Europe is for profits, not prestige; most American banks have pulled out of the Continent in a kind of reverse D-Day, leaving the two dozen that remain to focus on specific businesses.

After beating a wholesale retreat from Europe in the 1980s, U.S. banks are back in the market. Only this time, they are taking a far more focused -- and profitable -- approach to doing business.

"All major American banks have gone through the same analysis," remarks Herbert E. Aspbury, general manager in charge of European operations at Chemical Banking Corp. in London. "Most have left the scene completely, and the handful that are left are taking a very targeted approach."

The shift in strategy follows a major upheaval that began in the early '80s and resulted in most U.S. regional banks shuttering their European offices.

Mergers between big banks, like Bank of New York and Irving Trust Corp., or Chemical and Manufacturers Hanover Trust Corp., in the '80s and early '90s further reduced the U.S. banking presence in Europe.

Meanwhile, banks like Chase Manhattan Corp., Bankers Trust New York Corp., and J.P. Morgan & Co. pulled out of commercial banking in Europe in favor of wholesale corporate finance and investment banking.

"Basically those who couldn't hack it left, while others with a more international flavor have reconfigured their operations [in favor of cross-border finance and trading] so there is more strategic coherence with-the way they describe operations in the U.S.," observes Diane Glossman, a banking analyst in New York with Salomon Brothers.

"They've learned that middlemarket banking versus wellentrenched local banks is not something they can do very well."

Some analysts, like PaineWebber's Larry Cohn, say the restructuring was long overdue. "The glamour of the business kept them in it longer than if their operations had been based in Peoria," Mr. Cohn remarks.

As recently as 1978, no less than 67 U.S. commercial banks had offices in London. Among them: City National Bank of Detroit, Girard Bank of Philadelphia, Union Commerce Bank of Cleveland, and Colonial Bank and Trust Co. of Waterbury, Conn.

The total subsequently rose even higher. According to data compiled by Noel Alexander, a London-based consulting firm for international banks, there were no less than 77 registered or separate U.S. banking units in London in 1982.

By the end of 1993, however, the number of U.S. commercial banks with offices in London had fallen to 25.

U.S. banks also ran an extensive network outside Britain. United California Bank, Los Angeles, and Marine Midland Bank, New York, had offices in Brussels. First National Bank of Dallas and Central National Bank of Cleveland had offices in Paris, while First Wisconsin National Bank, Milwaukee, and National Bank of Detroit had offices in Frankfurl.

Banks that remain have gone through wrenching downsizing, laying off staff and closing commercial banking offices in favor of wholesale corporate finance and capital markets-related operations, as well as securities custody and foreign exchange trading.

Chemical, for example, shut down most of its European offices before it merged two years ago with Manufacturers Hanover. The two banks combined have only around 60% of the assets they held ten years ago and about half the offices. They now operate 23 locations in eight countries compared to 42 locations a decade ago.

"We're not running around the English countryside chasing after medium-sized companies anymore," Mr. Aspbury remarks.

Chase went through similar changes, closing or selling offices since 1985 in Austria, Spain, Holland, Belgium, France, Finland, Norway, and Denmark.

Even Citicorp, which has more branches in Europe than it does in the United States and has been steadily expanding across the Continent into Poland, Hungary, and Russia, has gone through a major reorganization. Citicorp has centralized functions like data processing in an effort to trim millions of dollars in operating expenses.

Ian Cormack, Citicorp's London-based managing director and head of financial institutions for Europe, says that the bank's expansion on the Continent has focused mainly on trading and fee-based transactions. "What we have not done is grow our domestic lending business," Mr. Cormack emphasized.

The shift in strategy is paying off. European banking executives at large U.S. banks, citing the complexity of international operations, decline to set an exact figure for earnings from Europe but add that return on capital is well above levels of a few years ago.

"A definitive separation of the corporation's domestic and foreign business cannot be performed because many of the corporation's domestic operations service international business," Chemical noted in its annual report.

However, according to a limited definition of European results, based heavily 'on trading profits, Chemical last year reported total revenues of $1.806 billion, net income of $221 million, and total assets of $18.598 billion.

That's up from a net income of $100 million in 1992 after a $16 million loss the year before and $75 million in earnings in 1990.

"Europe is the| most valuable portion of that [Chemical's] international spectrum, at least in terms of earnings contribution," Ms. Glossman noted in a recent report.

Current strategy for most U.S. banks in Europe, she estimates, is to "generate more revenues out of the infrastructure that has been established."

Meanwhile, Chase Manhattan's revenues in Europe rose 15% last year to $1.2 billion, while net earnings climbed to a $i03 million profit from a $3 million loss a year earlier.

Revenues should be up strongly again this year, Chase chairman Thomas G. Labrecque predicted in a recent interview. "We're through the fix-it stage and into an era of growth." Europe should provide roughly 20% of Chase's total worldwide revenues this year, he noted.

Adds Tom Swayne, Chase's top executive for Europe: "We concentrate on areas in which we believe we have a competitive advantage."

The sharper focus in Europe underscores a profound shift away from commercial lending in favor of trading, underwriting securities, private banking, securities custody, and structuring more complex transactions, like project finance.

Bankers Trust and J.P. Morgan, for example, have chosen to focus heavily on investment banking-related transactions as well as the arrangement of large, complex corporate and government financings.

Chase and Chemical retain more diversified operations but are still limited to a range that includes cash management and securities custody, trading, private banking, corporate finance and several specific banking operations in individual countries.

"We've repositioned, reallocated resources, and freed up capital from our subsidiaries," says Mr. Aspbury.

"We take a different approach in different countries," he added, noting that Chemical runs. a fullservice bank in Spain, does leasing and cross-border finance in Germany, and wholesale corporate finance and trading out of London. Meanwhile, the bank is a market maker in foreign exchange trading in Norway.

Banks like Republic National Bank, via its shareholdings in Geneva-based Safra Republic, are focusing heavily on private banking and specialized markets like gold and precious metals trading.

U.S. bankers say they now view Europe as an integral component of a broader international banking business, such as structuring big international financing packages and developing relations with European companies investing in the United States.

Chemical, for example, took advantage of its connections to British Petroleum to help put together financing and an industrial consortium for construction of a Trans-Andean pipeline.

The pipeline, which runs between Chile and Argentina. will be built by a group that includes Tenneco, British Gas, and Chilectra, a Chilean power company.

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