When the sun rises in the west

There's an often-expressed adage that says trends in America start in California and move east. Everything from pizza parlors to anti-war demonstrations to imported Japanese cars proves the adage, and the supporting evidence is great.

In banking, too, trends have tended to start in the West-Security Pacific with discount brokerage, Wells Fargo with credit scoring of commercial loans, Bank of America with Pacific Rim lending, Union Bank with small business banking.

We think there are trends developing right now on the West Coast that will begin an inexorable march eastward. Our fearless predictions for the millennium: Banks will think strategically about the markets they serve. American banks have grown by expanding their geography. NCNB didn't become NationsBank by focusing on central Carolina, and most other banks, too, were quick to extend their reach and slow to give up captured territory-even when their market presence was slight.

Bucking that longtime trend this year was none other than BankAmerica Corp., which pulled out of Alaska by selling off its 12-branch system. It just didn't have the critical mass to compete against the firmly entrenched National Bancorp of Alaska and First National Bank of Anchorage.

We think we'll see a major increase in the incidence of banks acting like gas retailers-when they don't own the heavily-trafficked corners, they shut down the pumps and compete where they control the market.

Banks enjoying the technology ride up will be battered on the way down. No one has gotten more positive press (including in this magazine) than Silicon Valley Bank, the Santa Clarabased institution that has financed scores of Northern California's highest-flying tech companies. Yet even as a technology-led bull market set records on Wall Street, Silicon Valley Bank surprised analysts by charging off $7 million in bad loans and announcing a $16 million to $20 million loan loss provision, moving its loan-loss percentage to 3% of loans outstanding.

We think aggressive lending practices like Silicon Valley Bank's Quick Start program, which essentially factored a booming IPO market and Internet craziness into traditional lending standards, will become considerably less fashionable as the century turns.

Internet banking will really take hold. O.K., so it doesn't exactly take a crystal ball to make a call on this one. Take a look at what's happened in the securities industry this year, and you'll get a good idea of what can happen when people get comfortable with the security of handling financial transactions on the Web. While the major securities firms like Merrill Lynch and Paine Webber were seeing skidding growth, San Francisco-based Charles Schwab, largely due to its Internet business, was chalking up a record year. Newcomer E*Trade, which announced its financial portal strategy only last September, saw its stock surge with an announcement that the company already had more than 500,000 customers.

We think that it's virtually impossible to overstate the likely impact of the Internet on the financial industry. We believe that traditional banks without a solid Internet strategy will see an inevitable erosion of their depositor base in the very near future and that lending, mortgage servicing, asset management-you name it-will be on a computer near you before you know it.

Bank involvement in international lending will increase. One might guess that, with the much-publicized problems with Asian economies, U. S. banks would pull back on the throttle. Yet California banks, more than any in the country, have shown an ever-increasing appetite for foreign business-and not just in Asia, but in Europe and South America as well. Even smallish West Coast banks are finding that international trade can be predictable and secure and that it generates both above-average returns on equity and new pockets of fee revenue.

Medium-sized and even small businesses everywhere are becoming interested in international trade. And because banks everywhere today are forced to meet the needs of their last real franchise, the small business customer, we believe that all across the country-not just in California-banks will embrace international banking activity as never before.