JASON BOOTH
Staff Reporter
While the Asian economies may have stabilized and are in some cases growing again, the resurgence is not yet filtering through to Los Angeles-area financial institutions.
A broad array of local industries that do significant amounts of business with Asia from entertainment to electronics, apparel to scrap metal rely on L.A. financial institutions to supply loans, letters of credit and foreign currency exchange services.
Any significant local uptick would be detected by these institutions but so far at least, the general sentiment is that activity remains soft.
“At this point it is too early to call for a turnaround,” said Joseph Rice, who runs the L.A. office of Wells Fargo HSBC Trade Bank. “We are getting a lot more inquiries, but not necessarily more business.”
One reason local banks are not participating is that most of the recent capital investments in Japan and other Asian nations are being made by large corporations based elsewhere, such as IBM and Intel.
And they’re getting their financing from Wall Street investment houses and other major financial institutions in New York or in regions where the corporations have their headquarters.
Banking giants dominating the L.A. banking scene today including Washington Mutual Inc. and Bank of America are based elsewhere. And major U.S. corporations based elsewhere rarely seek financing from Southern California-based banks, which today tend to specialize in serving small and mid-size businesses.
So while more U.S. exports to Asia have begun flowing through L.A.-area ports, the bulk of those exports originate from elsewhere, and are financed elsewhere.
“The port statistics are being driven by companies outside of Southern California that just go through Los Angeles,” said Robert Krant, head of the international department at City National Bank in Beverly Hills. “Our middle-market companies are not so well established in Asia, so it will take longer for them to rebound.”
He said his department is now providing more letters of credit for shipments of agricultural and high-tech products, but those gains are not particularly encouraging because they are from depressed year-ago levels.
Probably the most significant L.A. industry hurt by the Asian collapse, and the one most poised to benefit from its recovery, is entertainment. Asian demand for major Hollywood productions like “Titanic” and “Armageddon” has remained firm despite the recession. But such blockbusters are financed by the major Hollywood studios, which typically tap Wall Street, rather than local banks, when they need money.
Meanwhile, Asian demand for independent, lower-budget productions, often financed by local banks, has declined over the last two years, and that demand has not yet rebounded.
“Korea used to be 10 to 12 percent of distribution contracts of the productions we financed,” said Peter Knudson, who heads the international banking division of Imperial Bank. “That has not come back.”
Japanese demand for independent U.S. films has improved a bit, said Lew Horwitz, president of the Beverly Hills-based Lewis Horwitz Organization, which specializes in financing low-budget films. But buyers remain extremely cautious, only paying for films that have proven to be strong box-office performers in other markets.
“The Japanese used to be one of the first to buy films. Now they are one of the last,” said Horwitz.
Some sectors have seen increased business with Asia. Knudson said that while his trade finance business remains “flat from last year,” he is issuing more letters of credit to L.A.-area exporters of manufacturing-related products. That’s because Asian companies are buying products like machine tools and electronic components from L.A.-area companies, with plans to use that equipment to increase their own output of finished goods for export.
But even these smaller deals are not bringing much business to currency traders in the L.A. area, who convert foreign currencies to U.S. dollars, or vice versa, when parties from different countries transact business.
Lingering fears that exchange-rate volatility might resurface is prompting both U.S. and Asian companies to insist on transacting deals exclusively in U.S. dollars, say foreign exchange traders. As a result, their business has not seen a pickup in line with increased trade volume.
“We see more of the exporters do business in dollars, so we don’t see an increased transaction flow,” said Tomoko Iwakawa, who runs the local foreign exchange desk at Union Bank of California in downtown.
While the volume of U.S.-Asian currency exchange transactions is flat, the types of currencies being traded are different, industry sources reported.
For example, the Malaysian ringgit, once among the most heavily traded Asian currencies outside of the Japanese yen, has all but ceased to be traded since the Malaysian government imposed strict currency control measures last year. Meanwhile, there has been a pickup in the trading of the Korean won, as U.S. trade with that country has improved.
