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Article Excerpt
Banking began its romance with international trade in the 19th century, as did a large part of the insurance industry, when traders needed to finance their ships' inventory as well as insure the cargo against loss. As countries started to trade for other than bartered goods, merchant bankers were able to get their credit accepted by trading partners around the world, which customers found a lot easier than lugging around gold bars that practically begged to be stolen. So what has changed in trade finance? What hasn't? And who's doing it?
The Export-Import Bank of the U.S. assists in financing exports of goods and services to the international community. Ex-Im Bank is not a competitor to commercial banks; rather, it exists to fill gaps in trade financing, such as letters of credit or insurance. One of the more than 70 Ex-Im Bank partners--and one of its largest is PNC Bank's International unit, under the direction of Harry G. Hayman III, senior vice president. In this interview, The RMA Journal brings together several members of Hayman's group to discuss risks, opportunities, and best practices in trade finance. You will meet Gerald Rama, Dave Ondo, Tony Giunta, Joe Reilly, and Kimberly Burdette. Not long into the interview, Gery Rama had to leave to close a complex deal the bank had been working on for several weeks. International trade has always been more complex than domestic trade and is rapidly becoming more so. There can be huge risks and expenses, and compliance issues alone can destroy a bank's efforts in the international arena. Any smaller institution seeking to help its clients grow, then, had better buy the expertise and other resources needed in a multitude of areas, not the least of which is due diligence, or find a partner bank that can help. On average, those working in international trade finance at PNC have 20 years of experience. Therein lies the substance of this interview: what it takes to succeed in international trade.
Martin: International trade is part of the foundation of the banking business. How is it changing?
Hayman: Although always a part of the banking business, international trade is more frequently becoming part of our customers' businesses. Approximately 20% of U.S. corporations are actively involved in international trade--about a 6% increase in recent years--and the higher complexity of international trade requires more assistance than domestic trade does. So increasingly, those banks wishing to serve as trusted advisor must be able to provide a strong international service to protect these customers from risks and to help them maximize their international trade.
Many of the risks in international trade are the same today as they were decades ago--for example, sovereign risk, risk of default, expropriation, dock strikes, and foreign exchange movements. World changes, though, are forcing a company to, for example, open a subsidiary in Asia to supply its customers who have a high degree of manufacturing there. So now the company not only is importing and exporting, it has an operation in another country, opening the door to many kinds of global regulations--foreign exchange, hiring, data security--that the company otherwise wouldn't be dealing with.
PNC assists its customers with offshore operations in terms of general advice and best practices for financial reporting, hedging of foreign exchange and liquidity risks, and reporting on cash balances, receivables, and other transactions that are housed in the subsidiary. In addition to our efforts, our overseas banking partners might arrange local currency financing, receivables discounting, or inventory financing for that subsidiary.
So it's not just that international trade is more complex. As a U.S. company establishes offshore subsidiaries, its own business model grows more complex. So we not only help the company with its financing needs, we also serve as a business consultant for whatever country they happen to be in.
Martin: Let's talk about how PNC's role has evolved.
Hayman: Our role has evolved and grown with our customers. You might expect to see more such activity in New Jersey, South Florida, Texas, California, and perhaps less in Nebraska and Kansas--yet there are major exporters of capital goods in the heartland as well. The international business is one of PNC's fastest-growing areas and is aligned with our relationship strategy and trusted-advisor objective. We work as a team with other areas of the bank--such as relationship groups, foreign exchange, and domestic cash management--to provide credit, domestic cash management services, private banking, leasing, and capital markets, as well as international services.
In addition, because the...
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