TIIE FOREIGN BANKS

Stars and Stripes in the City Exchange Markets in Europe

• •

.. John Croome .. F. G. Hirsch

Foreign Banks in the City .. Anthony Vice.

Marks for Economy tun Fraser

P HE foreign banks in London form only a 1 small part of the mechanism of the City. Taken together, they are only a. fraction of the size of the overseas, Eastern exchange, and Com- monwealth banks which have their headquarters in LOndon. NevertheleSs, London is host to the largest concentration of foreign banks anywhere, and this is part of the explanation of the unique character of the City. For the foreign banks, with their special knowledge of trade and economic conditions in their home countries, complement other banks and institutions so that the City is able to offer a complete service of banking facili- ties throughout the world. Trade credit is made available more easily because of the cosmopolitan nature of the banking structure in London; pay- ments may be made without .difficulty to any address on the globe. All this is of great benefit to Britain's foreign trade. So is the strengthening of the foreign exchange market through the presence of so many 'natural' dealers in their own cur- rencies. For these reasons alone, the foreign banks are welcome, but in addition they must also bring in a certain amount of foreign exchange, though this cannot be precisely estimated, as Anthony Vice points out in his article.

Evidently foreign banks find it worthwhile to conic to London, since more than thirty new branches or offices have been opened here since the end of the war. The German banks, however, are notably absent, and the reasons for this are discussed in the fourth article by Ian Fraser. In contrast, as John Croome points out in the first article, the American banks have become much busier following the arrival of so many American companies in Britain.

Looking ahead, it seems to be insufficiently realised that foreign banking is in the throes of a revolution as drastic as that which overtook British banking last summer. Freedom for British banks to lend as they please has been followed by the move to external convertibility of European currencies, while day by day the Common Market begins to take shape. Sonic -aspects of these changes are discussed in the second article by F. G. Hirsch.

Stars and Stripes in the City

By JOHN CROOME

To the casual observer, the American banks in London seem little different from any of the others. Their offices range from the glossy and modern to the dowdy and downright chaotic. A few cashiers have cultivated unconvincing Ameri- can accents to make the customer feel at home, but 99 per cent. of their staffs are probably English. A visitor may notice the managers' odd aversion to working in a quiet private office, but it is only when the flags are hung out on Washing- ton's birthday or the Fourth of July that the American banks become conspicuous. You can easily remain unaware that there are more Ameri- can banks in London than anywhere else outside the United States.

Six carry on a full banking business—the Bank of America, the Chase Manhattan, the First National City Bank, Bankers Trust, Guaranty Trust, and the Hanover Bank. One other com- pany, American Express, provides banking facili- ties in addition to its tourist and freight business, and Manufacturers Trust and the First National Bank of Boston have representative offices. Guaranty Trust, Chase and First National City came here (although not under their present names) before 1914. Most of the others opened their London offices between the two world wars.

We are perhaps over-impressed by the size of our own banks, probably because of their thou- sands of branches. Banking law in the United States limits the areas in which American banks flay operate, and in some cases does. not permit branch offices at all. Nevertheless, the three biggest banks in the world, in terms of deposits, are all American--and have offices in London. The Bank

of America, with all California in which to expand, iA easily largest. The Chase Manhattan and First National City (both confined to New York City) dispute second place. All are probably near their limit as far as size is concerned, because anti-monopoly legislation would hinder further large-scale mergers.

In London the American banks keep very much apart from one another, partly from fears of anti- trust action at home. They have no joint associa- tion, and—apart from a representative who acts as their official contact with the Bank of England and the clearing banks—no common voice. Polite- ness and common sense generally make them fix the same interest rates on deposits and overdrafts as the English banks, and follow British banking practice. But they have never formally undertaken to do so. That might savour of trade restriction.

In spite of their wealth, the Americans have never challenged the British as bankers to the world. Offices on military bases apart, First National City has more foreign branches than any othel' American bank. But it still has only about eighty, of which under twenty are outside Latin America. This does not remotely approach the overseas coverage of several British banks. The reason is not legislation—although this did hinder the so-called 'National' banks up to 1914— but the lack of an American Empire. It is a bank- ing principle not to bank across exchange fron- tiers. The colonies encouraged the spread of the British banks because their currency was based on sterling, and because they attracted the British trader. The United States banks ventured abroad . only to countries within America's sphere of in-

fluence (largely Latin America), or where Ameri- can business was established in sufficient strength to need their services.

This explains why so many are in London. American companies have 700 subsidiaries in Britain. of which perhaps 250 are engaged in.

manufacturing. The banks are here to serve them. They, lend to them, channel funds to them from their parent companies when they are being established, and remit their profits back to America when they succeed. They advise them on finance, and in particular, help with their inevit- able currency difficulties, taking up their problems with the Bank of England and other authorities.

But they do not usually do their day-to-day bank- ing work. A company with a factory in, say. Glasgow, would be encouraged to use the local Scottish bank for its small cheque payments. for clearing payments received from customers, and for making up wages. The bank on the spot can do the job better, and anyway, the Americans want to stay on friendly terms with the British banks. Their attitude, as expressed by one manager, is.

'We are here as guests.' Thus they will not work_ for a British company without approval from its banker. They certainly would not do anything so ungentlemanly as to solicit for purely British business.

Rather different from the rest is the American Express Company in the Haymarket. Its first

London office was opened in the 1890s to serve its large freight business, in Edwardian times con- tracting with the GPO to deliver all parcels sent from Britain to the United States, which then had no parcels service. It now provides, through twenty-six 'military facilities,' banking services at American bases all over Britain. Its biggest job,. however, is serving the American visitor to Lon- don. On a peak day in midsummer seven or eight cashiers will be on duty to serve some 3,000 custo- mers.

The American banks here do a good deal of commercial credit work, mostly on behalf of their own branches elsewhere. Most do more foreign exchange dealing than British banks,. partly on their on account, partly to meet the needs of American firms in Britain and of their own branches and head offices. First National City is probably the biggest foreign exchange dealer among them, its turnover being comparable with any of the London clearing banks. Guaranty Trust has specialised in security dealings. It pioneered the 'American Depositary Receipt' system which made it possible for shares in a number of British companies to be freely traded on the New York market.

The European Common Market is not likely to reduce the importance of these London offices

of American banks. Some American manufac- turers are building factories on the Continent. But their investment in Britain is expected to go on growing for many reasons—among them imperial preference, the common language, and a belief that something must eventually come of the Free Trade Area proposals. And as long as the Ameri- can businessman wants to do business in Britain the American banks will be here to serve him.