Wells Fargo gets a trade processing bonus

Wells Fargo global trade services head Steven Nichols takes a walk through the bank’s newly acquired trade document processing centre.
Steven Nichols
Steven Nichols

Few people outside trading realise that Wells Fargo Bank, an American retail bank known for its signature stage coach, is a global trade-document processing behemoth as a result of its recent acquisition of Wachovia Bank.

Tucked away in a non-descript office building in Hong Kong's Taikoo Shing development, the American institution has more than 500 staff checking and processing trade documents for banks and corporations from around the world. According to Steven Nichols, Hong Kong-based managing director and head of global trade services at Wells Fargo, the bank operates one of the "single largest trade-processing centres under one roof" in Hong Kong, handling thousands of documents on a 24/6 schedule.

Today the centre performs a mix of services. Nichols said about half of the documents that pass through the Taikoo Shing office are from the bank's own trade finance business, while the other half come from its private labelling proposition. With the centre's team of more than 240 certified document credit specialists, document imaging and other technology resources, Wells Fargo is able to act as the trade back-office for small or regional financial institutions and large corporations.

"The spectrum of our trade processing services is broad," said Nichols. "These range from offering overnight documentary examination services to providing comprehensive, trade outsourcing solutions. We are continually adapting our suite of trade solutions to meet the changing demands of the marketplace."

He continued: "For example, when large corporates began to move away from LCs [letters of credit] several years ago, we built a capability to provide outsourcing solutions for their account payables' departments and tied this into our supply chain finance expertise." According to Nichols, Wells Fargo can replace a company's account payables department if it chooses.

When asked whether the bank went after big corporate mandates like some of its competitors, he said: "Big mandates are certainly part of the business but 'trade finance' is a very broad term. We play in the big league in the corporate market space but also partner with other banks on the operational processing and IT side."

Nichols explained that the trade processing centre competes with comparable offerings from Citi and HSBC for corporate business but, as Wells Fargo's target customers are companies with a US connection, it can offer financial institutions outsourcing options as a partner, not a competitor. Financial customers include Thailand's Kasikorn Bank, Malaysia's Maybank and Japan's Nishi-Nippon City Bank and corporate customers include US retailer JC Penny.

Born out of the success of Charlotte, North Carolina-based Wachovia's own trade finance business, the centre was created in the early 1990s. "Our credit concentration to some US corporates became very large, which made the bank nervous, and our processing was all paper based," said Nichols. "First we found the scanning technology to eliminate our paper problem then a Canadian bank approached us about issuing LCs in their name."

He added: "This allowed us to leverage our investment in technology without extending credit for each new LC." Thus Wachovia's trade document private-labelling business was born.

Prior to Wells Fargo's 2008 acquisition of the Charlotte institution, it did not have an internal trade document processing capability in Asia and actually outsourced the function to a third party. When the merger was completed on January 1, 2009, Nichols said his new bosses were very "pleased" when they realised the processing centre was part of the acquisition and have since terminated their previous outsourcing deal.

Still operating under the moniker "Wachovia, a Wells Fargo company", trade operations are due to officially become part of the San Francisco-based institution on March 20.

Despite ups and downs in the market and the recent merger, Nichols said the past year has been good for the centre. "2009 was the best thing to happen to us," he said. "We had a lot of marginal [trade] players who, in the good times, were hanging on, but all of a sudden this wasn't the best model for them. The crisis drove a lot of banks to us."

He would not name names but said that some banks had expanded the amount of documents the centre processes for them from 20% to 80% of their total as a result of the 2008 credit crunch.

Well Fargo's fourth-quarter results at least partially demonstrate this. The bank reported that government and institutional income rose 11% quarter-on-quarter, boosted in part by increased letter of credit issuance.

At the end of 2009, the combined Wells Fargo and Wachovia wholesale banking group, including its trade document business, reported revenues of $20.3 billion; more than double Wells Fargo's pre-merger wholesale revenue in 2008.

Looking ahead, Nichols has big plans. "I want to be to trade processing here in Hong Kong what filmmaking is in Hollywood," he said. He continued that it is not about where a company can process documents the cheapest, but where it can be done most efficiently and to the highest quality.

Part of that plan was realised last year when Wells Fargo opened its Hong Kong Disaster Recovery Facility led by Michelle Stanhope, Asia-Pacific head of technology services. Live this past August, the new facility acts as a back-up to the bank's global document processing business as well as its systems in the US.

Other plans Nichols has for the bank's trade operations centre include the roll-out of a global ASP (application service provider) that would allow customers to access information on the bank's systems and increased integration capabilities between customers and the bank's back-office. 

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