Bankers like to say that where there's volatility, there's opportunity.
Following that maxim, U.S. banks have headed back to South Africa, a country they largely abandoned in the 1980s after intense international pressure on the former South African government to repeal racially restrictive laws.
Since South Africa gained majority rule in 1994 under the leadership of President Nelson Mandela, a host of U.S. banks - including Citicorp, J.P. Morgan & Co., BankAmerica Corp., Bankers Trust New York Corp., and First Union Corp. - have flocked back to pursue a wide variety of businesses. Other financial firms, including credit card associations Visa and MasterCard, have followed in their wake.
What they discovered is that South Africa is an unusually sophisticated emerging market with an economy that resembles that of an industrialized nation.
"Both the economy and the financial infrastructure are extremely well developed compared to other emerging markets," noted Ray O'Leary, managing director responsible for South Africa at Bankers Trust New York Corp. in London. "You've had sophisticated burgeoning debt and equity markets for a long time.
In keeping with their own strategic priorities, U.S. banks have moved in different directions in South Africa.
J.P. Morgan & Co. and Bankers Trust, for example, have opted to develop capital-markets-related businesses, including underwriting public and private issues, as well as asset management.
BankAmerica has focused on providing structured trade finance, global payment services, and capital markets to multinational corporations.
Other banks, like First Union, are pursuing trade finance and correspondent banking through South African banks, while Citicorp has gone after a broad range of wholesale banking activities and Bank of New York Co. is targeting the growing number of South African companies hoping to launch American depositary receipt programs.
"We're rather happy with the way business has been growing," said Andrew Oleksiw, senior vice president and managing director for international banking at First Union Corp.
He noted that South Africa is viewed by many banks and companies as a springboard for doing business with other countries in Africa's southern tier.
"South African banks have had long-standing relations with neighboring countries," Mr. Oleksiw pointed out.
"As South Africa's economy continues to do better, it will also help the economies of Zimbabwe, Namibia, and Botswana."
Banking in South Africa, however, remains very much under the thumb of foreign exchange restrictions that the South African government has kept on the books in order to prevent capital from leaving the country too quickly.
Bankers Trust, for example, has specialized in exploiting loopholes in foreign exchange restrictions.
The bank has also focused on arranging currency swaps between …