AFTER BEING DELAYED AND stalled by half a dozen other financial institutions, California developer Ralph Rittenhouse found a local bank that was willing not only to back his small, $3-million residential development company, but even to help him promote it.

Tools and hydraulics distributor Irving Fisher's business was growing, but his bank lines were not. Despite a long-lasting relationship with a local branch loan officer, Fisher couldn't get the bank's loan committee to approve the additional financing for a planned expansion. So Fisher turned to another local bank that was willing to treat his business as a long-term growth prospect.

Over the past decade, Alan Kesten turned his small, family-owned fragrance business in Long Island City, N.Y., into an international company with $20 million in sales. Much of the credit, he says, belongs to his bankers, who recently extended $1.5 million in credit for a key expansion into an important new market.

What these three entrepreneurs have in common is that their local banks are not really local at all. In fact, they are all owned by foreigners -- foreigners who have recently discovered the potential of the American middle market.

"We see this as the best way to participate in the most dynamic part of the American economy," explains William Knowles, chairman and chief executive of National Westminster Bank USA, based in Manhattan, the American subsidiary of London's financial giant. "There's no need for another bank in New York to serve Exxon. For us, the diversity in the middle market offers the best way to build long-term earnings."

Although foreign banks have operated in the United States for generations, they had traditionally stuck to servicing the financial needs of foreign corporations doing business here. No longer. As foreign countries built up large dollar reserves and their banks began looking for growing economies, the United States offered an attractive new market. Their entry was further encouraged by bank deregulation, which made it easier for foreigners to buy a midsize American bank in the hopes of taking it into regional and national markets. The pace has been nothing short of astounding: foreign-owned banks now control an estimated 22% of all commercial loans in the United States, and have become an important source of capital not just for Wall Street but also for the small and growing companies along Main Street.

The internationalization of finance and the internationalization of markets are the hands that wash each other in this economy of the 1980s. And certainly one area in which foreign-owned banks have been able to stake a claim has been in helping smaller American companies transact business overseas.

"I don't know what it is, but there doesn't seem to be a lot of interest in trade among American banks," notes Junji Hatano, a top official with the Bank of California, a subsidiary of Japan's giant Mitsubishi Bank, which is almost relentless in its focus on the middle market. "It's a difficult business, and it tends not to be profitable in the short run. But it cements a relationship with the customer for his domestic business."

With the dollar weak, American manufacturing firms are especially looking to overseas markets for growth and profitability, and foreign-owned banks have positioned themselves well to ride the wave -- among them California First Bank, owned by Bank of Tokyo, and Walter E. Heller International Corp., the Chicago finance company now owned by The Fuji Bank. In addition to offering trade financing, these banks take pains to help client companies identify potential distributors, partners, agents, and customers overseas, leveraging their Asian connection.

It is much the same with National Westminster Bank USA, with its program targeted to European expansions. At Belmay Co., for example, CEO Alan Kesten used his bank's connections to take his fragrance-compounds manufacturing business international last year when he spotted an opportunity to set up a branch plant in Wellingborough, 70 miles north of London. Kesten's local NatWest loan officer arranged for a $1.5-million loan to finance the expansion, and the bank's branch officers in Northampton, not far from the Wellingborough facility, helped with additional local lines of credit, payroll, and other financial services.

"We told them what we wanted to do and they took us to England like we were moving next door," recalls Kesten. "Whenever we've had to move or expand, they've been very committed to us."

Other clients apparently also sense that commitment. Since 1981, NatWest's domestic loans have more than tripled, to nearly $7.3 billion, with 88% of the portfolio in midmarket commercial loans. With the purchase last year of First Jersey National Corp., in neighboring New Jersey, NatWest, with assets exceeding $11 billion, has set out to become a "superregional" serving middle-market companies throughout the Northeast.

For sheer aggressiveness, however, nothing matches the way the Japanese have attacked the American banking market. Japanese-owned banks today already account for more than 8% of the commercial loan market in the United States, up 100% since 1980 and more than three times the share now held by British banks. And by far, the most significant Japanese penetration has occurred in California, where 8 of the 12 major Japanese banks have set up shop. At first, these banks focused their attention on Japanese corporations that maintain operations in California. But more recently, they have set out to dominate the state's banking industry with the same vigor that they attacked the American auto industry a generation ago. Today, 5 of California's 11 largest banks are Japanese owned, and the Japanese now control roughly 20% of California's banking assets.

Nearly all of the acquisitions made by major Japanese banks in the state -- Mitsui's purchase of Manufacturers Bank in Los Angeles, California First's recent acquisition of Union Bank, and Mitsubishi's Bank of California bid -- have involved local banks known for strength in the middle market. And that is not merely coincidence. With their cultural orientation toward relationships rather than transactions, the Japanese see an advantage in serving smaller, growing companies -- the very companies that complain most frequently about American banks being unresponsive and unreliable.

"When I walked in here, it was like a breath of fresh air," recalls Tom Edmiston, a former official with Wells Fargo Bank, now at California First Bank in San Francisco. "There was an attitude of teamwork that the Japanese really promote, and a real commitment to service the customer. The whole atmsphere is easier and more laid back. Instead of 'Who's going to get the credit?' or 'Who's going to get canned?' the question is 'How can we make this deal and service the customer?"

And make deals it has. Even before the announcement of the acquisition of Los Angeles's Union Bank earlier this year, the assets of California First had soared nearly 50% during the previous five years, to more than $6 billion, making it the largest Japanese-owned bank in California and the seventh largest bank in the country. In the booming San Diego area, California First's retail market share ranks second only to Bank of America.

Irving Fisher used to be with Bank of America. But in 1975, when he needed cash to expand his growing Fisher Tool Co., d/b/a Astro Pneumatic, the bank turned him aside. "I had a great relationship with my loan officer, but, to put it frankly, I ended up being treated like a name and number,""Fisher says. "Anything over $10,000 and that was it -- you get before a committee where people don't know you from Adam. And besides, Bank of America didn't have the expertise to help us with international trade."

At California First, Fisher says, response time has been vastly superior, and in 1986 alone, his credit line was increased three times. Today it stands at more than $10 million -- that for a business writing $40 million a year in sales. But what impresses him most is his Japanese-style relationship with his bankers, who are apt to drop by his warehouse every couple of months to take him to lunch or, on occasion, even accompany him to trade shows. And when Fisher visits Japan looking for suppliers and distributors, all the stops are pulled out to make sure that this valued midmarket customer is treated like a firstclass VIP.

"In this country, you can deposit $100,000 in your bank and they take the money," says Fisher. "But you don't make a friend -- there's no feeling there. With these guys, it takes a little more time, but you build a relationship. They learn your business, and it makes a big difference."

Mind you, not all Japanese bankers are created equal in their ability to serve the American middle market -- or at least not right away. A recent move by The Dai-Ichi Kangyo Bank, the world's largest, to buy a $150-million package of American loans raised some eyebrows in Tokyo. "In japan, we get to know the president for many years," explained one Tokyo-based bank manager. "But in America, the company president is often a youngster. We don't like that at all."

Such concerns lead some Japanese banks to start out in the United States etting up arduous loan procedures marked by concern over security that appears absurd by American standards. And, as with many new foreign operations, there is always the problem of checking with the home office. "The guys I was dealing with didn't seem to have any authority at all," notes an early customer of California First. "That made them very cautious. They have a reputation for loaning money to people and then backing out. They've killed a lot of young companies here."

Because of such problems in making the transition to America, several Japanese banks initially have endured large-scale losses from their middle-market institutions -- notably Mitsui Bank with Mitsui Manufacturers Bank and Fuji with Heller in Chicago. But don't for a moment count them out. Norman Blake, Heller's chairman and CEO, reminds the skeptic that it has taken him three years and $725 million in additional capital to finally turn around his troubled finance company, which this year reported its first significant profit since being acquired by Fuji for $425 million in 1984. That kind of commitment, he says, proves that the Japanese are into American banking for the long haul.

"I am awed by their long-term view," says Blake. "They were willing to suffer to get into the market. When an American company buys another company and it doesn't work out, they twist and tie it or throw it away. The Japanese are much more patient."

The Japanese are not the only foreigners to have had trouble entering the American market. Perhaps the most noteworthy failure remains the disastrous acquisition of San Francisco's Crocker National Bank, which nearly toppled London's venerable Midland Bank before it unloaded Crocker onto Wells Fargo Bank. Another British bank, Standard Chartered, suffered such heavy losses that it was forced to sell Los Angeles -- based Union Bank to the Japanese.

The newest and potentially some of the strongest players in the American banking game are the Chinese. In their case, it is not large Chinese banks making the foray, as with the Japanese and British. More common is the purchase of an American bank by groups of Chinese investors, either from Hong Kong or Taiwan.

The Taiwanese are particularly aggressive. Taiwan's dollar currency reserves today stand at around $70 billion, among the largest of any foreign country. By rights, that should have made it an international banking power. But as a mercantilist state that has virtually prohibited foreign investment, Taiwan's banking potential has never been realized. Only recently has Taiwanese capital begun to flow into the United States, often through mysterious and backdoor channels. Some of it has made its way into banking.

By various reports, Taiwanese cash has played a pivotal role in the founding or purchase of around 45 banks during the past decade, most of them in New York City, San Francisco, and Los Angeles. Like the Japanese, the Chinese are attracted to these locations through family and ethnic ties. But even more than the Japanese, the Taiwanese are single-minded in their focus on lending to small and growing companies, which in their native Taiwan is what business is all about.

Harold Chuang is typical of the Taiwanese banker in the United States. At age 24, Chuang left Taiwan for Los Angeles, where he was to study for his M.B.A. But like many Taiwanese students -- including the vast majority of all graduate degree holders -- Chuang decided to stay for the "much better opportunities" available in America. In the years that followed, Chuang founded his own accounting firm and took control of Webster Career College, a vocational training school in Los Angeles. He was already a major figure in the local Chinese business community when a group of executives from struggling American International Bank approached him for an investment. By 1985, Chuang, allied with other Chinese investors in Los Angeles and Taiwan, took control of the institution and became its chairman.

"We think Taiwan will be a major factor in the world economy," says Chuang, who also serves as the president of the National Association of Chiese-American Bankers, an organization of 22 banks in the United States. "They are going to be doing what Japan has been doing -- but more in the middle market."

Initially, the middle market for American International was the booming Chinese business community in southern California. Two years ago, the bank bought a decaying Bank of America branch in Alhambra, in the heart of the heavily Asian San Gabriel Valley outside of Los Angeles. That branch, which had deposits estimated at between $10 million and $15 million, had been unprofitable for many years. It now boasts deposits of $40 million while contributing mightly to the bank's healthy profit margin.

But more recently, the Alhambra branch has been moving away from its all-Asian orientation, aggressively seeking business from others. Several non-Asian loan officers were recrutied, and last year roughly half the business loans processed by the bank were to non-Asian businesses.

For at least one local business owner, the arrival of Chinese banking has been something of a godsend. Ralph Rittenhouse has been an active real-estate broker and developer in the San Gabriel Valley since 1962. But despite a successful track record, he found it almost impossible last fall to get a loan for his newest project, a nine-house subdivision in Arcadia, a well-to-do suburb east of Los Angeles.

"I went to the Bank of America and virtually every other bank or savings and loan around. But when I applied to them, they wanted to know what my other sources of income were," Rittenhouse recalls, sitting amidst the clutter of his construction site, dressed in baseball cap and jeans. "Here I am, sitting on $700,000 to $800,000 worth of property in a place where everything is going fast, and they are asking for security. They seemed more interested in backing doctors and lawyers -- who don't know the business -- than an experienced developer."

Finally, a friend suggested that Rittenhouse go to American International's new Alhambra branch. The response was almost instantaneous. Not only did the bank approve a $1.4-million loan, but processing took only 30 days -- certainly less than half the time at most other banks.

"Foreigners have a different evaluation process," Rittenhouse believes. "They look at the property. They look at the person. They also look at the potential for the relationship, not just the short-term money question. At Bank of America, no one ever got to know me or the market."

Rittenhouse's arrangement with American International also had one unexpected benefit. Even before the loan was formally approved, officers at the Alhambra branch started letting the word out in the Asian community about the development. "The moment I hung up after getting verbal approval, my phone started ringing off the hook," Rittenhouse recalls with a smile. "They tell their people, their realtors, and their friends. They've been all over me."

All the interest, alas, was somewhat premature -- at the time he had nothing the show prospective buyers other than blueprints and construction scaffolding. Nevertheless, Rittenhouse has come to appreciate the advantages of having a banker who thinks of himself as something of a partner. And without question, he expects that his next project will also be financed by his newfound Asian associates.

Like Alan Kesten and Irving Fisher, Ralph Rittenhouse is not threatened by the "invasion" of foreign capital into the United States. Quite the opposite. For them, foreign capital has brought a healthy dose of competition to a clubby and, at times, arrogant banking industry in America. And it has provided them with an important entry into an economy that is becoming increasingly internationalized for large and small companies alike.


It has become apparent that the Japanese and others are busy buying up American banks. A growing number of these foreign-owned banks have made a specialty of serving what bankers call the middle market, companies ranging in size from $10 million to $250 million in sales. If our experience here in California is any indication, they are going to give the American banks a run for their money. I propose a short piece outlining the extent of the invasion by foreign-owned banks, some of the problems that have been encountered, and the effect it has had on several growing American firms.





($ billion)

Marine Midland Bank -- Buffalo, N.Y. $21.5

Hongkong & Shanghai Banking -- Hong Kong

Republic National Bank of New York -- New City 17.1

Saban -- Panama

National Westminster Bank USA -- New York City 11.3

National Westminster Bank -- United Kingdom

Union Bank -- Los Angeles * 9.1

Standard Chartered -- United Kingdom

Harris Trust & Savings Bank -- Chicago 8.2

Bank of Montreal -- Canada

Bank of Tokyo Trust -- New York City 6.0

Bank of Tokyo -- Japan

California First Bank -- San Francisco * 6.0

Bank of Tokyo -- Japan

Sanwa Bank California -- San Francisco 5.2

Sanwa Bank -- Japan

First National Bank of Maryland -- Baltimore 4.7

Allied Irish Banks -- Ireland

Fuji Bank & Trust -- New York City 4.6

Fuji Bank -- Japan

Bank of California -- San Francisco 4.5

Mitsubishi Bank -- Japan

* Agreement has been reached for California First to acquire Union Bank. The transaction is slated for completion in mid-1988.

Information as of 6/30/87.

Source: Sheshunoff & Co. Information for Union Bank as of 12/31/87






($ billion)

Dai-Ichi Kangyo Bank Japan $239.6

Fuji Bank Japan 212.4

Sumitomo Bank Japan 205.1

Mitsubishi Bank Japan 203.8

Sanwa Bank Japan 191.4

Norinchukin Bank Japan 161.6

Industrial Bank of Japan Japan 160.8

Credit Agricole Mutuel France 156.4

Citibank United States 145.9

Banque Nationale de Paris France 143.7

Source: American Banker, 7/31/87. Assets exclude contra accounts and contingent liabilities. Foreign currency is converted to U.S. dollars at the end of each of the company's fiscal years.


($ billion)

Banque Nationale de Paris France $107.9

Credit Agricole Mutuel France 106.3

Bank of America United States 104.5

Credit Lyonnais France 98.5

Citibank United States 96.8

Societe Generale France 90.5

Barclays Bank United Kingdom 88.7

Deutsche Bank Federal Republic of Germany 87.7

National Westminster Bank United Kingdom 82.7

Dai-Ichi Kangyo Bank Japan 79.4

Source: American Banker, 7/29/81.