As U.S. banks pile into European banks' backyards, the Europeans are gearing up for a counteroffensive marked by a new wave of U.S. acquisitions.

Although European banks have for years been buying up "boutique" financial firms specializing in areas like high-yield debt and asset management, last November's announcement that Deutsche Bank plans to buy Bankers Trust Corp. for more than $10 billion took trans-Atlantic acquisitions to a new heights.

But for most analysts, the Deutsche Bank move smacked more of desperation, a kind of "double or quits" mind set.

"Call it defensive or offensive, Deutsche Bank realized they didn't have time to build a franchise on their own from scratch," said Richard Capone, chief executive for the Americas at UBS AG, one of the world's largest banks and parent company of Warburg Dillon Read, a major international investment bank.

Unable to build a U.S. investment bank after several years of trying, Deutsche now hopes it will be able to get the scale and the expertise it needs to compete with U.S. financial institutions at home and internationally.

"For Deutsche, they were clearly getting to a position where the consolidation and development of major U.S. and European competitors was starting to leave them behind," remarked John Leonard, a banking analyst with Salomon Smith Barney, a unit of Citigroup.

"They were either going to get bigger or they were going to fall further behind."

J.P. Morgan & Co., Bank of New York Co., State Street Corp., Chase Manhattan Corp., and investment banks like Goldman Sachs & Co., Merrill Lynch & Co., and Morgan Stanley Dean Witter have been rapidly expanding in Europe in areas such as securities custody, funds transfers, high-yield debt and equity underwriting.

Analysts and bankers predict that the arrival of the euro, the single European currency used by 11 of the 15 member countries of the European Union since Jan. 4, will propel massive growth in both bond and equity underwritings as well as related activities such as mergers and acquisitions. This, they add, will in turn help U.S. banks further strengthen their position in European capital markets and pose a major threat to European competitors.

The extent to which U.S. banks and investment banks have succeeded in carving out a hefty share of the European market is clear from the most recent data on Eurobond underwritings as well as mergers and acquisitions ranking.

Last year, U.S. financial institutions, including Merrill Lynch & Co., Goldman Sachs & Co., J.P. Morgan, Salomon Smith Barney, and Morgan Stanley Dean Witter occuped six of the top 12 positions in Eurobond underwritings, according to Securities Data Co., an affiliate of American Banker. Including Credit Suisse First Boston, they occuped seven of the top 12 positions in 1998.

U.S. financial institutions posted an equally strong ranking in the mergers and acquisitions league tables, accounting for five of the top 10 slots in completed or unconditional deals. Morgan Stanley ranked first with $246.5 billion worth of deals, followed by Goldman, Sachs & Co. with $190 billion and J.P. Morgan & Co. with $136 billion.

For Deutsche, the problem was not only U.S. banks moving into its backyard and going after mergers and acquisitions and privatization mandates as well as global debt and equity underwritings. It was also stiff competition from the thousands of smaller local German retail banks and a growing recognition that traditional corporate banking revolving around lending was no longer profitable.

"Neither retail banking nor corporate banking is profitable in Germany," remarked Hugh Pye, a banking analyst in London with Robert Fleming Securities.

"So the only other thing they have left is investment banking."

For Deutsche to do investment banking, he added, the bank needs to gain critical mass and needs to establish a U.S. presence. And as Deutsche and other major banks are increasingly coming to realize, the only was to establish a U.S. presence quickly enough is by buying a U.S. institution.

"They tried to build from scratch, they failed, and they came to conclusion couldn't grow and manage a major investment bank from scratch," observed Lawrence Cohn, a banking analyst with Ryan, Beck & Co.

Few observers believe that Deutsche's acquisition of Bankers Trust is the last bid of its kind by a European bank for a U.S. investment bank. In fact, most analysts assume that several others institutions, such as Germany's Dresdner Bank, France's Paribas Group, or Holland's ABN Amro could soon follow suit. Dresdner has made no secret of the fact that it is already prospecting the terrain and might well buy something over the next 18 months. Others, such as France's Societe Generale, might well buy smaller and more specialized investment banking firms, such as those in the high-tech arena.

"There is certainly an apparent kind of me-tooism going around in Euroland," Mr. Pye remarked.

"One bank does something and the others think they have to as well."

Just how well the Deutsche Bank acquisition of Bankers Trust works out remains to be seen.

"They desperately wanted to buy something and Bankers Trust became avaialble," Mr. Pye observed.

"But that's not necessarily always the best reason for buying something, we think they are paying too much and this could be a difficult acquisition to make work successfully."

Analysts noted that although Deutsche will clearly profit from taking over Bankers Trust's custody, transfer and asset management business as well as high-yield, derivatives, and equity related operations, duplication in areas such as fixed income will have to be eliminated.

They added that integrating the two banks will also be a major test of Deutsche's management.

"Pulling Bankers Trust and Deutsche Bank together will be a huge job," Mr. Leonard said.

"This is going to be a delicate consolidation."

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