Alex. Brown's parent firm likely to lay off hundreds Bankers Trust is hurt by foreign losses, drop in demand for services

October 06, 1998|By Bill Atkinson | Bill Atkinson,SUN STAFF

Heavy overseas trading losses and flagging demand for its underwriting expertise could force BT Alex. Brown Inc.'s New York parent to lay off hundreds of employees, analysts said.

Bankers Trust Corp. has been reeling since it disclosed $350 million in trading losses as of Sept. 1, primarily in Russian markets, and warned that it expects a third-quarter loss, prompting a lower rating for its debt.

At the same time, its stock price has fallen by about 60 percent since April and its business of taking companies public -- Alex. Brown's specialty -- has been frozen by the stock market's volatility.

Further rocking the company was the near-failure of Long-Term Capital Management LP, a Greenwich, Conn., hedge fund that lost billions of borrowed dollars on risky currency and bond bets.

Bankers Trust, which was among the more than a dozen large financial services companies that had made loans to the hedge fund, ponied up $300 million as part of a $3.5 billion bailout of Long-Term Capital.

"They are confronted with some major strategic issues," said Gerard S. Cassidy, a banking analyst at Tucker Anthony Inc., a Boston brokerage. "It is not so much that they have a bad strategy, but they are playing in a very volatile field."

Most analysts believe Bankers Trust, the country's seventh largest bank, with $172 billion in assets, will make major job cuts in an effort to deal with the downturn.

"We expect that there will be some kind of restructuring announcement either prior to or along with third-quarter results," said David S. Berry, a bank analyst at Keefe Bruyette & Woods Inc., a New York investment firm.

'Significant' cutback

Berry said the cutback could be "significant," and it will likely fall on employees who work in Bankers Trust's emerging markets group, which does business in troubled Russian and Asian markets. Bankers Trust employs more than 18,000.

Ronald I. Mandle, senior research analyst at Sanford C. Bernstein & Co., the New York investment firm, estimates that 800 employees, or 40 percent of Bankers Trust's emerging markets staff, could lose their jobs.

"I think there will probably be some selective staff reductions in other areas that won't be significant revenue generators in the near to intermediate term," Mandle said.

A Bankers Trust spokesman declined to comment on whether layoffs are imminent.

"We have not made any announcements; we won't speculate on that," he said.

But a source inside the company noted that other large banks, both foreign and domestic, have already reduced their payrolls, and indicated Bankers Trust likely would follow suit.

Job cuts at J.P. Morgan

J. P. Morgan & Co., the country's fourth largest bank in assets, slashed jobs to save $250 million earlier in the year. More recently, ING Groep NV, the Dutch financial services giant, said it would lay off 1,200 employees in its investment banking operations, and Spain's largest bank, Banco Santander, said last month it would cut 300 positions because of problems in emerging markets.

"These are choppy seas," said Berry, the Keefe Bruyette analyst. "You'd rather be in a big boat rather than a little boat. Citicorp has been rocked to a degree and it is a much bigger company [than Bankers Trust]."

Berry estimates that Bankers Trust could lose $3.80 a share, or $360 million in the third quarter, while Mandle, the Sanford Bernstein analyst, expects the company will lose $4 a share. He said losses could extend into the fourth quarter if the company restructures.

The bad news has pounded Bankers Trust's stock, which closed yesterday at $54.9375 a share, down $2.50, on the New York Stock Exchange. The stock reached a high of $136.4375 on April 22.

Debt is downgraded

Last month Standard & Poor's Rating Service downgraded the company's debt because of the deterioration of its initial public offering services and its focus on selling junk bonds -- corporate debt that is below investment grade. With the global turmoil, investors have been fleeing riskier investments for safe ones, such as U.S. Treasury bills.

Last week, Bankers Trust disclosed it has about $875 million in outstanding loans to hedge funds, all but $25 million secured by cash and Treasury bills.

Like its parent, BT Alex. Brown has its own issues to sort through, including the departure of Beverly L. Wright, the firm's highly regarded chief financial officer, who plans to resign soon, sources said. Wright did not return repeated phone calls, and a Bankers Trust spokesman declined to comment.

She will follow Donald R. Heacock, a managing director in the private client division, who retired several days ago; W. Gar Richlin, head of investment banking, who is now chief financial officer at Sitel Corp., the Baltimore telecommunications

company, and David L. Hopkins Jr., managing director of asset management operations, who helped lead an employee buyout of Alex. Brown Capital Advisory & Trust Co. in July, and is its chairman.

Business fell in August

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