Corporate and investment banks in Europe got off to a strong start this year, continuing what was an impressive showing in 2005. M&A has boomed as the long-awaited cross-border restructuring of corporate Europe continues to build momentum. Fixed income remains strong, proving that predictions of its imminent demise were, once again, premature.

More recent sharp declines in the equity markets have dulled the earlier optimistic notion that a new golden age had dawned. Yet beyond the cyclical ups and downs, bankers have every reason to feel positive about the longer term.

A review of the drivers of industry growth suggests that the future remains extremely attractive for European corporate and investment banks, even if recent growth rates are likely to moderate. And a look at some of the signposts can help banking executives see where the opportunities will probably be found over the next three to five years.

How did we get here?

The industry's recent performance results from a combination of cyclical and structural factors. The cyclical ones are well understood: the recovery of equity markets, the return of corporate confidence, and a benign credit environment. Less well appreciated are two critical structural developments: the growth and development of...