4/22/2008 8:41:41 AM Deutsche Bank Research analysts remarked Tuesday that recent market turmoil and its consequences will negatively impact the earnings of European banks for a considerable time. This reverses a long period of improvements in a profitability and efficiency, they note, but remarked that the current environment should not distract from the trends that have shaped the structure of the industry for the last 10 years and will continue to do so.

The analysts commented that consolidation has led to greater size and higher market shares especially of large banks which can thus take advantage of economies of scale, handle “big ticket” transactions and become more stable institutions via a diversification of their revenue structure.

Internationalization, they said, has opened up new sources of growth for Western European banks that experience lower growth rates in traditional home markets but can seize opportunities in other European countries, the USA, and emerging markets.

Convergence of bank- and capital market-based financial systems has led to fundamental improvements in the management of credit risk and to a shift of bank activities from asset intermediation towards the provision of fee-generating capital markets services, according to Deutsche Bank Research.

The analysts continued, `Deconstruction, i.e. the break-up of the value chain, and increasing specialisation offer banks the chance to further benefit from economies of scale, deeper market knowledge and higher flexibility to adjust to changes in demand and competition.`