It seemed an odd location for a trade processing centre. For years Wachovia quietly operated its centre on the fringes of Hong Kong's high-rent Central business district, complete with sweeping views of the harbour. Today more than 300 staff work round-the-clock to process letters of credit for Wachovia's global network of correspondent banks and their clients, in what has grown to become the bank's largest international branch. Wachovia's relatively low-profile branch is perhaps appropriate for a North Carolina-based bank that is little known outside the United States, despite being America's fourth-largest lender with assets of just over US$500 billion and the world's eighth-largest bank by market capitalisation. It also challenges some long-held assumptions about Hong Kong's core strengths. While an increasing number of service companies have been relocating back-office operations to Guangzhou or other low-cost overseas locations, Wachovia's experience suggests that the SAR's talent pool is underestimated and its cost base not prohibitively expensive for such operations. Swamped by the paperwork involved in issuing and cross-checking letters of credit on behalf of large US retailers sourcing from China, Wachovia invested about US$10 million in scanning technology. Documents were digitised and checked online. The system was so efficient that the bank realised it could offer this capability to other banks and now does so for about 70 correspondents. Wachovia, for example, can process trade paperwork for Swedish retailers, their Scandinavian banks and China-based suppliers. Although it conducts the transaction, Wachovia remains invisible throughout. 'When we first started doing imaging technology here it was only for the back office,' says Steve Nichols, Wachovia's Hong Kong-based managing director and head of global trade services. 'A couple of years later we realised we can actually make it available on the web to our bank clients and other clients. We have separate teams working for different time zones. This is a 24-hour operation.' To service Swedish clients, for example, the bank's small Scandinavian team works a late shift that coincides with business hours in Stockholm and takes Swedish holidays rather than Hong Kong ones. While Hong Kong worked on Friday, January 6, a handful of Wachovia employees had a day off for Trettondedag Jul, or Epiphany Day. 'If you're in northern Europe, the cost structure will be quite a bit higher, the people older,' Mr Nichols says. 'The economy works against the transaction. But if you bring all those transactions to a more cost-effective place like Hong Kong, you can do it cheaper. 'Our Hong Kong staff is able to connect with the outside world through the use of imaging technology and perform jobs here in a more cost-effective manner.' With China just beginning to emerge as a global export power in the early 1990s, Wachovia soon found it had offered the right service at the right time - a confluence Mr Nichols refers to as 'the perfect storm'. In 2003, for example, its Hong Kong office processed US$19.55 billion worth of letter of credit transactions, equivalent to 8.6 per cent of the SAR's exports that year. This month, Wachovia finally outgrew its 30,000 sq ft Hong Kong waterfront offices, in Citic Tower next to the Tamar site, and moved to 70,000 sq ft premises in Taikoo Shing, where its employees still enjoy a harbour view. 'We're like the people who put the glue on the backs of stamps,' Mr Nichols says. 'Nobody ever thinks about who has that contract, but we're one of the largest international banks providing corresponding services for the banks in the world. The man on the street doesn't know about our role.' What Wachovia does at its trade processing centre is rather more complicated than applying glue to the back of stamps. Checking and rechecking trade documentation may seem a mundane task; it is also a highly specialised one where mistakes can have serious consequences. Technically, a small slip can be grounds for a buyer to refuse a shipment, potentially sticking the letter of credit-issuing bank with a shipment's financial risk. Wachovia's staff includes 39 holders of the certificate of documentary credit specialists, an external qualification endorsed by the International Chamber of Commerce. Mr Nichols estimates that there are about 150 of such qualified professionals in Hong Kong, more than in all of India. The availability of such skilled people is one of the main reasons Wachovia has resisted the temptation to move its operation out of supposedly 'high-cost' Hong Kong, rather than enter what Mr Nichols described as a 'race to the bottom' in search of low costs. The scale of Wachovia's Hong Kong trading business has fed its many other international correspondent banking and treasury businesses, such as payment and cheque collection services. It has also, since 2004, been rapidly expanding its regional capital markets team to tap growing regional demand for, among other things, US debt instruments. Having built a solid business servicing export payments from the US to East Asia, Wachovia reckons it can now profit from facilitating capital investment flows in the opposite direction. Additional reporting by Kelvin Wong Wachovia at a glance America's fourth largest bank World's eighth largest by market capitalisation US$532 billion in assets US$306 billion in average deposits 2004 earnings: up 22 per cent to US$5.2 billion Overseas branches Hong Kong Tokyo Taipei Seoul London
