The presence of foreign-owned banks in California, and Los Angeles in particular, has faded dramatically over the past decade, reflecting the local impact of global banking consolidations and financial turmoil, particularly in Japan, according to a new report to be released next month.
The data, compiled by the California Department of Financial Institutions, shows that the combined assets of foreign banking organizations in California plummeted to $25.5 billion in 2000, a 71 percent drop from 1990.
Though the decline has been a statewide phenomenon, 80 percent of foreign banks in California have their representative offices in Los Angeles.
The report attributes the 10-year decline to merger-related consolidations and cost-cutting steps imposed to increase profitability, as well as economic troubles here and overseas.
But even as the local economy has surged back to life with property values, employment and other indicators at or near pre-recession levels the number of foreign banks operating here has decreased to 54, down from 104 in 1990.
The withdrawal of foreign banks and their assets from California does not mean they have left U.S. shores completely, however.
“The vast majority of the banks that are closing their offices in California are retaining an office in New York, which is where they transfer the assets,” said David Scott, chief examiner for the Department of Financial Institutions. “Even more common is keeping an office in California, but booking the assets elsewhere.”
Industry sources said a variety of factors have contributed to the decline, though economic instability here in the early’90s and overseas throughout the decade has been the prime culprit. “In the early ’90s, the recession in California made it much less profitable for foreign banks,” said Dunson Cheng, president and CEO of Cathay Bank, which is American owned but derives most of its customers from California’s large Taiwanese population. Though economic conditions in California went from bust to boom in the second half of the decade, the exodus appears to have continued mostly as a result of troubles in the Japanese economy. The 24 Japanese banks with offices in California in 1990 had combined assets of $73 billion. That portfolio had wilted to just $11 billion among nine banks by 2000. “It’s definitely linked to the weakness in the Pacific Rim market,” said John M. Kline, an analyst with Sandler O’Neill & Partners. “In some cases, banks have been sold to raise capital in dollars.”
As troubles in Asian economies have persisted, competition from American banks has added to the difficulties in attracting customers. Those forces have driven down California deposits in foreign banks by 76 percent over the past decade. Overall deposits statewide in foreign banks were $3.5 billion at the end of 2000, down from $14.7 billion at the end of 1990. “There are quite a few restrictions on (foreign banks’) ability to do business here,” said Steve Didion, an analyst with Hoefer & Arnett. “I wouldn’t say there’s a lot of low-hanging fruit It’s a huge open market and there are a lot of people serving (it).”
Despite the steep decline, Taiwanese banks have bucked the trend, growing significantly in California over the same 10-year period. In 1990, the four Taiwanese banks had just $800 million in combined assets statewide. That presence has grown to $3.7 billion in 12 banks today, all of which have their representative offices in Los Angeles. “We’ve seen a surge in Taiwanese banks opening up shop in L.A. over the last five to seven years,” said Cheng. “Most of them were government owned, however, many of them are in the process of being privatized.”
Cheng said that consolidation in the Taiwanese banking industry is likely to have an effect on the banks already in the state. “Overseas offices may consolidate as their home offices do,” he said. However, there are several new Taiwanese banks now eyeing L.A. shores. “There are a lot of private banks that have recently sprung up (in Taiwan),” said Cheng. “Many of them would like to set up shop in Los Angeles.”
