Revenge Of The Eurobankers

They're selling more euro-denominated bonds than their U.S. counterparts

American investment banks thought Europe's single currency would bring them a lot of new business. And it has. But one expected gold mine has not delivered the hoped-for wealth: bonds. Although the euro's launch has produced around 250 new debt issues denominated in euros, European banks--such as Deutsche Bank, ABN Amro Holding, and Dresdner Bank--are getting most of the business. "There is a bit of a backlash taking place against the U.S. houses," says an executive at an American investment bank in London.

In the past few years, American investment banks have taken Europe by storm. Building on experience and access to the huge U.S. investor base, they dominate equity underwriting and mergers and acquisitions. But with debt, Europe has struck back. Five European banks, with Deutsche in the top spot, lead so far this year in issuing Eurobonds--bonds sold outside the issuer's home market in various currencies--according to IFR Securities Data in London. That's a huge reversal from 1998, when four out of the top five underwriters of Eurobond issues were American.

Why the switch? The big difference is the euro. Companies and government agencies, even those outside the euro zone, are eager to establish themselves with investors in the new currency. So they're pouring euro securities into the market at the expense of those denominated in dollars and other currencies. New international bond issues surged by 43% in the first two months of this year over the same period in 1998, according to Capital Data Bondware in London. Euro-denominated issues, at $117 billion, slightly outpaced the $116 billion done in dollars. But with a broad, liquid home currency now available, European companies are cutting their dollar funding substantially, according to IFR.

IT'S THE NETWORK. It's not surprising that this trend would work to the advantage of Continental banks, which were always stronger in their home currencies than in the dollar. But other factors are at play. Issuers who wish to make a splash in the euro zone are turning to big European banks, which have huge distribution networks in their home countries. Sweden chose Deutsche Bank and ABN Amro, for example, to manage a recent $2.18 billion euro-denominated issue. "It was important for us to broaden our investor base and get into new European accounts," says Christine Holm, director of debt management at the Swedish National Debt Office.

European banks like seeing the tables turned. "I am delighted at the way things have gone so far," says John D. Winter, head of European debt at Deutsche Bank in London. Winter says Deutsche is doing well in the euro because of its huge roster of German corporate clients. The bank is benefiting from a presence that Americans just cannot match, he says.

U.S. rivals are skeptical. Some American bankers imply that big European banks are giving companies an ultimatum: If they want continued access to loans, they had better do their bond business with the banks' investment arms. The Europeans are also said to be buying deals with lowball pricing. Others mutter of "exclusion" and "nationalism." Some agencies, such as the European Investment Bank, are thought to be steering business to European institutions. The EIB dismisses any suggestion that it favors Europeans. "The Americans will get the business they deserve," sniffs Jean-Claude Bresson, deputy head of the bank's capital market department.

Few observers are counting the Americans out. "The major U.S. banks are very credible players in this market," says Sweden's Holm. But they could be in for a long, tough fight. And the intense competition may mean that no one will make much money out of this particular corner of the euro.

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