Firms seek profit boost overseas

Facing a U.S. economy that’s expected to grow at a moderating pace in 2007, Wall Street’s biggest investment houses are aggressively turning overseas in hopes of sustaining record profits reached during the past year.

Economic and business growth surged in Europe and Asia in 2006, and that trend is projected to continue this year. Stock markets from Paris to Hong Kong have outpaced the gains produced on U.S. exchanges, and foreign companies are increasingly using acquisitions to grow.

This has motivated the major New York-based investment banks to expand their operations in global financial centers including London, Frankfurt, Sydney and Hong Kong. Without plans to increase their business outside the U.S. – either through organic growth or acquisitions – executives said their companies would fall desperately behind.

“As a general matter, there are more opportunities to grow outside the U.S.,” said Merrill Lynch Chief Financial Officer Jeff Edwards. “We will look for places where an acquisition can accelerate a growth opportunity, but we will remain disciplined.”

Edwards said 37 percent of Merrill’s $34.7 billion in 2006 revenue came from overseas operations. Last year showed continued performance from outside the U.S., with Europe and Asia setting new full-year records for both revenue and earnings. And he expects this trend to continue.