Bears, hummingbirds, and the Bank of America
"The Boston cycle is coming back." From his downtown office chairman John P. LaWare of the Shawmut Bank can't see the ocean. But as he talks about international banking and Boston he is well aware of its presence -- and beyond it, or world markets.
"International trade for the United States started here," he muses, "and I think it's going to become extremely important again."
Foreign trade, in fact, is already brisk business in the Hub. Gone are the fears that Bostonians might toss overboard someone's cargo of tea. Since 1978 foreign trade passing through Boston has grown by more than one-third. In the first three months of 1981 exports alone through the Boston customs region totaled $3.8 billion.
And as these trade figures grow, so does one of their most vital supports: international banking.
High technology exports, overseas purchasing of New England manufacturing firms and farmland, sharply increased foreign participation in the US stock markets -- this is quite a pot of honey. Not surprisingly, it has attracted everything from the honey-loving bears of the bullish foreign banking world to the high-flying hummingbirds of domestic ventures. What does it all mean for Boston?
First, the international bears. Who are they? Boston already has the London-based Barclays Bank, the Bank of Nova Scotia, the National Bank of Greece , and the Israeli- based Bank Hapoalim -- with other banks patiently waiting in the wings. This activity is part of what Frank Morris, president of the Boston Federal Reserve Bank, describes as the "absolutely phenomenal" growth in international banks in the US in the last few years.
The Fed's figures bear him out. In 1977 the foreign banks' in the US in the last few years.
The Fed's figures bear him out. In 1977 the foreign banks' share of total banking assets in the US was 5.6 percent. By 1980 it had nearly doubled, to 11. 1 percent.
This growth, in fact, has spurred considerable concern among bankers. The problem: the international giants, operating without the restrictions of the domestic ones, had opportunities which American banks were denied. They could, for example, set up branches around the country, providing their customers an enviable network of domestic and foreign outlets. And they were exempted from requirements making them keep part of their holdings in reserve against a rainy day of widespread simultaneous withdrawals.
From this concern, combined with the impetus toward bank deregulation now surging through the nation, came the International Banking Act of 1978. It brought the foreign banks into the federal regulatory net -- limiting (for example) their interstate activities by requiring them to declare a "home state" and, like domestic banks, not branch out of state.
And it did something else, of particular importance to Boston. It relaxed the previously tight restrictions on the so- called Edge Act corporations.
Which brings us to the hummingbirds: the comparatively small but high-powered Edge Act corporations. Set up under a 1919 law (named after New Jersey Sen. Walter Edge) which allowed domestic banks to create out-of-state operations specifically for international banking, they are now sweeping the nation. Fed figures from the end of 1979 (the latest available) count about 70 of them around the nation. New York and Miami (with 25 and 15 "Edges," respectively) remain the most favored siteS, followed by Chicago and San Francisco.
Fifth on the list is Boston. Currently in place here are the international divisions of Citibank (the nation's largest bank) and the First National Bank of Chicago. Already approved: Security Pacific International. Stil under consideration is an application from Chemical Bank. Hovering on the wings of rumor are Continental Illinois and Manufacturers Hanover Trust. And opening in late summer or early fall: the mammoth Bank of America.
Publicly, Boston banks are calm. Edges, after all, are simply small divisions of banks headquartered in other states. And as chairman Richard D. Hill of the flagship First National Bank of Boston notes, it is "better to be dealing with a senior officer in Boston than with a junior officer of a bank located 3,000 miles away."
Privately, however, there is a frisson of worry. For the Edges have not come simply to seek international business. They are here to put the full-service foot in the door of domestic business. After all, says one Edge Act officer privately, when his bank visits a corporation "we ask a lot of questions -- and we keep our eyes out for domestic opportunities." Legally, Edge officers cannot handle domestic business. But nothing prevents them from mentioning to the customer the name of an extremely helpful fellow back in the home office, who would be happy to give you a call. . . .
Saying it that way makes it sound shady. In fact, it is simply part of the ability of the major banks to move carefully among the tangle of rules that makes American banking probably the most densely regulated in the world. Besides, the banks have at least two other reasons for coming:
* Nationwide banking. Most banks setting up Edge Act corporations, the Fed's Frank Morris says, "are trying to position themselves for the advent of interstate banking." The Shawmut's John LaWare foresees that only half the number of banks now in existence will be around when he retires in 1993. Instead, the industry (as in most foreign countries) will be dominated by nationwide giants, merging with smaller banks and branching out everywhere.
* Export trading companies. Legislation now before Congress would make these companies, modeled on successful operations in Japan and Western Europe, legal -- allowing banks not only to lend money for international trade, but actually to take a piece of the action and reap some of the profit. Banks with Edges will be well placed for the change.
What will these changes mean to Boston bankers? I spent some time the other day with Christopher Wilson, who heads up BankAmerica International's new Boston operation. When it opens for business in September, it will bring a staff of some 22 people into a state which, many feel, is already overbanked. More sobering, however, is simply its size. BankAmerica International -- just the Edge corporation -- has assets of $5.8 billion. Even without the massive $111 billion assets of the parent bank (which, may calculator tells me, is enough to paper every square inch of Boston's 48 square miles ten times over with dollar bills), BankAmerica International will, upon opening, instantly be the second largest bank in Boston, behind the First's $16.2 billion.
How will it behave? "Our approach to the market-place is going to be conciliatory," says Mr. Wilson officially, adding, "it shouldn't be considered as a threat to anyone who is doing his job." Officially, too, the local banks extend their welcome. "I guess my only response would be, "What took you so long?'" says Citibank International's David Poulsen, whose Edge corporation set up in March. Or, from the Shawmut's LaWare, "Welcome to the fray."
Unofficially, however, insiders note that a cozy relationship is building between the Shawmut and BankAmerica -- and that the newcomer has explicit plans to go after the First of Boston with all the stops out.
Does the First worry? Mr. Hill, noting the experience of his own Edge corporations in other cities, says that the First's presence has not caused other established banks to suffer. But he clearly scents the competition. "We will have officers calling more frequently [on customers]," he says, "and we'll sharpen up all our capabilities." He also sniffs danger. "The new guys coming in," he notes, "always tend to lower their credit standards and lower their prices." Good news for the customer, perhaps, but tough on the banks.
What will that mean to the community? BankAmerica has a reputation for community service, having given away $8.2 million to deserving groups last year. But will it be a help to Boston? Or will its competition cut into the local banks -- into their profits, and so into their capacity to fund, say, the opening of swimming pools around the city? Mr. Wilson speaks of his charge "to get involved with the community wherever possible." But involvement here seems to spring from membership in the Coordinating committee, that collection of movers and shakers known as The Vault. And Vault members see little prospect of BankAmerica breaking into that group -- not, at least, for another couple of decades.
In fact, nobody is quite sure what the over- all impact will be. Some observers see BankAmerica as a mammoth operation that will only make an appreciable dent on such massive firms as Raytheon and Gillette.But others worry that, by providing what is known as "overline capacity" to smaller banks -- backing them up, in effect, to write large loans -- it will reorganize Boston banking away from a concentration on the big four (the First, Shawmut, State Street Bank, and New England Merchants Bank) and into a pattern of a central emperor surrounded by eager lieutenants doing the legwork.
Still others see a merger afoot (when size limits change down the road) between the Bank of America and the Shawmut -- though officers of both dismiss that possibility. Finally, there are those who shrug away its presence, noting that it will have problems with turnover of its best people, who won't stay in Boston long enough to cultivate real depth.
One thing is clear: Competition will increase. And that, it would seem, is all for the better. "Whenever uou intensify the level of competition," Frank Morris says, "the consumer benefits." Oddly enough, the more bea rs and birds there are, the more the honey multiplies.