Wachovia Corp. has struck an agreement that will give its corporate customers access to one of the world's most established multilateral netting services.
The agreement, with Amsterdam-based Bank Mendes Gans, is characterized by observers as an innovative way for a regional bank to enter a market dominated by a handful of large global banks
"We've received quite a bit of interest (in the netting service) from several companies," said Richard H. Snelsire, senior vice president with Wachovia. "We haven't had a sale yet, but I think the response has been very positive."
Bank Mendes Gans, founded in 1883, has $468 million of assets and employees 47 people. Its main business is providing netting services.
Multilateral netting systems are cash-management tools used by approximately 500 companies with overseas operations, observers estimate.
The service is useful to companies like auto manufacturers, which operate in several countries simultaneously.
The inevitable cross-border transactions not only create substantial foreign exchange trades within the company but also complicate intercompany accounts payable and receivable operations.
Multilateral netting services simplify these transactions. Intercompany payments or credits are bundled and tallied in batches. Final net debit or credit positions are then settled with a single payment in the local currency.
This avoids unnecessary foreign exchange fees and international transfer costs. Bankers said transaction charges range from .2% to 1% of the transaction's value.
Wachovia, a $39 billion-asset bank holding company with dual headquarters in Atlanta and in Winston Salem, N.C., is one of the nation's leading cash-management banks.
The bank's move towards multilateral netting came in response to customer demand, according to bank officials. As corporate customers have expanded international sales and production operations, their need for these services has risen greatly in recent years.
Mr. Snelsire said the bank looked at developing a system that could address the need, but realized the industry already had "enough capacity with the major global players."
"That's why we chose to go into an alliance rather than do it ourselves," Mr. Snelsire said.
Wachovia has set its sights on large multinational companies, but will also look at smaller operations that have at least $25 million of cross- border payments in five or more currencies, said Michael L. Starr, senior vice president with Wachovia's corporate services unit.
Observers said the Wachovia-Mendes Gans arrangement is a sensible one.
"It's a logical way for a regional bank to service international customers," observed Larry Forman, a consultant specializing in cash management with Ernst & Young LLP, New York.
Mr. Forman said the globalization of trade means there might be a growing market for such netting systems. He noted that Ernst & Young's 1994 Cash Management Survey found that only 10 U.S. banks offer the services.
Wachovia's alliance with Mendes Gans benefits both parties. Wachovia gets a well-developed, time-tested product, while Mendes Gans gets transactions from Wachovia's established clients.
Mr. Forman added that the alliance is beneficial to Wachovia in that it allows the bank to "still service (its customers') needs without giving up the business to a handful of traditional U.S. players."
Mr. Starr said Citicorp and BankAmerica Corp. are the primary U.S. players in multilateral netting services.
"I think we'll see more partnerships between big regionals and foreign banks," Mr. Forman predicted, noting the joint venture between First Union Corp., Charlotte, N.C., and the Lippo Group, an Indonesian bank, and First Fidelity Bancorp., Elkton, Md., and Ibos Association, London.
Ibos, or Inter Bank Online System, is an international banking consortium providing members cross-border cash-management services for funds transfers, currency exchanges, and account information.
"The overview is that it's a way for regional banks to have an international presence without opening branches," Mr. Forman said.