U.S. banks will grab a major portion of the market for cash management, funds transfer, and securities trading in Europe after the continent moves to a single currency, according U.S. and European bankers.
"European monetary union has opened a killing ground for large U.S. banks," said Michael Lewis, deputy chief executive of the London-based Association for Payment Clearing Services.
U.S. and foreign bankers say the reason is simple: U.S. banks-including Citicorp, Chase Manhattan Corp., and BankAmerica Corp.-are the only institutions that have put pan-European banking systems in place over the last decade. European banks, by contrast, are only just starting, they added.
"It's a long effort to build a common platform," remarked Edward M. White, senior vice president for global payment services at BankAmerica Corp. "No matter how much money you throw at it, it's not something you can deliver within one year."
Remarks by both executives came at a recent conference the Washington- based Bankers Association for Foreign Trade held to discuss European monetary union and other issues of concern to banks.
The introduction of a single European currency will create the world's largest monetary bloc, serving a population of 370 million people, 15 countries, and a combined gross domestic product of $84 trillion. That compares with the U.S.-dollar bloc's 260 million people in a market with a gross domestic product of $71 trillion.
Starting next January the 15 member-countries of the European Union are scheduled to adopt a single currency, the euro. Most observers predict that only a so-called "core" group of half a dozen countries will meet the economic criteria needed to adopt a single currency. Local currencies as well as the euro will circulate until Jan 1, 2002, after which local currencies will be withdrawn.
Introduction of a single currency is expected to trigger major changes in banking and cut into European banks' profits, increasing pressure there to consolidate.
According to a study by Boston Consulting Group, fees and commissions earned by banks in Europe from payments and cash management will fall from around $25 billion today to $15 billion a year when full monetary union takes effect.
Bankers and analysts pointed out that several large European banks such as the Netherlands' ABN Amro NV and London-based HSBC Holdings PLC have been steadily building cross-border banking platforms. However, they also noted that those banks are building their systems just as volume and margins are starting to shrink, making it more difficult to obtain a return on their investments.
"U.S. banks have got a flying start," Mr. Lewis said. "Europeans haven't really thought through the consequences of what they're getting into."