U.S. Banks Shouldering More Risk in Latin America
Kraus, James R., American Banker
Responding to new international capital proposals, U.S. banks are shifting substantial amounts of Latin American exposure from their home offices to affiliates in the region, international finance specialists say.
The shift is evident in statistics from the Federal Financial Institutions Examination Council: Claims at offices of U.S. banks in Latin America rose 6%, to $52 billion, during the first quarter. At the same time, direct cross-border lending to Latin America fell to $75.2 billion, from $75.6 billion.
Factoring in all direct and affiliate lending, Brown Brothers Harriman & Co. said exposure of all U.S. banks to Latin America rose $1.7 billion during the quarter, to $118.9 billion.
Big multinational banks are shifting their activities to local subsidiaries so they don't fall under the proposed new Basel capital standards, said Gary Kleiman, an international banking consultant and head of Kleiman International in Washington.
Those rules would apply only to direct cross-border lending to sovereigns, corporates, and banks, he said, which may serve as an incentive to change where some loans are booked. On the other hand, U.S. banks are apparently pursuing bona fide growth opportunities. Several Latin American countries have relaxed restrictions on foreign bank expansion, among them Brazil and Mexico. Other areas of the world were affected by the proposed new rules laid down by the Basel-based Bank for International Settlements. But outside Latin America, the impact was negligible. Local bookings rose slightly in Asia, the Middle East, and Africa, but declined slightly in Eastern Europe.
A Citigroup spokesman in New York said its shift was part of a longstanding stated strategy to expand locally-based business in emerging nations.
In a statement released Tuesday, Citigroup vice chairman William R. Rhodes noted that a number of banks not only maintained but also increased their trade and interbank lines to Brazil in recent months.
A spokesman for Chase Manhattan Corp. …