European banks are far more likely than U.S. banks to buy a securities house or asset management firm in this country, a Goldman, Sachs & Co. executive said.
"The need is more acute," said Dana C. Troxell Jr., a vice president in Goldman's financial institutions mergers and acquisitions practice. European banks "have more fire in their bellies than U.S. banks."
The reasons include more pressure on margins and the push to privatize Europe's national pension systems, Mr. Troxell said Tuesday at a forum in New York sponsored by American Banker and the Strategic Research Institute.
Banks in Europe will need well-honed money management skills to compete for the pension money, and the United States is seen as the place to get those skills, Mr. Troxell said.
Cross-border acquisitions of money managers totaled 44 last year, up from seven in 1992, Mr. Troxell noted. And so far this year most of the striking deals for U.S. investment firms - with the exception of J.P. Morgan & Co.'s $900 million tab for 45% of mutual fund manager American Century Cos. - were made by European banks.
Two New York securities firms, Furman Selz and Dillon, Read & Co., were picked up by European banks this year-ING Barings and Swiss Bank Corp., respectively. Commerzbank bought Montgomery Asset Management, San Francisco.
A handful of U.S. banks-among them, First Union Corp., Fleet Financial Group Inc., and Mellon Bank Corp.-have struck substantial deals for mutual fund companies, brokerages, and asset managers. But for the most part, U.S. commercial banks continue to be preoccupied with mergers among themselves.
Their European counterparts, meanwhile, are looking to fee income because their net interest margins are under great pressure, Mr. Troxell said. Margins fell to 2.2% in 1996 from 2.7% in 1993.
Though U.S. banks have the capital to buy money managers, they have been less willing than foreign banks to meet sellers' biggest demand: autonomy.
And foreign banks seem more willing to pay a premium for investment managers that give them an investment product with immediate distribution in the United States or prominence at home.
Buyers are currently willing to pay 9 to 11 times an asset manager's cash flow, according to Mr. Troxell, who added that the range was 8 to 10 times cash flow in 1994.
Prices will probably hold steady for the rest of the year, he said, though a bank might pay 15 to 20 times cash flow for a specialized or especially renowned investment firm.
Later, however, foreign banks "may become even more aggressive as the number of potential acquisitions become fewer," he said.