Sunday, May 10, 2009

Bankers Trust

Bankers Trust was a historic American banking organization that was acquired by Deutsche Bank in 1998.
It was originally set up when banks could not perform trust company services. A consortium of banks all invested in a new trust company, which was called Bankers Trust, so that they could refer clients to that company knowing that Bankers Trust would not try and poach their customers.
Under the management of Charlie Sanford, Bankers Trust became a leader in the nascent derivatives business in the early 1990s. Having de-emphasized traditional loans in favor of trading, the bank became an acknowledged leader in risk management. Lacking the boardroom contacts of its larger rivals, notably J. P. Morgan, BT attempted to make a virtue of necessity by specializing in trading and in product innovation.
Despite all its prowess in managing the risks in the trading room, the bank suffered irreparable reputational damage in early 1994, when some complex derivative transactions caused large losses for some major corporate clients. Two of these - Gibson Greetings and Procter & Gamble (P&G) - successfully sued BT, asserting that they had not been informed of or [in the latter case] had been unable to understand the risks involved. The bank's row with P&G made the front page of major US magazines. This was worsened when several Bankers Trust bankers were caught on tape remarking that their client [Gibson Greetings] would not be able to understand what they were doing.
In 1997, Bankers Trust acquired Alex. Brown & Sons, founded in 1800 and a public corporation since 1986, in an attempt to grow its investment banking business.
The bank suffered major losses in the summer of 1998.
Shortly before the Deutsche Bank acquisition in November 1998, BT pled guilty to institutional fraud due to the failure of certain members of senior management to escheat abandoned property to the State of New York and other states. Rather than turn over to the states funds from dormant customer accounts and un-cashed dividend and interest checks as required by law, certain of the bank's senior executives credited this money as income and moved it to its operating account.
Bruce J. Kingdon, the head of the bank's Corporate Trust and Agency group spearheaded the fraud and entered into a guilty plea in the US District Court for the Southern District of New York and was sentenced to community service. Certain of his subordinates were thereafter barred forever by the SEC from working in the securities markets.
With the Bank's guilty plea in the escheatment lawsuit, and thereafter its status as a convicted felon, it became ineligible to transact business with most municipalities and many companies which are prohibited from transacting business with felons. Consequently the acquisition by Deutsche Bank was a godsend to the bank's shareholders, who avoided being wiped out.
In November 1998, Deutsche Bank agreed to purchase Bankers Trust for $9.8 billion; the purchase was finalized on June 4, 1999. Newman received $110 million in severance.
In Australia, Bankers Trust was acquired by Westpac from Principal Group, who had purchased it three years earlier from Deutsche Bank. This organisation now uses the name BT Financial Group. The Trust and Custody business that Deutsche Bank acquired from Bankers Trust was sold to State Street two years later. (wikipedia -

Friday, April 10, 2009

Money laundering

What does money laundering mean?

Money Laundering is the term applied to the act of concealing the origins of money earned through criminal activities and of releasing it unnoticed into legitimate business activities. Money laundering is most commonly associated with drug trafficking. However, any number of criminal activities may give rise to money laundering, e.g. embezzlement, corruption, blackmail, trafficking in people, to name just a few.

What does Switzerland do against money laundering?

Switzerland has set up what is probably the world’s most comprehensive and effective mechanism for dealing with money from criminal sources. The Swiss Money Laundering Act (in force since 1998) obliges all financial intermediaries (not only banks) to identify all clients and to establish the beneficial owners of the assets ("know your customer"). Furthermore, they must report any justified suspicion of money laundering to the authorities and freeze the suspicious assets. Finally, for more than 20 years now, banks in Switzerland have observed a "Due Diligence Agreement" which contains the "know your customer" rules. The Due Diligence Agreement was a key point of reference when the Money Laundering Law was being drawn up.
Further rules and regulations against money laundering are laid down in the Swiss Criminal Code and the Swiss Financial Market Supervisory Authority FINMA guidelines of 26 March 1998. Moreover, the two major Swiss banks, together with nine other international banks, have committed themselves to applying global due diligence standards within the framework of the "Wolfsberg Anti-Money Laundering Principles".

Why is it that time and time again, money from dictators appear in Switzerland? Does Switzerland need this sort of money?

Switzerland is the global leader in cross-border asset management. The statistical probability of a dictator or despot bringing his money into Switzerland is therefore relatively high. But Switzerland doesn’t want this money! The damage to our image caused by such incidences is much greater than the value of the customer relationship - not just for the Swiss financial center but also for the institution involved. Thus Switzerland is the only country in the world to have drawn up and implemented a detailed set of rules covering the treatment of assets belonging to politically-exposed individuals. These regulations have been described as exemplary by the USA and other countries.
( - -