Florida builds an active 'harbor' for international banking
For years, wealthy Latin American families, wishing to invest some of their assets in the US, would fly to New York or New Orleans to do their banking. Now , they fly to Miami.
This is but one aspect of the tremendous growth in international banking that has made Miami one of the fastest growing banking centers in the US. Miami now has 24 Edge Act banks, second only to New York City, and 43 foreign banks.
"We're here," says Jerald Schneiderman, vice-president and general manager at Chase Bank International "because this is where the action is. It's the fastest growing banking region in the US."
One of the reasons for the growth is the steady increase in trade in the state. In 1980, officials estimate, the state had at least $14 billion in total trade, up $1 billion from 1979. Trade has increased 25 percent per year since 1977.
However, points out Francisco A. Herrera, president of Citibank International , trade alone is not the only reason the banks have moved here. "The inflow of foreign money," says Mr. Herrera, "entering the US equity, real estate, and business markets from Latin America has really increased. Miami has become a real window for Latin American investors wishing to invest in the US."
Most of this foreign private capital coming into the US, says Cyril Spiro, vice-president and manager of Bank of America International of Florida, is flight capital, seeking the politically safe haven of the US.
Prof. Emmanuel Roussakis, an associate professor at the Florida International University, in a study on the growth of the international banking community, notes that at year- end 1979, the total foreign deposits of Miami institutions came to $1.767 billion, of which 70 percent were in time and savings deposits. Only $530 million were in demand deposits, or checking accounts. Thus, he concludes, a large portion of the deposits represent "capital escaping political instability and national currency restrictions."
For the most part, this flight capital has flowed to the local banks. Professor Roussakis found that local banks had 53 percent of total foreign deposits.
Mr. Spiro points out that one of the reasons that the local banks have been more successful at attracting the flight capital is they don't have branches in Latin America. Thus, banks such as Southeast First National Bank can send out "calling officers" to Latin American countries and solicit business while some of the other banks feel restrained.
There are still other reasons the international banks have located in Miami. Mr. Schneiderman points out that the state decided early last year to eliminate its intangible and stamp taxes. Thus, the banks pay no taxes on their offshore loans that are booked in Miami. And the elimination of the stamp tax meant that "Miami became competitive with Nassau as a place to do business," says Mr. Schneiderman.
The stamp tax came to 15 cents per $100 and the intangible tax $1 per $1,000 of intangible personal property. Banks now pay only a 5 percent franchise tax compared with 17-20 percent corporate income tax in New York State.
Because of this difference in taxes, says one banker, some of the large US banks areusing their Edge Act subsidiary "like a garage," storing assets in them. "It's a bit of a tax haven," he says.
The Miami banking scene was further enhanced by a change in the Federal Reserve Board rules last year that allowed a consolidation of Edge Act banks. Thus, many of the banks with multiple Edge Act banks were able to consolidate the administration of these banks in Miami and increase teir lending potential.
Foreign banks were encourage by a change in the state banking laws in 1980 which allowed them for the first time to accept non- resident deposits, in addition to credit balances and to make domestic as well as foreign loans. Now, Miami has agencies of such banks as Lloyds Bank, Banco de Santander (Spain), Bank of Nova Scotia and Bank Leumi (Israel). There are some 20 new foreign banks scheduled to open in the next few months.
The local Miami banks have mixed feelings about this surge of activity on their home territory. The larger banks have welcomed the competition, reasoning that it is better to have a smaller piece of a big pie than a larger slice of a smaller pie. However, the smaller banks have felt threatened.
One beneficiary has been the Southeast First National Bank, Florida's largest bank. According to Sheila D. Trifari, general manager of the bank's international division, the bank's international business has surged. The bank's loan portfolio increased by 20 percent and its balances soared by 65 percent.
"Quite frankly," she says, "We have more business than we can handle," She says the Edge Act banks don't really compete with Southeast, but do bring in more business.
For example, many Latin Americans want to buy condominiums in Florida. However, they wits to borrow to do so and have to go to a domestic bank for the loan. Edge Act banks cannot make domestic loans. Since they are accustomed to inflated economies, they don't balk at high interest rates.
The main impact of the competition, says Ms. Trifari, has been a reduction in lending margins. Foreign banks, who can make domestic loans, have priced their loans based on the London Interbank Borrowing Rate (LIBOR) as oppossed to the prime rate.
Some of the smaller banks are concerned that they will be hurt if national banking is allowed. The Edge Act banks would make good bases for branches, they argue, and the larger institutions will muscle them out of their customers.
However, before national banking is permitted, Ms. Trifari expects another wave of banks to descend on Miami. This group of banks will use Florida as their base for their Latin American headquarters. Only this year, Royal Bank of Canada moved 140 people to Coral Gables for this purpose and other banks are considering it. A major advantage is the excellent communications facilities and airline connections.
A major disadvantage is a shortage of office space. Space is so tight that the United California Bank is operating out of a local hotel. Within a few years this should be eased. Some $700 million worth of new buildings are going up in downtown Miami.
Finally, bankers are optimistic that Miami will prosper if the Fed agrees to permit banking free trade zones. This would be a springboard, says Mr. Spiro, for a huge money market operation in Miami.