When National City Bank Went International

The United States may have had a substantial economy well before the end of the 19th century and its international trade was sizeable too. As the century came to a close, the country’s financial system had also developed to allow it to meaningfully reduce the country’s reliance on capital from abroad. However, America’s banks were still purely domestic operations. Few American banks even operated across state-lines, let alone abroad, at least partially because of banking regulations then in effect. National City Bank was the first American commercial bank to open an overseas branch. From there, it grew quickly.

National City Bank

National City Bank, today’s Citibank, was founded in 1812 as the City Bank of New York. It was created as a replacement for the first federally-chartered U.S. bank, the First Bank of the United States, when its charter was not renewed. City Bank of New York itself later converted to a federally-chartered bank, from a state-chartered one, in 1865. Frank A. Vanderlip was its president from 1906 to 1919, a period of remarkable expansion.

As a federally-chartered bank, National City Bank was prohibited from operating a branch outside the United States, something it would have been permitted to do as state-regulated institution. However, this changed during Vanderlip’s tenure at the top of the firm. The Federal Reserve Act, with the support of President Woodrow Wilson, passed through the U.S. Congress and, among its changes, allowed banks to open foreign branches. Industry had been lobbying for this, believing that American banks could now provide export financing for sales of American goods abroad, supporting foreign demand for U.S. products.

Before long, National City Bank became the American bank with the largest overseas presence. It expanded enthusiastically, anticipating the opportunity to serve a new group of customers, secure new deposits, and earn revenue from new foreign exchange services.

In Latin America

National City Bank first established a presence in South America as soon as U.S. law permitted it. There, it could finance the continent’s imports of manufactured goods and exports of raw materials. It was good timing. The start of the First World War had disrupted the existing trade and finance between South America and Europe, offering the opportunity for a U.S. bank to support growing American trade there.

On November 10, 1914, National City Bank opened its first overseas branch in Buenos Aires. The selection of this location was supported by U.S. Steel, which had large Argentine operations and wanted an American bank to finance them. U.S. Steel provided National City Bank with its deposits in the country and the company’s president promised to attract to the bank the deposits of other large American industrial firms active in Argentina.

National City Bank branch in Buenos Aires, Argentina, 1929 (Source: Citigroup)

By the end of its first year in operation, this branch had $16 million in deposits and generated a profit of $238,000 for National City Bank. This sum was enough to make the singular branch the eighth largest bank in Argentina. Through it, National City Bank engaged in a lot of foreign exchange transactions during a period of strong growth in Argentine trade, driven by the First World War. The bank also participated in an Argentine public loan in 1915.

The bank’s second overseas branch was in Rio de Janeiro, opened the following year. By January 1, 1918, this branch was large enough to be sixth largest bank in the city. However, this was just one piece of the bank’s presence in Brazil. National City Bank branches also opened in Santos and Salvador, coffee and sugar trading cities. It opened a further branch in São Paulo. These would finance trade between the U.S. and Brazil and Brazilian trade with other parts of the world too.

National City Bank acquired International Banking Corporation in 1915, a combination that would accelerate the bank’s overseas growth. Its International Banking Corporation subsidiary opened its own branches in Colombia and the Dominican Republic; these were closely linked with the branches of the National City Bank itself.

The Latin American expansion continued with branches in Montevideo, Havana, and Valparaiso followed by a footprint in Venezuela and Peru. The Havana branch was acquired via the buyout of a local bank and was just the start of the quick growth in Cuba. The Havana branch was complemented by one in Santiago de Cuba. Eventually, National City Bank would possess a network of twenty-two branches in this country alone, most of them opened in 1919 and enough to give Cuba, by far, the largest overseas footprint for the bank. In total, by 1920, National City Bank and its affiliates would operate fifty-six branches across Latin America. There would be some retrenchment in the subsequent years though.

In Europe

While slightly slower than its Latin American expansion, the bank also developed a presence in Europe. By acquiring International Banking Corporation, National City Bank obtained a London branch in 1915. The next year, the bank opened a branch in Genoa, the first in Europe for National City Bank itself. Before the U.S. entered the First World War, the bank sent representatives to the Central Powers, namely Germany, Austria-Hungary, the Ottoman Empire, and Bulgaria, to assess their potential after the war ended. Branches were also opened in Petrograd and Moscow in 1917, just before the Bolshevik Revolution.

Lyon and Brussels branches opened in 1919 and the bank arrived in Antwerp, Madrid, and Barcelona the following year. By 1920, National City Bank and its affiliates had twelve branches in Europe and, albeit with the occasional branch closure, some new offices opened in the subsequent decade. National City Bank acquired the Paris branch of another American bank in 1921 and a Milan branch opened in 1925.

New Challenges

Managing an overseas presence tested National City Bank. Headquarters now needed to manage a worldwide footprint. Complicating matters, rather than serve as mere representative offices, National City Bank branches abroad were usually fully licensed as local banks and so could conduct all of the business of a bank in those countries, provided they followed all local regulations. Yet the branches were not totally autonomous and needed the direction of the New York office.

To make the key decisions, information from the foreign branches was received in New York in various reports organized by subject and select information distributed in a weekly newsletter titled “Foreign Trade Opportunities”. This kept leadership informed but the New York office also needed specialists knowledgeable of the foreign branches and the services they offered in order to adequately support the bank’s clients with international operations.

National City Bank also required employees capable of staffing these overseas branches. Unfortunately, the bank found that there were too few American bankers trained in the intricacies of international finance. Also, too few men were employed at other U.S. banks with such experience and it was difficult to hire the bankers of foreign firms. In search of talent, a Brazilian branch of National City Bank tried to hire a U.S. Embassy employee there but with no success.

By contrast, British and German banks had a much easier time finding the necessary talent to staff branches abroad. British banks had access to a deep pool of bankers with international experience accumulated over decades of world trade and finance and trained still more such bankers in these skills through apprenticeships. Germany, like America, was a newer world power but business schools there regularly taught foreign languages, foreign law, and other similar subjects. In the U.S., New York University was the first university to offer courses in foreign trade but only starting from 1914.

National City Bank had a hand in forming the first such university programs in the U.S. In 1915, internships were given to twenty American students who were to specialize in Spanish and Portuguese. Nine of which ended up being hired by the bank and sent to South America before they completed their degrees. The bank developed a special language-learning program of its own, starting with Spanish and French, and quickly adding Portuguese and Russian before the end of 1916. It also offered employees and students courses in the geography, history, customs, laws, politics, economies, and financial systems of the countries in which National City Bank was doing business.

A further challenge was competition. Foreign competitors with international presence recovered after the First World War and remained tough competition for National City Bank. British firms consolidated and became more efficient as a result; Lloyds’ Bank bought the London and River Plate Bank and the London and Brazilian Bank, for example. German banks’ presence in South America also recovered after the war.

American foreign trade also fell as European trade was restored, meaning less business for American banks abroad. The overseas profits of National City Bank, which reached $1 million in 1918, turned into a $6 million loss in 1920. The bank closed some foreign branches in the early 1920s yet remained comparatively more global than the other large American banks of the day.

Lesson

National City Bank’s story shows just how behind in international expansion American financial institutions were at the start of the 20th century. While banking regulations may have kept American banks from developing overseas branches earlier, there were workarounds and even these were not widely utilized. The fact is that the U.S. remained a capital-importing country, capital which financed imports that exceeded exports, for the vast majority of the 19th century. This reduced the appeal to American banks of developing foreign branches and financing foreign purchases of American products. This changed only at the start of the 20th century when American firms found more customers abroad.

More from the Tontine Coffee-House

Read about economics and finance education in the Soviet Union and the presence of French banks in neighboring Spain. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.