Will US banks return to the region?
TIME?WAS when the English-speaking Caribbean, Barbados included, was considered fertile soil for American banks to plough for additional profits.
That was in the late 1960s and early 1970s. It was when United States financial institutions were eager to spread their wings by establishing branch networks in far-flung corners of the globe.
Back then, Chase, Citibank and Bank of America had a truly global financial vision. Suddenly their perspective changed. Call it the great retreat, a move propelled by a narrow view of the world where American banks decided to expand by going truly national as distinct from seeing growth in foreign markets.
That explains why, in the late 1970s and into the 1980s, American banks viewed the Caribbean as inconsequential and was more trouble than profit.
It was a mistake the Canadians didn’t make. Whether it was Royal Bank of Canada, Bank of Nova Scotia or the Canadian Imperial Bank of Commerce, the attitude was to expand by being global and sticking to the markets that welcomed them with open arms.
As a result the Caribbean realized two benefits; one was stability and continued modernisation, and the other was an understanding that size isn’t the only thing.
Just as important was the growth of indigenous Caribbean banks. The Republic Bank of Trinidad and Tobago and the Barbados National Bank are two examples.
But when the financial debacle occurred in 2008, starting with the collapse of Lehman Brothers, Barbados found itself in the comfortable position of being listed among the world’s most stable banking markets. It was a ranking by experts that was traceable to the presence of the Canadian banks, which had given their country top billing for confidence.
But are things about to change?
Will the Caribbean see American banks in the region once again?
Although it’s too early to respond with a firm “yes,” don’t be caught off guard if it happens. It may not occur in 2011 or even 2012 but it seems to be on the cards.
The Economist forecasts, “In 2011 American banks’ bosses will start trying to reverse one of the biggest mistakes their firms made over the past two decades. That was not the creation of subprime debt, nor the culture of excess on Wall Street, but the decision to grow their home market rather than try to dominate global banking.
“Given that the demand for financial services in America will stagnate or even decline over the next decade and a barrage of new rules will hurt profits, the shift into reverse makes sense. But since the 1960s and 1970s when American banks had their last big push abroad, international competition has gotten far tougher.”
The international exodus was swift, so much so that by the end of the 1980s Chase Manhattan, now JPMorgan Chase, had closed down most of its branch operations in Latin America. Less than five years ago, Bank of America also rid itself of its large presence in Latin America.
The miscalculation was based on false assumptions, one of which was that United States banks could fashion global banking to give it an American face. That didn’t happen. The second was a failure to prepare for the changing nature of global trade and the growth of emerging economies, especially those in Asia.
Giddy with profits from the subprime market, United States banks ignored signs of impending disaster. When the financial crisis erupted at home, in Britain and some European states, American banks were unprepared to meet the needs of developing countries.
“After the crisis, many developing countries want a different sort of finance, one in which foreign banks lend, raise local deposits and have lots of branches, rather than just trade from offshore hubs and rely on borrowed money to fund themselves,” the Economist noted.
Although the Caribbean may not be high on American banks’ immediate priority list, any return in the second decade of the 21st century would see a different banking picture in the region than when they left 20 to 30 years ago.
What’s true is the rise of viable regional banks such as RBTT, Butterfield and Republic Bank. Of course, there is FirstCaribbean International Bank, which has provided Barbados and its neighbours with a solid anchor.
In addition, there are the credit unions, which in Barbados’ case have assets of more than a $1 billion.
In other words, it would be a different ballgame should United States banks opt for a return to the Caribbean. Naturally, Americans would go first to Asia and Latin America. The Caribbean and Africa would then be in line.
What may pitchfork the Caribbean to a high place on the list is the offshore financial services sector. Several United States multinational corporations have established firm corporate lives in Bermuda, the Cayman Islands, The Bahamas and, to a lesser extent, Barbados, and American banks would wish to serve that constituency.