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 -