Foreign banks reap the greatest benefits from growing foreign trade market here.

Foreign banks reap the greatest benefits from growing foreign trade market here

Despite exports' acclaim as the bright spot in the California economy, foreign-owned banks are getting more than their share of the business of financing trade in the state, according to the Federal Reserve Bank.

Leaders in the local export community complain that the large domestic banks are not interested in financing trade transactions for small and mid-size exporting companies.

Japanese and other foreign-owned banks last year took a bigger share - for their size - of the business of writing and honoring letters of credit, the instruments used in financing import and export shipments, said Gary Zimmerman, economist with the Federal Reserve Bank in San Francisco.

Altogether, about $7 billion of commercial letters of credit were written in the state last year, he said. American-owned banks control 67.7 percent of bank assets in the state but financed only 55.5 percent of letters of credit transactions.

While Japanese-owned banks held 26 percent of bank assets in the state, they financed 30 percent of the transactions, he said. Non-Japanese foreign-owned banks control 6.2 percent of state bank assets, but do 14.4 percent of the trade business.

"The foreign banks have been, unfortunately, more accessible to the international community than our banks have been for lending and credit," said Edward D. Garber, a member of the Exporter Managers Association in Los Angeles' board of directors. "It's been an area of great frustration for us."

Garber said he has been talking to California-based banks like Bank of America and Security Pacific "for 30 years" about the problem. "The problem is they don't understand our business," he said.

Exporters don't have $10 million bank balances and the banks have been reluctant to loan to small businesses, Garber said. Exporters are in the service industry, not the manufacturing industry, and by nature, exporting is a highly leveraged business, Garber said.

Stanley Epstein, president of the National Federation of Export Associations and a board member of the California World Trade Center, agreed with Garber's assessment that it is tougher for exporters to get financing from domestic banks. Many bank officers believe, falsely, that such financing is risky, he said.

"Everybody throws rocks at the bankers and in some cases they're right," Epstein said. However, banks are responding to government regulators who encourage them to make loans that are beyond suspicion, he said.

David L. Hoye, vice president and manager of international banking for Bank of America, scoffs at the assertion that large domestic banks are not interested in financing small trade transactions. "Nothing could be further from the truth," he said.

Bank of America is redoubling its efforts to attract such business and opened in the end of 1990 a new division called export finance, Hoye said. "We see Los Angeles on the leading edge of all the trade with Asia," he said.

Trade through the Los Angeles and Long Beach ports is going to continue to grow, said Gordon Palmer, economist with the Port of Long Beach. The Port of Long Beach, for example, had cargo valued at $55 billion coming in and out of the port last year. Cargo values are expected to increase by 15 to 24 percent over the next five years and to double over the next 30 years, Palmer said.

To deal with the problem of undercapitalized but promising export companies, the state of California has set up an office in the World Trade Center which will guarantee bank loans to California exporters up to 85 percent, said Irene Fisher, director of the California Export Finance Office. The office was set up under a bill written by state Sen. Rose Ann Vuich, D-Dinuba, to support California exporters, Fisher said.

For every $1 million worth of exports, 22.8 jobs are created, she noted. "You lose enough of that business and the U.S. is out of business," Fisher said.

In six years of guaranteeing a total of 360 trade transactions, the office has had "only" six defaults, Fisher said. Any California-based company with 51 percent or more of California content is eligible to apply for backing.

The office has a fund of $5.6 million to guarantee bank financing, she said. The fund can be leveraged 3.5 times and is currently being used to finance $19.6 million in transactions.

but that volume doesn't impress Sam Clark, senior vice president of international finance for Mitsui Manufacturers Bank. He feels the problem with Fisher's office is she doesn't have enough money to guarantee enough loans. In many foreign and economically disadvantaged countries, the local government has much more money to back up loans, Clark said.

"Very few banks will finance an exporter and give him the money before he ships because the risk is he will never ship," he said. On the import side, many banks are leery of accepting or honoring letters of credit except from a customer the bank has a relationship with, because there "are more and more fraudulent letters of credit going around," Clark said.