC Holdings and two Dutch banks - Bank Mendes Gans and ABN- Amro.

Specialized arrangements with other foreign financial companies in more arcane specialties such as international tax arbitrage are currently being explored, said Donald P. Carson, Wachovia's executive vice president for international and capital markets operations.

He estimated that capital markets and international operations will contribute some 10% of corporate banking profits this year.

"We would expect that to be more like 15% to 20% over the next couple of years," said Mr. Carson, who is based at Wachovia's wholesale and institutional banking unit in Atlanta.

The Winston-Salem, N.C.-based parent company does not break out performance figures for its individual operating units. Analysts have estimated that corporate banking services, including international and capital markets, accounted for 35% to 40% of Wachovia's $305 million in net income for the first half of 1995.

Public finance and bond and money market trading may have provided another 10% of earnings.

Of those activities, foreign exchange is now the fastest growing and most profitable, with some 500 transactions daily and around $50 billion of turnover expected this year.

Alongside the expansion in operations, Wachovia has reorganized its sales teams to market a broader range of international and capital markets products into groups headed by a generalist, but staffed with specialists.

The goal, said Mr. Carson, is to extend Wachovia's array of services while avoiding setting up separate sales units that might compete with each other or fail to communicate effectively.

"It's important for us to link our traditional lending business in a way that's complementary, not competitive," Mr. Carson said.

Wachovia is not the only big regional bank that has suddenly taken an interest in capital markets and international activities. Among the others are First Union Corp., Wells Fargo & Co., NationsBank Corp., and First Interstate Bancorp.

Cleveland-based Keycorp said in July it would open a Hong Kong-based unit to issue documentary letters of credit. Wachovia's North Carolina- based rival, First Union, has entered into a strategic alliance with Hong Kong Chinese Bank Ltd., while First Bank System Inc. of Minneapolis has opened a Hong Kong trade service company.

Mr. Carson emphasized that Wachovia does not intend to add offices outside the United States to its existing representative offices in London and Tokyo. Wachovia also has not applied for Section 20 underwriting powers, he pointed out.

"Setting up a section 20 means addressing a whole series of extra legal, regulatory, business, and management issues that would intrude into our sales process," Mr. Carson said. "Besides, we don't think the broadened powers will have much of a payoff for us at this juncture, and there's a lot we can do without having a section 20."

The agreement with HSBC, the parent of Hongkong & Shanghai Banking Corp., allows Wachovia to issue letters of credit to exporters across Asia on behalf of its corporate customers without having to set up a costly network of overseas offices and staff.

While those letters of credit become affordable for Wachovia, HSBC benefits from additional volume and commissions.

The alliance links Wachovia to HSBC electronically, permitting HSBC to examine letters of credit when they are presented for payment, transmit any discrepancies to Wachovia for clarification, and handle the payments once documents are cleared.

Meanwhile, a more recent agreement with Bank Mendes Gans in Amsterdam will permit Wachovia to expand its international netting operations. The service, which Wachovia will market for Mendes Gans under a fee-sharing arrangement, allows companies to simplify the settlement of cross-border payments. Wachovia said it expects the arrangement will reduce the number and costs of transactions, reduce delays, and improve information about potential risks.

Wachovia had previously considered setting up its own international netting system, but Mr. Carson said that with excess capacity on the market, it made more sense to join an existing operation.

"We're not going wild, but we do think it's a good way to go into certain areas," Mr. Carson observed.

Under the agreement with ABN-Amro of Amsterdam, the two banks will jointly provide cash management services to corporations in North America and Europe. Wachovia will handle the U.S. side and ABN-Amro the European.

The renewed interest in international business reverses a longstanding cautiousness at Wachovia that has lingered since the international debt crisis in the 1980s.

Although Wachovia did not suffer as much as other U.S. multinational banks, "we still took our lumps," Mr. Carson recalled.

Since then, investments by large European manufacturing companies in the Southeast and the general growth in world trade has prompted Wachovia to reconsider its options.

"Come the '90s, we decided we wanted to get back in trade finance," the banker said. "And given the evolution in technology and the consolidation taking place in cash management, we felt global cash management capabilities would become important."

Wachovia is targeting companies with annual revenues of $100 million to $1.5 billion, a market segment the bank believes is not adequately covered by bigger money-center and international banks.

"It means pushing plain-vanilla products to areas the big players don't cover," Mr. Carson said.

Analysts said Wachovia's approach is consistent with the bank's traditional, low-key style, and is part of a broader reassessment of operations.

"My sense is that they view this as another arrow in their quiver," remarked John A. Heffern, a bank analyst with Natwest Securities Corp. in Baltimore. "They have a distinctive culture of their own that relies on internal abilities and a gradualism in building business and testing concepts," he said.

In contrast to aggressive efforts by NationsBank and First Union to publicize their expansion in the same areas, Mr. Heffern noted, "Wachovia is not a splashy, fast-moving, high-profile company." But at Wachovia, there is "a lot of activity taking place underneath the surface.

"Wachovia is working as hard as any other bank to solve revenue problems - but in a way that will subject the company to less volatility in these areas if there comes a point when the economic environment might not be as favorable or easily managed," Mr. Heffern observed.

In a reorganization launched over a year ago under chief executive L.M "Bud" Baker Jr., Wachovia has sold a $9 billion mortgage servicing unit to GE Capital, redesigned its loan administration unit, and begun exploring Internet banking services through a joint investment with Huntington Bancshares Inc. of Columbus, Ohio.

"It's all part of a strategic reassessment of their lines of business to decide where they have an advantage and where it doesn't make sense for them to invest," said Anthony R. Davis, a bank analyst with Dean Witter Reynolds.

Wachovia has ample reasons for expanding both internationally and in capital markets, Mr. Davis said.

"Both South Carolina and North Carolina are way ahead of the curve in attracting foreign investment," he said. Charlotte, Wachovia's second- biggest city and headquarters to NationsBank Corp. and First Union Corp. "is already the nation's third-biggest banking center," he noted.

"They'll have a great market."

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