Wall Street firms are doing more to plan for their futures than simply buying and selling each other.
While it's garnering less attention than the deals, U.S. firms are pushing their way into Europe, which they see as a prime territory for new underwriting and stock-trading opportunities. The moves there come just as concerns are growing here about issues such as shrinking profit margins on trading and whether Silicon Valley has peaked as a driver of stock offerings.
Much of the action across the Atlantic is coming out of the hot TMT (telecom, media and technology) stocks and a crackling mergers and acquisitions market. In short, it looks a lot like the U.S. market did in the mid-1990s, primed for an explosion.
Morgan Stanley Dean Witter
are all already taking advantage of this and have become powers on the continent. For instance, Goldman and Morgan Stanley, along with
, are underwriting $5 billion worth of bonds for Spain's
In 1999, according to
Securities Data/Thomson Financial
, Goldman, Morgan Stanley and Merrill were the top three underwriters of European equity issues, followed closely by Italy's
and Germany's omnipresent
Now U.S. players such as
Bank of America's
securities arm and
are trying to catch up to them.
There is even a consolidation angle. Expanding deeper into Europe was among the key reasons behind
Donaldson Lufkin & Jenrette's
agreement last week to be acquired by
Credit Suisse First Boston
as the New York investment bank sought a deep-pocketed partner to help it make the transatlantic leap. DLJ has already had some success there. It's advising
in soon-to-be unit
$1.2 billion deal to buy
Richard Strauss, who follows brokerage firms at Goldman Sachs, notes in a recent report that Europe "generated
profit margins of 31% in 1999, well ahead of the 19% profit margin in North America." Activity in Europe has accounted for 30% of global M&A value in 2000 and 40% of global equity volume because of increasing equity issuance, according to Strauss' report. He estimates there could "easily" be $1 trillion of worth of stock issued in Europe in the next three years.
Trying to crack the business means paying up for talent, a practice with which Wall Street is very familiar. Executive recruiter Monima Siddique of
says she's seeing strong demand for fixed-income corporate credit analysts across almost all sectors, a need driven by the M&A market.
"As the big companies merge and acquire, often the offspring can be some sort of LBO
or leveraged buyout, and hence the desperate need for credit people who can tear apart a balance sheet and establish some sort of seat-of-the-pants credit rating," Siddique says. Leveraged buyouts involve using borrowed money to buy companies, which is why analysts are needed to determine whether the ventures are creditworthy.
That's made recruiting intense and spurred acquisitions such as
1999 acquisition of Europe's
and Chase's pickup of investment bank
. Even Merrill has moved to double the size of its European tech investment banking effort to 20 professionals with an eye toward a 40-banker team, according to trade publications.
Beyond the new-issue business, though, the commission business from institutional and individual investors that's all but dead in the U.S. is thriving across the Atlantic. "Much of the profit outperformance comes from debt and equity trading," Strauss writes. "European capital markets have not experienced the pricing pressure seen in U.S. markets. Commissions on stock trades are several multiples of the level in North America."
The main driver behind this movement is the acceptance of the European Union and its related currency, the euro. The development has made cross-border deals on the continent easier and with German behemoths such
on the prowl, there's plenty of momentum.
But if the euro was the impetus for Europe's capital markets renaissance, it could also be the booby trap. If it loses its credibility with the market, the euro could take the dynamism of the European capital markets with it.
Until then, though, U.S. investment banks will keep their invasion going while fighting each other all the way.