Yesterday we pointed out that the European sovereign debt crisis hasn’t annihilated European investment banking revenues in the fourth quarter. Short term this is true. Long term, it may not be.
Dick Bove, the US banking analyst has been talking to Brady Dougan at Credit Suisse. His resulting prognostication for European banking employment is not a nice one.
It was noted that, under the law of large numbers, it is likely that every major bank will follow the same business plan in the next few years. This means downsizing Europe, maintaining status quo in the United States, and pushing for more business in the Far East, wrote Bove.
Bove elucidates: “All large banks are going to be moving in the same direction at the same time,” he tells us. “The US economy isn’t in trouble. The European economy is.
“The sovereign debt crisis is likely to expand much more before it declines. In my opinion this is nothing more than a replica of what happened in Latin America in the late 1980s. The likelihood of default in Greece, Spain and Ireland is very high, to say nothing of the Netherlands, Belgium and Eastern Europe.
“The bottom line is that if you are building a (banking) business around the health of the European economies, you’ve got a problem,” proclaims Bove.
If Bove is right, Europe is not going to be the place to be over the next decade. Banks third quarter results showed European revenues were hit disproportionately.
On the other hand, Europe may spawn a multitude of distressed debt opportunities. Steve Scharzman is temporarily relocating himself and Blackstone’s top people to Europe to pursue opportunities in areas like Irish real estate.