Global trade is mostly local contacts, says international banker David J. Zuercher.

That was the thinking behind Wells Fargo & Co.'s formation last October of Wells Fargo HSBC Trade Bank, a joint trade-financing venture with HSBC Holdings of London.

It is one of several examples of how U.S. superregionals have gone the strategic-alliance route to globalization. First Interstate Bancorp., soon to merge with Wells, is also on the bandwagon, having formed an alliance with Standard Chartered Bank of London.

But Wells' move was different, in that its trade bank is, like its lead bank, based in California. Other joint ventures are focused overseas.

"The key to international business is connecting a series of local markets," Mr. Zuercher, president and chief executive of Wells Fargo HSBC Trade Bank, said in a recent interview.

Just last month, Fleet Financial Group set up a trade finance unit and struck a mutual support agreement with Standard Chartered. Similarly, First Union Corp. has teamed up with Hongkong Chinese Bank Ltd. and KeyCorp last year opened a subsidiary in Hong Kong, Key Trade Services Ltd., to issue documentary letters of credit for Hong Kong-based suppliers of the Cleveland-based bank's customers.

The institution that most closely resembles Wells Fargo HSBC Trade Bank is Amtrade International Bank of Atlanta, which was set up three years ago to focus on trade finance. Much of Amtrade's financial backing came from its chairman, Michael Sandberg, a former head of HSBC and its flagship subsidiary, Hongkong and Shanghai Banking Corp.

To be sure, Wells Fargo and HSBC have had ample time to become acquainted and forge a common strategy. They first entered into an international banking alliance in 1989 and have since worked together in other areas. The connection was instrumental in Wells' decision to test the Mondex smart card system, which HSBC helps operate in Britain and licenses throughout Asia.

But Mr. Zuercher pointed out that strategic alliances have their limitations.

"At the end of the day, an alliance boils down to little more than most- favored correspondent banker status," he said. And the partners can "also have no real financial commitment to the alliance and the profit motive remains unclear."

Frequently, "each one thinks the other is making more money off the arrangement so the agreement tends to break down."

To avoid the pitfalls, Wells and HSBC put money on the table up front. Wells pumped in $30 million and owns 60% of the trade bank's equity. HSBC put down $20 million for 40%.

In contrast to the often murky profit-sharing arrangements in strategic alliances, earnings at the trade bank are divided strictly 60%-40%.

To comply with the Federal Reserve Board's definition of "controlling interest" and be able to supply services to the subsidiary at cost, Wells also owns 80% of the voting shares.

In conjunction with its commitment to the partnership, HSBC closed four California offices and turned all its business in the state over to the joint trade bank. HSBC continues to run its branches in Chicago, Houston, New York, Seattle, and Portland, Ore.

"We didn't want any uncertainty over where we were doing business," said Bruce Cannon, the trade unit's chief operating officer, who joined after holding the post of senior vice president and manager of HSBC's San Francisco branch.

Wells and HSBC easily justify their decision. HSBC has 3,000 offices in 68 countries; Wells has 900 in California. Exports and imports are booming in California - imports have increased an average of 9% a year since 1987, to $143 billion in 1994. According to Wells data, exports have increased an average 13% since 1989, totaling $120 billion in 1994.

So far, the bulk of the trade bank's business is in Southern California, much of it revolving around textiles and retailing. However, Wells and HSBC are developing trade-related operations in agriculture and high-tech exports from companies in Northern California.

"The real growth in California will come on the high-tech, high-value side," Mr. Cannon said.

The bullish outlook at Wells is backed by a recent report of the California Trade and Commerce Agency. "Continued strong economic growth through the Asia-Pacific region, excluding Japan, continues to support strong growth in California exports to the region," the report said.

"High-tech export sectors continue to be a driving force behind Golden State export growth during the first three quarters of 1995."

Interestingly, high-tech trade was traditionally done on a so-called "open account" basis between companies that knew each other and therefore required minimal documentation. Increasingly, however, this trade is now being conducted among companies that are not so familiar with each other and prefer to rely on letters of credit to ensure that goods are delivered before funds are released.

"A lot of the companies selling this sort of equipment are young but very conservative in their business practices," Mr. Cannon said. "What we're seeing is new technology going into new markets between buyers and sellers who, since they don't know each other, prefer to use letters of credit."

Wells Fargo HSBC Trade Bank employs 100 people, drawn equally from both banks. The headquarters is in San Francisco, complemented by a branch in Los Angeles and another office in El Monte.

Executives say the arrangement's major advantage is that it allows each bank to tap into the others' market.

"It's virtually impossible for a bank like Wells Fargo, which has a huge presence in the California market, to have a similarly huge presence in other markets," Mr. Zuercher noted. "This links us with one of the biggest banks outside the United States and in Asia, one of the key markets in which U.S. companies will increasingly be doing business."

One still unanswered question: What will happen to Standard Chartered's strategic alliance with First Interstate? Executives at First Interstate and Standard Chartered said until further notice the agreement stands.

However, analysts speculated that Wells would pay cash to Standard Chartered to terminate the deal. They also said there are unconfirmed reports that the two banks are already discussing terms of a settlement.

In addition to letters of credit, the Wells Fargo HSBC Trade Bank provides short-term and medium-term loans, overseas accounts, cash management, foreign exchange, and business advisory services.

Analysts described the trade bank as the latest step in a U.S. reorganization by HSBC, which last year turned its U.S. retail and middle market branches over to Marine Midland Banks of New York State. These branches had been run by Hang Seng Bank and Hong Kong and Shanghai Bank.

"It's a bit of a rationalization aimed at passing off business that is relatively inefficient while still being able to offer the products," said John D. Leonard, a banking analyst with Salomon Brothers Inc. in London.

Analysts added that the banks benefit in equal measure from the trade venture.

"Both Wells and HSBC have looked at their strategic agendas and have decided they are unlikely to clash in the next few years," Mr. Leonard said.

"HSBC gets incremental trade finance volume in a business where economies are becoming increasingly inmportant, while Wells gets to leverage off HSBC's network without having to invest in overseas offices."

Analysts also noted that Wells, which got rid of most of its international network several years ago, has been hard pressed to compete in trade finance with BankAmerica Corp. and others.

"Wells' original relationship with HSBC was supposed to do trade finance but it never worked that well," said Raphael Soifer, a banking analyst with Brown Brothers Harriman & Co. "They needed a trade finance product for the California market because they are competing head-on with Bank of America, which has products of its own."

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