It may be the fifth largest bank in the US, but Wachovia is not a familiar name to many Asian corporate executives. And if the North Carolina-based bank continues to dominate its niche effectively, then it is unlikely that it will come onto the radar screens of local financial officers.
Despite this, Wachovia's business in Asia is thriving and the bank expects both its market share and revenues to increase this year, a continuation of its steady growth trajectory. Its success in Asia has been achieved by sticking to correspondent banking and trade finance and it is in these areas that the bank will be making headway this year, particularly in China where it has a branch office licence pending.
As background, Wachovia has evolved out of several high profile mergers and acquisitions in the US. Its forebears include Philadelphia National Bank, CoreStates Bank and First Union National Bank. In Asia, the bank began its life as a series of representative offices under the CoreStates brand, which was then changed to First Union National in 1998. The switch to Wachovia came in September 2001 when the Charlotte-based bank took over First Union.
The latest incarnation makes it the fifth largest bank in the US with assets in excess of $342 billion and the country's second largest treasury service provider. It has 3000 correspondent banking relationships in over 130 countries around the world. And in Asia, the bank has offices and branches in a total of 12 countries.
Wachovia's specialty is processing US dollar transactions and maintaining US dollar accounts. Up until now its biggest businesses in Asia have been settlement of trade and treasury transactions, and handling payables and receivables for its correspondent clients. Its clients are mostly domestic banks and it also acts for global banks with a smaller presence in the region than the likes of Citibank, JPMorgan, Deutsche, Standard Chartered and Bank of America.
On the trade side, Wachovia is an issuer and negotiator of letters of credit (LC), with 300 people based in Hong Kong processing these trade documents. Its other LC markets include Taiwan, Japan and Korea. Customers in this segment are mostly large US retailers.
The bank's head of global trade services based in Hong Kong, Steven Nichols, says the secret to Wachovia's success is sticking to its niche. "Some of the larger banks that play the international game have many different business lines, whereas we don't," he says. "We're focused on correspondent banking and the trade banking segment. Our revenues come from transaction processing and some credit provision in short-term trade-related financing."
This year the bank plans to expand its Asian offering of a new business that is doing well in the US – third party processing. Wachovia already handles LC processing for 40 banks and is making headway in Asia. "The focus here is on technology," Nichols comments. "Our systems are super efficient and as the global market gets more competitive, it makes sense for banks to outsource their back office operations to us." He says most of the staff increases in Asia in the past few years have related to the growth of this outsourcing business.
On the treasury management front, Wachovia says it will continue its push into providing consultation services to domestic banks. "This business has grown out of the queries that we have been getting from our correspondent banking clients over the past 12 months," says the bank's head of treasury management Barbara Stockler. She says domestic banks are asking for advice on how to combat the competition coming from large foreign banks that are going after local currency cash management accounts.
"Banks in Southeast Asia, in particular, don't know how to handle this new source of competition and since we don't play in this space, they are asking us to help them establish cash management products and services that mirror the ones being offered by the global players." Stockler says, in some cases, this might extend to offering private labelled services. "We already do this through a few alliances in Australia and Japan but we do it on a fully disclosed basis."
With these two business set to expand this year, Wachovia is predicting double-digit growth in revenues over the next 12 months for its Asian operations.
