Even if interest rates stabilize, investors are placing bets on investment banks rather than U.S. commercial banks, in part because the investment houses are in a better position to build business in Europe.

Capital markets in Europe are "hot, and they are over there," said Adam J. Lewis, a senior vice president at Keefe, Bruyette & Woods Inc., referring to Lehman Brothers, Merrill Lynch, and Morgan Stanley Dean Witter, among other investment banks, and to J.P. Morgan & Co., a commercial bank with an investment banking strategy and a presence in Europe. Meredith A. Whittney of First Union Securities said the U.S. market "peaked three years ago. Europe is where the U.S. was five years ago, ready for explosive growth."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.