Smaller Lenders See Gains In Big Bank’s Trade Retreat

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Smaller Lenders See Gains In Big Bank’s Trade Retreat

By CONOR DOUGHERTY

Staff Reporter

Several major domestic and international banks have cut back their foreign trade finance operations in Los Angeles, laying off staff but creating an opportunity for L.A.’s base of small community banks to gain market share.

The pullback is seen as another step by major banks to consolidate and another move away from L.A.’s core middle market companies.

Cuts have been made in the last few months at US Bank, ABN Amro and Bank of America.

While L.A.’s import/export market is huge $143.4 billion came through the customs district in 2001, with about half of that staying in L.A. County most of the business is conducted by smaller businesses.

“I’d say 70 percent of the (import/export) deals are in the $25,000 to $45,000 range,” said Alexander Kramer, executive vice president of international trade at the World Trade Center in Long Beach.

While smaller banks are no doubt happy to have the business, many trade authorities see the pullout by large banks as a potential problem for the local economy. Big banks have an international presence and can afford to charge lower rates to small business in search of a line of credit to finance an import or export deal.

“The big banks are missing an opportunity here,” Kramer said. “And they can be very useful to small businesses.”

For the big banks, the pullback is a matter of efficiency.

“A bank is going to invest the same amount of time analyzing a line of credit for $1 million than it is for $50,000. For a big bank it isn’t worth it,” said Jacques Nassaa, who was recently laid off from his position as senior vice president and manager of the international division at US Bank in Signal Hill.

While he recognizes the bank’s predicament, Nassaa said he believes customers, exporters in particular, will ultimately flee to institutions with a local operation. “An exporter gets a shipment and he wants to get paid, but he has to submit papers to a bank that’s in Portland. It’s do-able, but it’s not convenient,” he said.

Gladys Moreau, director of the export managers association of California in Long Beach, says larger banks can’t understand L.A.’s international economy if they’re not here.

“There is no question faxes and e-mails and all that are nice, but that doesn’t’ tell you whether or not someone can pay back a loan,” she said.

Feeding frenzy

When an exporter sells a product to an overseas buyer, the importer’s bank issues an irrevocable letter of credit to the exporter’s bank. If, for some reason the exporter isn’t able to ship the goods or the shipment isn’t satisfactory, the importer’s bank will refuse payment. Smaller exporters typically require more handholding, an effort the big banks would rather forego.

“(Los Angeles) has small companies and the big banks aren’t interested because the payoff isn’t big enough,” said John Penfield, former vice president of global trade and advisory for $510 billion asset ABN Amro, an Amsterdam-based bank that is generally regarded as a leader in trade finance. “The smaller banks are beginning to pick up the business, so there’s a feeding frenzy in the middle market.”

Penfield was recently laid off from his position a move he blames on his former employer’s re-focusing on a smaller number of large clients.

“If you try to focus on larger companies, the smaller are going to suffer, and then they come to us,” said Dominic Ng, chairman and chief executive of East-West Bancorp. “It works out real well. We are the smaller guys, we take the crumbs coming down, we treat the crumbs coming down and then the crumbs get bigger and we get more profitable.”

Tim Murphy, a first vice president in the international banking group at Comerica Bank, which acquired locally based Imperial Bank, said he has observed the pullout by major banks and regards it as a chance to grab international business.

With regard to export business, Murphy said the bigger banks are most concerned with the small capital base inherent in mid-market companies. Trading companies are particularly risky as they traditionally don’t carry a lot of assets.

“If there’s a problem on a transaction the question is, ‘What’s your secondary source of payment?'” said Murphy. “There usually isn’t one.”

The larger banks are quick to deny that they’ve turned their back on such a large number of customers.

“International is definitely part of the product line,” said Paul Oldshue, executive vice president and manager of the international banking group for US Bank. “But typically international is something we do with existing clients.”

Oldshue, who is servicing clients in Los Angeles from Portland, said US Bank is “hotly after the middle market.”

Still, the local view is at odds. “In general, they will not finance small-to medium sized businesses in international trade. And if I were a big bank I would vehemently deny that also,” said Moreau.

Moreau described international finance as “kind of a fashion thing” with bigger banks, and that in last six months they’ve been pulling out of the market.

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