County banks pull back from foreign involvement.

Recession puts dent in global scope of L.A. operations

It was not long ago that Los Angeles was being touted as the next financial center of the Pacific Rim. New banks were expected to open in Los Angeles and, along with existing institutions, expand westward across the Pacific Ocean. That was what was supposed to have happened.

But the recession came along and for the time being, Los Angeles in particular and West Coast banks in general have put Pacific Rim expansion plans on hold, said industry experts.

"I wouldn't say it's a retrenchment," said Hawley Smith, manager of export expansion with the Export Managers Association of California, a trade group based in Los Angeles. "But I would think it's safe to say that banks are concentrating more on their domestic operations. Two or three years ago I don't think that was the case -- they were aggressively and eagerly looking to go into Asia."

Smith, whose association follows banking activity in the Pacific region, said business growth has slowed in the Orient since the 1980s. "Banks go where the business is and right now it's not growing at the rate it was a couple of years ago."

In Los Angeles, there was some theorizing and speculation that California's three biggest banks -- Bank of America, Security Pacific and First Interstate -- were pulling out of the region. Now that Los Angeles-based Security Pacific has been merged into San Francisco-based BankAmerica Corp., the speculation has continued but there are no plans to close either of the bank's Pacific Rim operations, spokesman for both operations said.

At First Interstate, however, it's a different story. The bank's parent company, First Interstate Bancorp., is negotiating with London-based Standard Chartered to sell the foreign divisions of First Interstate Bank, Ltd., the operation which serves Fortune 1000 companies and carries a value of $1 billion.

Negotiations include the sale of First Interstate branches in Hong Kong, Tokyo and Taipei, Taiwan.

If the deal goes through, the bank would still provide services to its clients but the transactions would be made through Standard Chartered, said First Interstate spokesman Ken Preston.

Under the proposal, there would be a partnership between the two banks that will enable Standard Chartered to market its treasury and international products through First Interstate's western United States network. In return, the British bank would get First Interstate's foreign business for Fortune 1000 companies.

A spokesman for Standard Chartered has said that First Interstate "has made it very clear they are concentrating their strategy more on the domestic (United States) market."

Some analysts have noted that First Interstate is following the route of another major California bank, Wells Fargo, which over the last couple of years has been concentrating most of its operations in the western U.S.

Since Bank of America announced last August that it was going to acquire Security Pacific, there has been a steady stream of news reports speculating that the next big merger would involve First Interstate and Wells Fargo. So far, those rumors have come to naught.

Industry experts and analysts said Los Angeles' position as a major financial center in the Pacific Rim is mixed.

"Los Angeles' role and that of the banks is less clear-cut than it appeared to be two or three years ago," said Frank Meister, senior vice president in the Los Angeles office of Credit Suisse bank in Los Angeles. "It looks to me like California banks are becoming more introverted, again. They have been hit hard by the recession and the real estate market. It looks like it's a mixed picture as to what banks are going to be doing in the Pacific and Los Angeles' role in the region."

Analysts also said that when banks have problems -- in this case with bad real estate loans -- they turn inward and concentrate on central operations. One analyst, who did not want to be identified, noted that a dozen years ago during another recession Bank of America retreated from many of its proposed expansion plans.

"It appears that banks are embarking on strategies that bring them back to where they were before the growth of the late '80s," said the analyst.

Steven Hess, senior international economist at First Interstate Bancorp., said, "If you're talking about California, it looks like there could only be one major player left in the Pacific, Bank of America. That is not to say that there wouldn't be some activity there by smaller banks. And I think the reason for that doesn't have so much to do with what's happening in the region as what's happened with the economy in the United States."