LONDON - Bank stock analysts like to talk about the "hidden" value of J.P. Morgan & Co.'s "global franchise."

But that hidden value is nowhere more visible than at 60 Victoria Embankment, where Morgan's heavy gray granite European headquarters building occupies an entire city block, a carbon copy of the bank's offices at 60 Wall Street.

"We are a European bank," declares Klaus Diederichs, managing director in London for mergers and acquisitions. The bank, he quickly notes, has been in London for 156 years.

In fact, it's gotten so European at Morgan's London office that veteran New York executives have taken on a distinctly manicured, Savile Row look since their transfers to "The City."

Appearances, in this instance however, are not deceptive. Some 5,500 staff members, or nearly one third of the 16,443 people employed by the bank worldwide, work for Morgan in Europe, 2,500 of them in London.

Last year, Europe brought in $4.4 billion, or more than 37% of Morgan's total revenues. Although that's down somewhat from the $5 billion earned a year earlier, mainly because of lower earnings from underwritings and trading, Morgan executives say signs are Europe will provide as much, if not more, in revenues this year.

"Business is globalizing but markets are still separate," explains Paul J. Hearn, managing director in charge of Euromarkets.

He and other bankers said that London is a critical operating center not only because it permits financial institutions to operate in a different time zone and develop relations with European companies, but also because of the increasing globalization of capital markets.

In Europe, the focus at Morgan is definitely on investment banking and, via Morgan's Brussels-based Euroclear unit, on securities clearing.

"We view U.S. investment banks and big European merchant banks as our main competition," says Mr. Diederichs.

Like other big U.S. banks, Morgan moved into investment banking in London in the early 1980s. The reason: British banking rules permitted them to underwrite securities, something they couldn't do in the United States until 1988, when the Fed gave banks limited underwriting powers under Section 20 of the Bank Holding Company Act.

"In the late '70s and early '80s, U.S. commercial banks saw blue chip companies and sovereigns going to the bond markets and decided it was time to establish their own overseas underwriting subsidiaries," Mr. Hearn says. "London became a training ground."

Since then, Morgan and other big U.S. banks have used London as a platform for expanding their wholesale corporate and investment banking activities, such as mergers and acquisitions and Eurobond underwritings. Morgan, especially, has gone after investment banking business with a vengeance.

Among the big European deals in which Morgan advised last year: a $2 billion merger of four Italian telecommunications companies into Telecom Italia, and the $1.8 billion privatization of Banca Commerciale Italiana.

Still pending: A proposed $2.76 billion merger between the Cheltenham and Gloucester Building Society and Lloyds Bank, and the $2.5 billion privatization of Assurances Generales de France, the big government-owned French insurance company. Most recently, the bank acted as sole adviser to Germany's Hoechst chemical group on its $7.1 billion acquisition of Marion Merrell Dow Inc.

In the Eurobond sector, Morgan has also turned into a powerful contender for underwritings, ranking third in the league tables for the first quarter of this year with nearly $4.9 billion in issues.

That's up several notches from last year, when Morgan ranked seventh, managing nearly $12.5 billion in issues.

Recent Eurobond deals include advising Cariplo, Italy's largest savings bank, for a public offering of shares; lead managing a $500 million issue for the Swedish government; and, acting as joint lead manager on a $1.46 billion global Eurobond offering for Germany's Landeskreditbank Baden- Wurttemberg, the first global deutsche mark offering by a German company.

Equally important, Morgan is using its European connections to underwrite Yankee bonds, or debt issued on the U.S. market by foreign companies.

That's not to say Morgan is the only U.S. bank in London. Chase Manhattan Corp., Bankers Trust New York Corp., Citicorp, even NationsBank Corp., all run sizable operations.

But other banks have had more limited ambitions. Citicorp has by and large stuck to commercial banking, while NationsBank has focused on equities and derivatives. Chase has concentrated on foreign exchange, risk management, derivatives, and Latin Eurobond underwritings and trading, while Bankers Trust specializes in engineering complex, nonconventional structured issues in niches such as project finance, high yield bonds, and asset-backed securities.

"We tend to focus on nonconventional structured assets and areas like tax-effective investments and emerging market convertibles," says Randl Shure, managing director at Bankers Trust International PLC.

"We deal in anything that has a flow we can structure and sell off different parts of, and if we just stayed in the U.S. we would miss out on a large part of the market for investors."

Among the more exotic issues Bankers Trust has arranged: a $100 million, Euro-convertible bond for Taiwan's President Enterprise Co. that carried a 0% coupon and was convertible into shares at a 12% premium to price.

In contrast to Morgan's keen pursuit of a higher ranking among deal makers, Bankers Trust executives show little concern for the latest scorecard, suggesting profits, not rankings, are what counts.

"We're not into volume, says Graham Clempson, managing director at Bankers Trust International. "The volume Eurobond business is a notoriously difficult market to make money on."

Mr. Hearn admits the Eurobond market is "overbanked and desperately competitive." But he quickly adds that Morgan remains committed to the market for its own account and because of the "knock-on effect in terms of relationships and related business."

In other words, Morgan may not make a lot of money on its bond underwritings, but it can pick up good money from related swaps and, possibly equity, where fees and commissions run as high as 8% rather than the 0.5% commission on a typical Eurobond.

"If you're not in the market, you're not going to get the big deals, and being big in the market allows you to get some of the plums," says Mr. Hearn.

Analysts see little to criticize about Morgan's strategy. They say the bank is ideally positioned to use its global capabilities to develop more local business.

They also predict a recent decision by Morgan to install individual regional managers for the United States, Europe, and Asia will reinforce the bank's push into Europe and other local markets.

"They've clearly gone to a more regional structure," remarks Raphael Soifer, a banking analyst with Brown Brothers Harriman & Co. in New York. "They're competing within Europe as a European bank."

Still, some regard Morgan's positioning as a European institution with a jaundiced eye. They describe Morgan's insistence on its "European" pedigree as a defensive reaction to claims by local financial institutions vying for business that Morgan and other U.S. banks are mainly in Europe to serve the needs of large U.S. companies.

"U.S. banks who have developed any degree of strength (in Europe) have gone way out of their way to reinforce the notion that doing business with local companies is their raison d'etre and they are not just a servicing bureau for U.S. multinationals," remarks Diane Glossman, a bank analyst with Salomon Brothers Inc.

Morgan executives acknowledge that they bring a distinctly American perspective, but emphasize this allows them to take advantage of business opportunities and develop new markets by forcing European corporate management to focus on improved shareholder values.

"What American banks bring is long-standing culture and expertise in corporate finance," says Mr. Diederichs. "Up until two or three years ago, maximizing value for shareholders was not a priority for continental European companies."

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