The financial services industry has entered the era of trans-Atlantic megamergers.
Deutsche Bank AG's plan to buy Bankers Trust Corp., confirmed by the two companies Monday, is almost sure to inspire more large combinations between European and American institutions, executives and analysts said.
European companies, in particular, may feel more pressure than ever to tap into the huge U.S. markets. A strong Wall Street presence is increasingly seen as essential for winning the allegiances of multinational corporate clients.
"We think there is clearly a domino effect," said Michael Mayo, an analyst at Credit Suisse First Boston. Assuming the Deutsche Bank-Bankers Trust deal is completed, other companies will follow, he said.
Following three days of intense speculation, Deutsche Bank and Bankers Trust released a statement Monday acknowledging that they were in "advanced stages of negotiations" for a $9 billion deal.
The cash transaction would create an $849 billion-asset banking company, the world's largest. It would be by far the largest foreign acquisition of a U.S. bank.
The boards of Deutsche Bank and Bankers Trust are to meet separately on Sunday to vote on the proposal. "I remain optimistic that all final details will be resolved satisfactorily," said Rolf-Ernst Breuer, chairman of Deutsche Bank, Germany's largest banking company.
Though European companies have long been buying U.S. financial institutions, the Deutsche Bank move has clearly grabbed executives' attention.
"The magnitude is significant," said Edward D. Miller, chief executive officer at the Equitable Cos., a U.S.-based insurance affiliate of Paris- based Axa Group. "And there will be more to come."
Among the most frequently rumored pairings: Dresdner Bank and PaineWebber Group, UBS and J.P. Morgan & Co., and ING Group and Lehman Brothers.
Such trans-Atlantic deals face some big hurdles-cultural barriers heading the list. Differences in language, management practices, and accounting can make it exceptionally difficult to pull European and American companies together.
"Very few European or Japanese banks have succeeded in making their U.S. acquisitions work in the long term," said Philippe Blavier, head of corporate finance at France's Paribas Group in Paris.
"It certainly looks like (Deutsche Bank and Bankers Trust) have a powerful alliance if they played their cards right, but they still have a rocky road ahead."
As a result of the challenges, no one is expecting a torrent of deals right away. And some say that few transactions will prove as compelling as the Deutsche Bank-Bankers Trust deal.
"Deutsche needs to find some way of beefing up and strengthening its investment banking activities and Bankers Trust can use the backing of strong parent company," said Gregory Root, president of the rating agency Thomson Bankwatch. "I think this is a unique set of circumstances."
Still, many executives are likely to explore trans-Atlantic mergers and alliances as a way to meet the increasingly complex demands of large corporate customers.
"Large multinational banks do have value because they can provide a broad array of cross-border services, particularly cash management," said John Kerr, treasurer in London for E.I. DuPont De Nemours & Co.
The U.S. piece of the puzzle could prove especially important, bankers said.
"Europe, Asia and Latin America are important markets, but a strong base in the U.S. is the most critical," said William B. Harrison Jr., vice chairman and head of global corporate banking at Chase Manhattan Corp.
"Firms that don't have a significant presence here are disadvantaged," he added.
Mr. Breuer of Deutsche Bank, for his part, said the planned merger with Bankers Trust would create "a truly compelling global financial services company."
The proposed deal would come relatively cheaply to Deutsche Bank, some analysts said. It calls for two times book value and a 22% premium over Friday's closing price in Bankers Trust shares.
Bankers Trust has been under pressure from Wall Street to reduce its exposure to market volatility after the company took a $488 million loss in the third quarter from trading losses in bonds and in emerging markets. Some market watchers said the bank may have actively sought a merger partner after spurning advances from Deutsche Bank earlier this year.
The price "reflects the fact that Bankers Trust is an anxious seller," said Lawrence Cohn, an analyst at Ryan Beck & Co. "The outlook for them seemed much less pleasant than they had thought."
Analysts said the merger would not only boost Deutsche Bank's presence on Wall Street but create a bigger force in Europe, where both banks have expanded through acquisition.
In 1989, Deutsche bought London-based investment bank Morgan Grenfell. Earlier this year, Bankers Trust bought the European equity operations of Natwest.
Meanwhile, the merged company would join the top 10 in money management worldwide, with $619 billion under management. In global custody, a business in which Deutsche Bank has expressed a desire to expand, Bankers Trust already ranks as fourth-largest, with $2.3 trillion of assets under administration.