The Yanks are coming. But this time they are likely to be staying.
As Europe moves toward a unified currency, the euro, U.S. banks are poised to grab a sizable share of what they expect to be one of the most attractive and fastest-growing financial markets of the next decade.
"American banks have an advantage in a number of areas," said Giovanni Viani, a Milan-based partner of McKinsey & Co.
While major western European banks are just beginning to come to grips with deregulation and cross-border competition, "U.S. banks already have the tools they need to work with in the new environment," Mr. Viani said.
The main advantage European banks retain, he added, is their existing customer relationships and the possibility of "leveraging" them.
"U.S. banks' track record and experience will be a big advantage," said Paul Cantwell, a partner in the financial markets practice at Andersen Consulting in London. But he also cautioned, "They don't have the brand names or the distribution channels into the middle market, where much of the action will occur."
Bankers say introduction of the euro will lead to a massive shift among Europe-based corporations away from bank loans and toward bonds and equity underwritings-a response to lower funding costs and increased demand among investors.
This shift could play into the strong hands of the likes of Chase Manhattan Corp., Bank of New York Co., Bankers Trust Corp., J.P. Morgan & Co., BankAmerica Corp., and the new Citigroup.
The shift to a large, liquid market denominated in a single currency, bankers point out, would also open vast opportunities for a variety of other businesses Americans excel in-asset management, securities custody, and mergers and acquisitions.
The rapidly growing interest in Europe amounts to a dramatic reversal for U.S. bankers who for decades viewed the continent as a mature market with thin margins and limited scope for growth.
"With the arrival of the euro, the marketplace has a lot more attractions than many people thought," said Gerald Doherty, group executive vice president and head of Europe, the Middle East, and Africa at BankAmerica.
U.S. banks have been building European foundations for nearly a decade, supported by large global computer systems for funds transfers, securities custody, and cash management.
Unlike European banks, which have generally stayed close to their domestic markets, U.S. banks have large global networks at their disposal and the benefits of economies of scale. They can also draw on expertise in complex transactions such as leveraged lending and asset securitization as they become more common in Europe.
As European banks by the hundreds start competing in the same currency, profits will come under pressure, forcing many to merge. This too is seen as favoring the top U.S. banks, with their leaner operations and strong positions in transaction-intensive businesses.
In securities custody, the number of banks dominating the market could fall from around 12 today to five or six, bankers say. Bankers Trust, State Street Corp., and Chase Manhattan are expected to lead.
"The playing field will come down to 10 global institutions that have the muscle, the coordination, and the market share needed," said Bruce Hannon, head of global treasury markets at Chase Manhattan Corp. "We'll be able to compete head to head with any European bank with any product we choose. "
Starting next January, the euro will be usable in wholesale financial transactions in all European Union countries except for Sweden, Denmark, Greece, and the United Kingdom. In coins and currency, euros will hit the market in January 2002.
Under the new regime, the European government bond market would be valued at nearly $3 trillion. That compares with a $2.7 trillion government bond market in the United States.
Europe will also have an expanded stock market, which, including the United Kingdom, was worth around $7.6 trillion at the latest count, compared with a U.S. stock market capitalization of around $11.7 trillion. It will also have a far large corporate bond market, which was worth around $370 billion at the latest tally, well below the United States' $1.9 trillion.
But bankers foresee booms across the board.
"Corporates will go directly to the bond markets," said David Theobald, managing director and head of fixed-income research at J.P. Morgan. "Banks will be forced to think about using capital more effectively."
U.S. executives said the emerging single market will provide opportunities for them to distribute euro-denominated U.S. securities and to bring Latin American and other non-European issuers into the European capital market.
Some are not even waiting for the euro market to get officially started. Chase Manhattan Corp. this month sold $550 million worth of 10-year bonds backed by credit card payments. Though the securities are denominated in German marks, they will convert to euros next January.
Earlier this year, Chase launched a $750 million bond issue in marks, French francs, and Dutch guilders that will also convert to euros.
Freddie Mac, the mortgage securities packager, last month began issuing short-term commercial paper denominated in Euros.
Other banks are working to convert European asset securities to euros. Last month Bankers Trust launched the first asset-backed euro bond-a 255 million euro ($280 million) issue for Ahaus, a Swiss leasing company.
To be sure, U.S. commercial bankers are not alone. Deutsche Bank of Germany and ABN Amro of the Netherlands are intent on staking out leadership positions not just on a European scale, but globally.
The same is true of investment banks like Merrill Lynch & Co. and Morgan Stanley, Dean Witter & Co.
Merrill Lynch has assigned 105 full-time executives to work on euro- related projects, along with 450 other staff members. Mitchell Shivers, managing director of the economic and monetary union project at Merrill Lynch Europe PLC, acknowledged that both commercial and investment banks are racing against the clock to have their systems in place by yearend.
"This is probably the most complex task the financial industry has ever faced," Mr. Shivers said.
"The euro will affect just about every product in every location and will require a significantly different approach to doing business in Europe," he added. "Winners and losers will be very quickly determined."
And as well positioned as U.S. commercial banks are, the Europeans will quickly learn the skills they need, said Mr. Cantwell of Andersen Consulting.
"The question is whether U.S. banks will be able to build fast enough in the market in order to establish some form of sustainable position," he added.
To gear up, U.S. banks are expanding sales and marketing across Europe, hiring specialized experts, and striking alliances with local institutions.
State Street Corp., which focuses on asset management and global custody, has set up a separate bank in Europe to handle euro-denominated business. Bankers Trust has acquired the European cash and equity business of National Westminster Bank, London, along with 900 employees in equity underwriting, trading, and research, and eight offices across Europe.
BankAmerica will use its forthcoming merger with NationsBank Corp. as a springboard to expansion in equity underwriting, asset securitization, and mergers and acquisitions through NationsBanc Montgomery Securities.
Also viewing capital markets as a key international priority, First Union Corp., which recently merged with CoreStates Financial Corp., plans to make use of CoreStates' global network in such areas as private placements, foreign exchange, derivatives, asset securitization, trading, and loan syndications.
J.P. Morgan, meanwhile, has entered into an alliance with Dekabank in Germany for fund management and is also planning to bring small and medium- size German companies to the stock market.
Bank of New York, in addition to buying Morgan's global custody business, earlier this year formed an alliance with Allied Irish Bank to administer offshore funds from Dublin.
Bankers conceded that they do not know for certain how fast the euro single-market scenario will develop.
"A lot of changes will happen gradually," predicted Matthew Hale, managing director of global treasury operations at Bankers Trust.
Unexpected developments, such as a downturn in worldwide equity and bond markets, could certainly put a crimp in today's great expectations.
'No strategy is carved in stone," Mr. Doherty said. "The key is to figure out where your clients are going and make sure you profitably follow them down the road."
But the bankers also emphasize that the euro is only part of broader changes sweeping over financial industries around the world. They view Europe as an essential link in the chain they need to serve their customers globally.
"You need to be strong in Europe to be a strong global player," said Claudio Zampa, senior vice president at BankAmerica's global capital markets group in London.
"We don't intend to be a pan-European bank," says Anthony Davies, who heads Chase Manhattan's $75 million euro conversion project. "We intend to be a global bank capable of operating within the European marketplace."