Larnin' to Bust Broncos in the International Lending Rodeo: (Texas Banks Prefer International Banking That Is Closely Tied to U.S. Companies Abroad)
Larnin' to Bust Broncos in the International Lending Rodeo: Texas Bankers Lasso Deals, Hang On, and Ride Out the Crises
During the first quarter of this year, Dresser Industries Inc. in Dallas booked an order for construction and mining machinery from the People's Republic of China. During the 18 months to two years it will take to manufacture the machinery, Dresser will be paid through a $25 million trade financing arranged by Republic-Bank Dallas.
With Republic acting as an intermediary, the trade financing allows Dresser to get paid as it completes its work, and it insures that the Chinese will receive their machinery when they pay for it. "The bank is facilitating the trade of products for cash and acting as an intermediary,' said Paul W. Willey, treasurer of Dresser, a supplier of equipment and services to the energy and natural resources industries. "We want to sell products, the bank wants to lend money, and our customer wants to buy products.'
Varieties of similar lending and credit services are becoming increasingly important for Texas' major bank holding companies. The largest banks are competing vigorously to establish foreign credit accounts with regional multinational companies, to build correspondent banking relationships with foreign banks, and to finance investments in this country by overseas firms.
The new emphasis on this type of international banking comes after an unsuccessful, decade-long lending trenzy by foreign, money center, and large regional banks, primarily to developing countries. Those loans were made directly to governments as well as to state-owned banks and companies.
Now, after the onset of the world energy crisis and a variety of political and economic events, those sovereign loans are in trouble. With the lesser developed countries struggling to reschedule their huge debt, Texas banks are emphasizing foreign business with closer links to home.
"Since the rescheduling crisis, it has caused the entire banking community to look back to the basics of banking,' said J. Robert Hudspeth, an executive vice president at InterFirst Bank Dallas.
Those basics, bankers and industry experts say, are what first led Texas banks into the international arena.
As Texas banks established multi-bank holding companies in the early and mid-1970s, they wanted to follow their customers overseas to provide loans, letters of credit, bankers acceptances, and other products and services.
Initially Helped Commodity Trade
The first such foreign offices established by Texas banks were designed to help the trade of commodities such as oil, rice, soybeans, and cotton. For instance, InterFirst opened its first representative office in Tokyo to service cotton exporters in Texas. Likewise, Texas Commerce Bancshares Inc., of Houston, opened a London office as early as 1968 to service its energy customers that were exploring for oil and gas in the North Sea.
"I think this was all largely customer-motivated,' J. Frederick Meinke, a bank analyst with the E.F. Hutton Group Inc. in New York, said of the Texas banks' initial moves overseas. "When you see pieces of the business you are not doing because your customer is going to First Chicago or Chase, you don't want to let that get away.'
But the Texas banks quickly learned that their existing customers' business was not enough to sustain the costs of opening offices around the globe.
"It was a major capital expenditure for a bank to open a new international branch,' said John H. Falb Jr., executive vice president and general manager of the international department at Republic. "You could spend $1 million opening a new international branch.'
With such costs, the Texas banks began looking for other ways to justify the expense of their foreign offices. At the same time, several economic and political developments occurred to draw them into sovereign lending. …