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Author: Michael Shari

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Wall Street banks are edging out European, Asian and Latin American banks in their home markets, as corporations turn increasingly to the New York firms to raise money on global debt and equity capital markets and to advise them on cross-border mergers. As a result, American banks are dominating the league tables at every level—global, regional and national.

European banks find themselves at a disadvantage to their American rivals because of the particularly acute capital constraints they have faced since Europe’s financial crisis unfolded a couple of years ago. In addition, many European banks are in the throes of restructuring, limiting the types of deals they can compete for.

“They had to pick their markets more,” says Brian Kleinhanzl, a banking analyst at Keefe, Bruyette & Woods (KBW). “They’re not going to beat Goldman Sachs in the US, Europe and Asia. So they’re saying, ‘I’m going to have a little bit of each of those markets, and I’ll try to win in my home market.”

“The US banks are showing that they have the ability to distribute product across the globe, wherever it’s originated,” notes Kleinhanzl. As this powerful dynamic enhances their global reach by the day, Wall Street banks also enjoy an advantage over their regional rivals in mergers and acquisitions. Cross-border deals are expected to drive the M&A market this year with at least as much force as last year.

With financing cheap and easy to come by in a low-yield environment, acquisitions that were once too nettlesome to be worthwhile are now in Wall Street’s crosshairs. KBW expects an increase of about 10% in M&A deals this year. As those deals get bigger, some investment bankers say, they will increasingly rely on the bigger balance sheets to come to fruition—a trend that will keep Wall Street banks at the fore.

But the market volatility that marked the first couple of months of this year was of a type that tends to dampen equity capital markets. If it continues, corporations could wind up raising less money in IPOs and secondary offerings this year than they would have otherwise.

In debt capital markets, investment bankers say, many companies are planning new issues. But these deals won’t be refinancings, as were many of the issues that filled the bond market last year. Instead, bankers say, they’ll be last-minute attempts to raise new debt at low rates before the US Federal Reserve raises rates—which the central bank has more than hinted it will start to do as early as June of this year.

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