In May 2010, the ABF Journal had the opportunity to talk with seven senior executives to discuss the ABL “powerhouse,” Wells Fargo Capital Finance, which emerged after the Wells Fargo-Wachovia merger. Now that the venture’s dust has had time to settle, we catch up with one of those industry leaders, Stuart Brister, president of the Trade Capital Division, as well as John Marrinson, regional credit manager of the Purchase Order Finance Group, to discuss Wells Fargo Capital Finance’s international finance endeavors in light of an unstable global market and sluggish domestic economy.
Brister explains that the integration of Wells Fargo and Wachovia has produced a robust cross-selling environment for clients through added products and geography. In addition, prior to the merger, Wells Fargo did not have a strong overseas presence. Today, Wells Fargo has coverage in many countries, which has been a benefit to the trade capital group, especially in building relationships with banks within the correspondent network.
The Global Economy
On the global front, the economic slowdown in China has actually increased the demand for purchase order financing products, Marrinson points out. “From the PO standpoint, the situation in China has limited, to some extent, the open terms availability that suppliers are offering companies in the U.S. As such, we are seeing suppliers going back to requiring either deposits to begin production or letter of credit-backed orders. Both scenarios create a larger demand for the PO financing product, since we are able to come in at such an early stage in the sales process using the letter of credit-backed option through the PO financing program. In that regard, the situation overseas has actually increased the demand for the PO product,” he says.
Wells Fargo Capital Finance’s Trade Capital Division conducts business throughout Asia, and Brister sees an interesting dichotomy resulting from China’s recent economic state. “Roughly two years ago, China, specifically, had become very expensive from such a rapid growth. The situation was actually putting a lot of constraints on our U.S. clients that source and produce goods there. Our clients were experiencing a lot of difficulty in terms of commodity prices, the cost of labor and other expenses rising so significantly in China that they were actually moving into other countries,” Brister relates.
“Now that China has slowed down, there is somewhat of a silver lining in that capacity has expanded and commodity prices have stabilized, which benefits both us and our clients. The slowdown has shown people that they can source from less costly countries, which benefits us because we provide end-to-end supply chain financing from point of origin all the way to the retailers in the U.S.,” Brister continues.
Despite the wide-ranging effects of the economic instability in Europe, Brister and Marrinson’s groups have not felt the pains of the crisis because most of the consumer products they are involved in originate from Asia. However, Brister notes, Europe is a large market for Asia, which has really felt the slowdown. He adds, “We have seen that in order to slow down, China had to put curbs on the bank and on trading in the RMB currency to prevent rampant inflation. We have found that this is creating an opportunity for us because people are looking for dollar liquidity over there. This has created opportunity for us to lend to other banks in the region, rather than solely to other suppliers and customers in China.”
The Wells Fargo Capital Finance expansion beyond China and Hong Kong includes an office in Ho Chi Minh City, Vietnam, and Delhi, India to explore opportunities in those growing economies. Marrinson explains, “With the increase in labor costs in Asia, specifically on the PO financing side, we’ve seen an increase in clients that are starting to work with other emerging markets. Companies are starting to develop manufacturing facilities and are working hand-in-hand with in-country banking and, even in some cases, with government support to get those factories up and running. Labor costs are potentially lower, and with support in-country from the finance and government side, we’ve seen some quick turnaround of high-quality goods from emerging markets as well as suppliers going after business that for the past ten years typically has been dominated by the Asian markets.”
U.S. Economic Recovery
The 2008 U.S. economic downturn and subsequent slow recovery has caused the Purchase Order Finance Group to adapt to a new marketplace in which retailers extensively have changed their ordering processes by placing smaller orders and not holding excess inventory for long periods of time. “On the purchase order side, we have been impacted quite a bit. We are working with our clients to make sure we have the support of overseas suppliers so that product is turned around and delivered in the timeframes that the retailers are requiring now, which is shorter than what we saw five-plus years ago. I see this as the new normal, partly because retailers have learned that it does work to their advantage. Retailers have worked closely with their vendors and our clients and have found ways to shorten turnaround time for delivery of inventory, which allows them to manage levels much more efficiently,” Marrinson reveals.
On the trade capital side, Brister concedes that at a high level, a slow-growth or no-growth environment definitely benefits asset-based lenders and finance companies: “We have found that deals typically banked at the commercial and/or the community bank level have moved into an asset-based business because companies are trying to create availability and liquidity through leveraging their assets. The market has given us the opportunity to educate and show people that asset-based lending, regardless of what discipline, whether it be factoring, business credit, PO or A/R financing, etc is a viable tool for many industries.”
The Retail Sector
In terms of client sectors, both Brister and Marrinson are pleased, perhaps even surprised, by the ongoing strength of the retail sector. In fact, Brister says, “We continue to be amazed by the consumer segment, especially with the unemployment situation in the U.S., in that retail sales continue to hold up and have actually helped lead this recovery. It really has been a consumer-based recovery, not a corporate-based recovery that continues to buoy the market. It will be interesting to see how much longer the consumer can prop up this economy.”
He adds that the apparel, textile and furniture businesses have been historically slow-growth sectors, in the 3% to 5% range. On the other hand, he is seeing a fair amount of activity in the electronics space and has been financing a lot of consumer electronics that have been going into retail, noting that it’s probably the group’s fastest growing sector.
Marrinson concurs that retail sectors under his watch are either increasing in size or continuing to perform well, noting in particular the private label apparel industry that goes into some of the larger retailers. One sector, however, that has seen decline recently, not due so much to the economy but because of advancements in technology, is the video game industry. “We used to be very strong in that industry, but in the past two years, demand has decreased because that business model is changing so drastically. Going into 2013, I see that being a difficult industry as things transition from the more traditional consol video game model to the entertainment apps that are so prevalent on smartphones now,” Marrinson remarks.
Poised for Growth
According to Brister, at Wells Fargo Capital Finance the process of looking at ways to leverage its existing products and finding ways to introduce new products to serve new markets is ongoing. Historically, financing domestic manufacturing suppliers and distributors has been a key market. Today, the Trade Capital Division is looking at international markets, driving a strategy that services its clients in the U.S. and abroad to match that of the bank. “It’s a huge opportunity for us, and we’re well positioned to take advantage of that,” Brister says.
“Being part of a bank that has a strong balance sheet, is highly regarded globally, and has an experienced management team allows us to deliver so many more products and services that our competitors at other banks or finance companies simply can’t offer,” he continues.
Marrinson adds, “What sets us apart is that we have a unique ability to finance the entire sales process from the receipt of a purchase order by a company all the way through the invoicing and collection of that receivable. There aren’t really any groups that can do that from start to finish. On the purchase order side, as well as the trade finance side, we have a great team of people with a depth of experience whether its purchase order or A/R financing. Really, it’s the ability to service our clients in a way they can’t find anywhere else.”
Lisa M. Goetz is an editor of ABF Journal