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Opportunity amid knocks

27 December 2011 By Rob Cox

This is no time to be a plain vanilla investment banker. Trading commissions are unexciting. Companies aren’t splashing out on big acquisitions. New regulations are taking a bite. So it takes more than a Hermès tie and a PowerPoint prepared by sleep-deprived associates to make a Maserati-sized living.

Not to fear. The crises of the moment, the biggest of them in Europe, are creating lucrative new opportunities for entrepreneurial financiers. Exchange rate and debt price volatility mean multinational companies have to worry like never before about hedging their exposure. That gives the currency, commodities and derivatives deskers at firms like Deutsche Bank a new way to access boardrooms, the traditional preserve of M&A bankers.

In Europe especially, corners of the capital markets could benefit as the continent’s biggest banks seek to reduce their balance sheets by more than $2 trillion collectively. With bank lending harder to come by, companies will go to investors directly, creating underwriting business for bankers and investment opportunities for those with cash to deploy, particularly cash-rich private equity firms like KKR. Indeed, the buyouts industry has some $900 billion to deploy, according to Preqin.

If the European situation deteriorates badly, markets could seize up everywhere. But that still offers a silver lining for enterprising foreign exchange traders: the breakup of the euro would give them as many as 17 more currencies to trade.

Outside Europe there are other fee pockets to pick. While America’s biggest banks are straitjacketed from getting bigger, their smaller brethren – regional banks like PNC, Fifth Third, SunTrust and Key Corp, plus the 7,000 or so that are littler still – are ripe for consolidation. Technology, too, could see more waves of M&A.

And activity in emerging markets won’t dry up. South American companies see chances to create regional businesses, in part by acquiring assets from retreating Europeans. This year saw a record number of intra-Latin American takeovers, according to data from Thomson Reuters. And Chinese industrial groups are on the prowl for Western assets. These acquirers may be less magnanimous with their fees, but their ambitions still mean business – and relatively gainful employment – for bankers.

Predictions: Breakingviews is publishing a series of articles over the holiday that look ahead to 2012. The pieces will be collected together in the annual ’Predictions Book,’ produced in print and electronic form early in the New Year.


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