When it comes to doing business in China, there are some deals worth waiting for.
Sixteen years after tiptoeing into the country, MoneyGram International Inc. finally landed a major deal with a bank in China. Over the next two years, the St. Louis Park-based company will roll out money-transfer services to more than 10,000 Bank of China locations.
The deal triples MoneyGram's presence in China -- the world's second-largest economy and a country where MoneyGram has long played a distant second fiddle to Western Union Co.
The agreement also marks another step in MoneyGram's resurgence. Just two years ago, the company was on the verge of bankruptcy after investments in mortgage-backed securities resulted in more than $1.6 billion in losses. What's more, a series of large, one-time expenses -- including severance for departing executives and an $18 million payout to settle federal charges that it allowed its money transfer system to be used by fraudulent telemarketers -- further clouded the company's performance last year, causing many investors to give up on the stock.
While MoneyGram's shares remain stuck at just 10 percent of their 2007 high, the company has not lost a step on the international stage. In May, MoneyGram signed a deal with India's Punjab National Bank, which has 37 million customers. And last week MoneyGram entered Hungary with 11 locations at currency exchange shops across that country. MoneyGram continues to post double-digit gains in money transfer volume in much of the world, including Asia and Eastern Europe.
Looking to China
For money transfer companies, geographic expansion has been about the only way to grow revenues amid a deep U.S. recession. Global remittances fell to $317 billion in 2009, down from $338 billion in 2008. The World Bank, which tracks money flows, warned of a "shallow recovery" for remittances in 2010 and 2011, especially if U.S. job growth continues to lag.
China remains the big prize, however. In 2007, the country was the world's second-largest recipient of money transfers, with $25.7 billion wired to Chinese residents from other countries, according to the World Bank.
MoneyGram entered China in 1994, but the firm's expansion has been slow, with just 3,800 agent locations. Meanwhile, Western Union has 25,000 locations in China and relationships with three of the nation's largest banks.
"How can you run a truly global money transfer remittance business without having a significant presence in China?" asked Pamela Patsley, chairman and CEO of MoneyGram, in an interview Tuesday. Patsley said the firm plans to start adding agents in Bank of China branches this quarter, though the rollout likely won't be completed until the end of 2011.
Because the company has put its accounting woes largely behind it, she said, "people are now able to focus more on a forward growth mode, as opposed to a preserve-and-maintain mode."
Wait and see
Still, the news of MoneyGram's expansion in China was greeted with caution by investors. The stock rose a mere 4 cents to close at $3.18 a share on Tuesday.
Several analysts who follow the company said they would hold out on changing their forecasts until they see evidence that MoneyGram can win business in the country.
Though China appears to be a lucrative market, the country imposes restrictions on residents' wiring money outside the country and even to people within the nation. As a result, MoneyGram's China success will be heavily dependent on inflows from wealthier countries where Chinese live, said Brett Horn, an analyst with Morningstar.
"While China is a big market that has performed extremely well, it's not all that relevant how China is doing," Horn said. "It's more important how the wealthy countries, like the U.S., are performing."
Chris Serres • 612-673-4308