What Is Bankers Trust Waiting For?Kelley Holland
Few banks in recent years have been forced to endure the humiliation that has rocked Bankers Trust New York Corp. Long regarded as extremely shrewd, innovative, and aggressive, Bankers was hit last year with scandals involving its sales of derivatives and several client lawsuits charging unfair sales practices and deception. Most tellingly, it was accused of putting its own interests ahead of its customers'. The bank is known for its ability to effect broad organizational shifts, and many observers predicted that Bankers would soon stage a major offensive to restore its reputation.
So far, though, Bankers has done little. Chairman and CEO Charles S. Sanford Jr. has publicly stated that Bankers will change its ways, particularly focusing less on transactions and more on client relationships. Yet the only concrete changes are a couple of new senior management committees on clients and internal controls and some cost-cutting. A bank spokesman says no major reorganizations are in the offing. Meanwhile, Bankers' performance has suffered. Return on equity dropped to 13.5% from 26.3% in 1993. The consequence: The bank is saddled with plummeting employee morale, a wave of defections, and rumors of looming staff cuts, even at senior levels.
The dearth of change to date leaves Bankers looking shell-shocked and unsure of how to move beyond its problems, market sources say. Raphael Soifer, a banking analyst at Brown Brothers Harriman & Co., says he can see no reason why Bankers would delay or cancel organizational changes. "They need to do something to convince the outside world as well as themselves that the type of problems they've had are unlikely to recur," he says. Adds one money-center banker: "The perception is that the whole reputational issue has paralyzed them."
An ongoing talent drain is Bankers' most visible problem. Thanks in part to low morale, Bankers is losing a number of its most talented people. The tally for February is startling: Most recently, a group of four top equity derivatives specialists left the bank's London office. Included in the bunch is William E. Sproul, a managing director in the group who had been head of equity derivatives risk management. Nearly 20 emerging-markets specialists bolted for Donaldson, Lufkin & Jenrette Securities Corp., including Neil Allen, head of Bankers' Latin American businesses. And in a blow to the bank's stated goal of focusing more on relationships, Jerome Powell, head of mergers and acquisitions--and one of the bank's top relationship-banking types--left to join Dillon, Read & Co., where he spent much of the 1980s in the same capacity. A spokesman says that even amid the departures, Bankers has been hiring selectively.
CALIFORNIA PASS. Current and former employees say there are many more at Bankers who would like to leave. However, because firms all over Wall Street are cutting back or delaying new hires after a lousy 1994, Bankers' employees looking for new jobs face unusually intense competition for what openings there are, particularly in the derivatives area. "We're seeing resumes from everybody," says Scott R. Page, president of executive recruiters Solomon-Page Group.
Bankers did seriously consider a reorganization this winter. But it dropped the plan at a California meeting of several dozen of its top executives after Allen and his group departed, to be followed just days later by Powell. Sources at Bankers say the bank may be holding off in order to avoid reorganizing around staff who may be in the process of leaving. A bank spokesman declines to give a reason for the change in plans, although he says it was unrelated to staff defections and that "the basic business strategy is in place. It's one that's a demonstrated success."
Certainly, Bankers is capable of major restructuring. In the 1980s, the bank transformed itself from an also-ran New York money-center to a trading powerhouse. But Bankers' most visible step so far on the road to a rebound has been the creation of two new senior management committees.
An internal memorandum describing the committees is optimistic. The client committee is billed as a new group "being established to promote and oversee our renewed emphasis on our client relationships." A second committee, dubbed the control committee, will "promote a stronger control attitude in our culture...[and] oversee all of the units that provide checks and balances to our business lines." The staffing of these committees with many of the most senior executives at the bank means they could eventually have real clout.
MANY SKEPTICS. Word of the new committees has been greeted internally with some skepticism, however. Current and former employees say these committees are simply new versions of groups that were formed when business was slow but forgotten when it picked up. The bank has launched initiatives before to increase the focus on relationships--there was one effort begun in late 1993--but insiders say these efforts hardly changed things at all.
So far, Bankers has avoided major staff cuts, though worried employees are speculating that as much as 10% of the staff could be eliminated if capital-markets activity does not pick up. A bank spokesman says an expense-reduction program is in place, and while no target has been set, each business line is expected to come up with significant staff cuts. But so far, the program appears to be focusing on penny-ante items--lectures about the use of radio taxis, new controls on travel and entertainment costs--that, to some employees, belie the gravity of the problems Bankers faces.
Few doubt Bankers' ability to eventually rebound from the derivatives mess. "They're not down for the count," says one rival. "They'll be back." One recently departed employee, asserting that he plans to keep his Bankers Trust stock, says the bank generally thrives when it is perceived as an "underdog." Its current troubles will be a very good test of that theory.
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