ONCE in a generation, an opportunity arises to make a transformational acquisition at a bargain price. One is staring Europe's banking chiefs in the face right now.
The question is whether they have the courage to grab it.
The deal? Buying a Wall Street investment bank.
A lot of people might chuckle over that sentence. Most bankers would rather buy a slug-and-seaweed sandwich for lunch than take control of institutions drowning in sub-prime debt. Why pay billions of pounds or euros for a whole heap of trouble?
Yet the credit crunch has hit the share prices of all the banks hard, and the dollar is slumping to record lows. That means Wall Street banks cost about as much as the free toy at the bottom of a cereal packet.
Europe's big lenders have known for years that to compete on the global stage they have to take a commanding position on Wall Street. The task has defeated them, though. Either the targets weren't for sale, or they were too expensive.
Now that has changed.
Some of the world's most successful executives have built their reputations on the ability to buy businesses at precisely the moment when no one else was interested. An example:
When he was running BP, John Browne took control of US competitor Amoco in 1999, just as oil prices were plummeting.
Rupert Murdoch has made a career out of it. In 2005, News Corp paid just $580 million for the MySpace social-networking site when Internet stocks were out of vogue. He has said it's worth $16 billion. The same opportunity now exists in banking.
Bank Values Merrill Lynch has a market value of $45 billion, Lehman Brothers $30 billion, and Bear Stearns just $14 billion.
Even the mighty Morgan Stanley is valued at only $57 billion. Those aren't demanding prices. Lehman trades at a price-earnings ratio of just seven, as does Bear Stearns.
Morgan Stanley is trading at a price of just six times earnings.
You might well argue that historic earnings don't mean much. These banks are all sitting on a load of low-quality, hard-to-price securities.
They all face big writedowns.
And in fairness, there is much truth in that. Anyone buying a bank has to expect a bumpy ride for a couple of years.
Yet it needs to be set in the context of the scale of the opportunity.
After all, whatever their current problems, these are still the leaders of the global financial industry. Take the ranking of the top advisers on mergers and acquisitionsbanks such as Merrill, Lehman and Morgan Stanley are all in the top seven this year, as they are most years.
On any measure you care to take, these are the most powerful banks in the world.
Cheap Buys For some of the potential buyers, Wall Street's banks are now so cheap they wouldn't have to dig very deep into their pockets to buy them.
HSBC for example, has a value of $210 billion, Spain's Banco Santander $135 billion, Credit Suisse $70 billion, and Deutsche Bank $65 billion. Even allowing for a takeover premium of as much as 30% over current share prices, none of them should find acquiring Lehman or Bear Stearns much of a problem.
There are other potential buyers. Let's not rule out Industrial & Commercial Bank of China, with a current market value of $335 billion. And it is very hard to understand what Royal Bank of Scotland Group is doing taking control of ABN Amro Holding of the Netherlands with its partners . . . let's remember, ABN is a fairly dull bank, with no great growth prospects . . . when it could be buying Morgan Stanley instead.
Patchy Record European banks admittedly have a patchy record of buying into Wall Street. Credit Suisse came unstuck with its purchase of Donaldson, Lufkin & Jenrette for $13 billion in 2000. Deutsche Bank didn't have much better luck with its purchase of Bankers Trust. But they were buying at the top of the market, with a weak currency. Right now, they would be buying at the bottom of the market, with a strong currency. That's a big difference.
Both investment banking and the dollar are at low points. It would be foolish to imagine they won't recover.
The US trade deficit is narrowing, and the economy is still growing.
The US remains the world's biggest economic power, and Wall Street's investment banks are the most innovative on the planet. We may see a weak dollar again. We may see burnt-out share prices for investment banks again. But both at the same time? That seems unlikely.
This is a unique opportunity. Europe's banks have been trying to conquer Wall Street for years. Lenders such as HSBC have spent fortunes trying to build their own investment-banking units. But business, like warfare, favours the brave. There can be little doubt that any European bank snapping up a Wall Street firm now would be getting a great deal. All it takes is some strong nerves.