Alex. Brown sale: A wound hard to assess Impact on Baltimore could be painful

April 09, 1997|By Jay Hancock | Jay Hancock,SUN STAFF

An article yesterday about the sale of Alex. Brown Inc. incorrectly identified the former employer of University of Maryland finance professor Meg VanDeWeghe. She was a managing director for J. P. Morgan & Co.

The Sun regrets the errors.

Alex. Brown Inc.'s sale to a New York banking company bodes no benefit for Baltimore, civic and business leaders agree. The tougher question: How damaging is it?

Employer of 2,700, marquee corporate citizen, municipal heirloom, champion philanthropist, Alex. Brown has sprayed cash on the local economy and helped staff Baltimore's civic brain trust for nearly two centuries.

FOR THE RECORD - CORRECTION

Now its executives will take orders from directors three states north. Baltimore will add another name to its growing list of emigrant headquarters.

And while Alex. Brown officials sought to reassure Baltimore yesterday of the firm's continued residence and affection, nothing guarantees it. And plenty calls it into question.

"I don't think any of us knows at this point how this will end up, whether it will begin to disappear into a New York bank," said Walter Sondheim, a longtime civic leader and now consultant for the Greater Baltimore Committee. "They've been tremendously important."

A securities firm tracing its roots to 1800, Alex. Brown is being bought by Bankers Trust New York Corp.

Officials at both outfits said this week that, because of the lack of overlap between the firms, the merger will cause almost no bloodletting in Baltimore -- as few as 100 people in a firm of 2,700.

"The businesses that they're in, we're not. And vice versa," said Mayo A. Shattuck III, Alex. Brown's president and chief operating officer. Shattuck is supposed to stay based in Baltimore, along with A. B. "Buzzy" Krongard, Brown's chairman and chief executive.

But it's also obvious that Bankers Trust will be far more than a passive owner, content to refer customers to Alex. Brown and take a cut of its profits.

"Bankers Trust is not going to buy this company as a stand-alone entity," said James P. Hanbury, a banking analyst for Schroder Wertheim & Co. in New York. "They're talking about an integrated investment bank."

About 1,000 of Alex. Brown's employees work in Baltimore; 430 are in Timonium, and dozens more are at brokerage branches in Annapolis and Towson.

Many of the layoffs could come in Alex. Brown's 300-worker New York office, where a bond operation gives Bankers Trust something it already has. Alex. Brown's strengths -- stock issuing, stock research and fund management -- are all in Baltimore.

Even if all those units stay here, however, some analysts think that the layoff toll eventually could come to more than 100. "I think it's going to be more than that," said Meg VanDeWeghe, a finance professor at the University of Maryland and former investment banker with Morgan Stanley.

One difficulty in predicting Alex. Brown's future with Bankers Trust is that there are few examples from which to draw lessons. This is the first marriage of a major U.S. commercial bank and a major U.S. stock underwriting firm.

Unlike many recent mergers of banks with banks, Bankers Trust in this deal is getting much more than customer accounts and sales branches. Alex. Brown's businesses of issuing stocks, managing financial assets and dealing securities all fill voids in the Bankers Trust franchise.

And those businesses are highly dependent on Baltimore personalities and expertise, analysts said.

That's one big reason to leave Alex. Brown relatively unmolested, analysts said.

Bankers Trust is already moving to sign employment contracts with top Alex. Brown players in Baltimore and to retain scores more with cash and stock incentives, analysts said.

"To understand the significance for Baltimore, you need to understand the rationale behind the merger," said Michael Conte, director of the Regional Economic Studies Institute at Towson State University. "Bankers Trust has all the money, and Alex. Brown has all the know-how."

One driving force in the merger, the globalization of finance and the ability to move billions of dollars at a keystroke's touch, can continue from Baltimore as easily as from New York.

"I don't think they're going to have to move," said Schroder Wertheim's Hanbury. "What'll happen is that an Alex. Brown banker will have a much larger array of products to sell."

Another reason to hope for Alex. Brown's continued Baltimore presence is the 15-year lease the firm just signed in its new downtown headquarters.

"The one thing that we should be aware of is that Alex. Brown just spent a lot of money and made a long-term commitment to downtown," said David Gillece, a vice president at Colliers Pinkard, a Baltimore real estate services company.

Alex. Brown's "back office" is in Timonium, performing information-processing and trade-clearing services. Often back offices are the first to be downsized after mergers take place, but, Shattuck said, in Alex. Brown's case it makes sense to leave it intact.

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