Wachovia's Unique Path to Overseas Expansion

Jan.13.08 | About: Wells Fargo (WFC)

Wachovia (NASDAQ:WB) is aggressively pushing its expansion overseas but not in the way its rivals are. While banks like Citigroup (NYSE:C) and Bank of America (NYSE:BAC) open physical branches to expand their business, Wachovia has taken a decidedly different path.

Recognizing local banks have more coverage in the regions they operate that a international bank with a few branches in the capital, Wachovia covers cross-border payments, letter of credit and open account trade, treasury clearing and has signed over 100 agreements to run white labelling operations for banks since 1990.

Wachovia’s head of global financial institutions and trade Michael Heavener, instead of competing with local banks that have increasing lending capabilities, has decided to partner with them. Said Heavener:
We must be one of the largest banks in the world whose international business is built primarily around a global financial institutions strategy, so we’re kind of in a perfect world. We have all the scale and all the resources we need to keep this business growing and deepening, and yet we can be clear to our clients that we are in no way competitive.

Wachovia is focused primarily on the global financial institutions business in many of these international markets, and so we’re able to say that we’re partners, not competitors, and that’s reassuring to our correspondents,Heavener says.

So what do they actually do? They handle the bulk of the check collection, export order collection, credit support and risk underwriting and other labor-intensive transaction processing technology. So while company "A" may use a local bank in Hong Kong for a transaction, much of the back office work is being done by Wachovia. To put a number with the description of activities, in Hong Kong Wachovia handles 10% of the special administrative region’s exports.

The big key here, especially in today's environment, is that Wachovia needs minimal capital to keep this expansion going. There is significant capital required to open a walk in branch, almost none to do what Wachovia does... Perhaps this is why they are virtually the only bank expecting a better year in 2008 that in 2007?
Disclosure: Long Wachovia, Long Citigroup.