Invasion of Booty Snatchers

Foreign investors discover a U.S. banking bonanza

British, French, Japanese and other foreign investors in the past decade have steadily bought control of 77 U.S. banks. The initial targets were usually small, often ailing institutions like Main Bank in Houston. Not any longer. Last summer Britain's Midland Bank unveiled a plan to buy California's Crocker National Bank, the nation's 14th largest (assets:$16 billion). In the past two years, overseas investors have also grabbed such multibillion-dollar banks as New York's Marine Midland and California's Union Bank. Some lawmakers say that the buying binge has gone far enough. If the Crocker deal is approved by the Federal Government, foreigners will hold the purse strings to more than 15% of the $1.6 trillion in U.S. bank assets. In New York foreign banks now control a startling 40% of all corporate loan business.

The financial immigrants initially came to this country to serve their own large companies like Sony. Soon, however, they began lending to American firms and setting up branch offices to seek out local business. Willing to sacrifice profits to build markets, the foreign banks have regularly undercut their U.S. competitors. Gulf Oil, for example, last spring borrowed $70 million from a group headed by West Germany's Commerzbank, which shaved an estimated 3/4 point off the prevailing 20% interest rate. Since 1972 the number of American offices of foreign banks has soared from 104 to 333.

Last spring Congress imposed a moratorium on overseas acquisitions of U.S.banks with more than $100 million in as sets, but the measure expired at the end of June. Now the General Accounting Office has recommended a new ban, and pressure for legislation is building. The House last week held hearings on foreign bank activities in the U.S. Critics argue that it is risky to let non-Americans absorb too large a segment of domestic banking. They contend that foreign-owned banks may not always cooperate with U.S. monetary policies to dampen inflation or prop up the dollar, particularly if the home country disapproves. Warns New York Congressman Benjamin Rosenthal: "The present open door to foreign interests is a dangerous and unwise policy that threatens the integrity of the U.S. banking system."

So far, though, Congress has moved cautiously against foreign banks. With a few notable exceptions like Italian Financier Michele Sindona, whose $45 million fraud drove New York's Franklin National Bank into bankruptcy in 1974, overseas investors have generally poured needed capital into American banks and made them stronger. Concedes Citibank Chairman Walter Wriston: "The consumer benefits from all this new competition." Moreover, an attack on foreign banks here could provoke retaliation against their American counterparts in Europe and Japan. While foreigners hold $211 billion in U.S. banking assets, Americans control $361 billion overseas.

Large U.S. banks argue that instead of blocking foreign investment, Congress should remove the regulatory shackles from American moneymen. In particular, they want changes in laws that prohibit U.S. banks from operating in more than one state, so that they too could buy American financial institutions. Says Chase Manhattan President Willard Butcher: "I would at least have liked the chance to bid on Crocker Bank." Thousands of small American banks, though, are expected to continue lobbying hard against any legislation that would permit large domestic banks to enter their markets. They are no more eager to be swallowed by Chase than by Commerzbank.

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