Single Global Strategy Impossible despite Internationalization of Financial Markets: 'Each Country Imposes Different Restrictions,' Says Merrill Lynch Exec
Perelman, Ellen S., American Banker
No one disputes that an internationalization of financial markets has occurred. But even as they pursue foreign business, U.S. financial companies generally do not have consistent, integrated strategies worldwide. Each national market is different, and the companies try to adjust accordingly.
Merrill Lynch & Co., which has served an international clientele since 1953, denies that it has a true global strategy. After a major expansion in recent years, the brokerage firm maintains 37 offices outside of North America and 23 in Canada.
William F. Waters, senior vice president and director, international retail sales and marketing, said, "It's impossible for us to have a global strategy. All money is not green. If the truth be known, we cannot look upon our business in terms of a global market. Each country in which we operate imposes different restrictions upon us."
Other global players cite this same problem. In fact, a Treasury Department study in 1978 identified a myriad of inconsistent laws and regulations governing U.S. bank and financial service operations in other countries.
A service provider can approach the question of a global strategy in a number of ways. Regulations, not economics, often dictate the business strategies adopted.
Branches are by far the most important form of U.S. presence abroad because they "enhance control and operational efficiency," said the Treasury study, which was mandated by the International Banking Act of 1978 to help formulate U.S. regulatory policy in an age of financial-market globalization.
However, in countries which restrict branch entry, banks enter by forming banking subsidiaries. They are an alternative way of gaining access to a country's domestic deposit base while conforming to restrictive tax laws.
U.S. banks also have established a significant number of nonbank subsidiaries to engage in related activities such as leasing, consumer finance, and factoring.
On occasion, U.S. banks will acquire minority interests in foreign banks because no other means of entry is available. They do so to gain experience in a new environment or to pool their expertise and resources with those of others on a joint venture basis.
U.S. bankers and financial service company executives have learned, however, that, to serve an international clientele, they must not only develop new products and services, but they must devise new ways of marketing those products and services.
For example, Merrill Lynch enjoyed unqualified success in marketing its Cash Management Account in the familiar United States, where it has opened one million CMAs. But Merrill had to adapt the CMA package before it would be attractive -- and legal -- in other countries.
The brokerage firm, which introduced its International CMA in 1983, had to cope with the fact that most European banking laws prohibit a link between the CMA and money market funds. The U.S. version allows the customer three money-fund options -- a conventional fund, a tax-exempt fund, and a government securities fund.
International CMA customers can have their funds swept daily into an account at Merrill Lynch International Bank in London. Typically, rates earned on that account are one and a half points below the Londonb interbank offered rate, a key money market indicator.
The international account differs in two other important respects from the original version. First, ICMA requires a minimum initial investment of $25,000 compared with $20,000 in the U.S.
And ICMA is unique in overseas markets, while the domestic CMA has many competitors. "We found that it is not a homogeneous sale," meaning it can't be sold everywhere in exactly the same way, Mr. Waters said. "We have to position the product differently. We achieved 10,000 accounts without marketing."
Paul Tongue, senior vice president of Chase Manhattan Bank, said it is important to "tailor new products and services to a particular market. …