Bankers Trust reports huge loss Alex. Brown parent plans job cuts after $488 million in red ink

Debt investments in Russia

October 23, 1998|By Bill Atkinson | Bill Atkinson,SUN STAFF

Bankers Trust Corp., which acquired Alex. Brown Inc. a year ago, said yesterday that it lost a staggering $488 million in the third quarter and plans companywide cost-cutting measures that many expect will result in heavy job losses.

The New York-based banking company would not say where the cuts will be made or how many of its roughly 18,000 employees will lose their jobs, but it expects to save $300 million in annual operating expenses.

Frank Newman, Bankers Trust's chairman and chief executive, said the company has "accelerated action to reduce the firm's risk profile and launched an aggressive cost-reduction program."

Newman said the cost-cutting is already under way and much of it will take place in operations that do business in emerging markets such as Russia, Asia and Latin America. Most of the cuts will be made by the first quarter of next year, he said.

It is unclear how Brown, which has about 1,500 employees in the Baltimore region, will be affected. Already a handful of equity traders and support staff have been let go because of a slowdown in stock-trading volumes.

"We don't have any figures to give at this point," said a Bankers Trust spokesman. "Proportionately, it may not be great."

Several executives have left BT Alex. Brown recently.

The latest was Robert F. Price, a general counsel and managing director, who will become a senior vice president at Legg Mason Inc. next month.

His departure follows those of Donald R. Heacock, a managing director in the private client division, who retired several weeks ago; and W. Gar Richlin, head of investment banking, now chief financial officer at Sitel Corp.

In addition, Beverly Wright, the firm's chief financial officer, has announced she will resign.

The loss comes at a time when rumors are swirling about whether Bankers Trust, the country's seventh largest bank, will remain independent or be taken over.

Deutsche Bank AG is said to have approached Bankers Trust about merging. The German bank has made no secret of its intentions to expand in the United States.

"We just are not going to comment on it," Newman told analysts yesterday in a meeting, according to sources.

Ronald I. Mandle, senior research analyst at New York-based Sanford C. Bernstein & Co., said a deal is "certainly possible, but I am a bit skeptical."

"But I never say never, particularly in this environment," he added.

Bankers Trust's losses stem mainly from the collapse of debt investments in Russia and from losses in its junk bond portfolio and equity holdings.

The company lost $4.98 per share in the quarter ended Sept. 30, compared with a gain of $246 million, or $2.19 per share, for the same period a year earlier.

The loss swamped analysts' estimates of a loss of $3.70 per share in the quarter, according to a survey by First Call Corp.

"This is a sad earnings report," said Joan T. Goodman, a bank analyst at a Chicago-based division of Donaldson Lufkin & Jenrette. "A lot of people are going to lose their jobs."

"We knew they were going to have horrible results, and they were horrible," said Lawrence W. Cohn, director of research at Livingston, N.J.-based Ryan, Beck & Co. "Most people expected a slightly lower loss, but you reach a certain size and it just doesn't matter anymore."

For the first nine months of the year, Bankers Trust lost $102 million, compared with a profit of $659 million for the same period a year earlier.

Shares of Bankers Trust rose $1.25 to $68.375 yesterday.

Bankers Trust said it will take a restructuring charge, which could wipe out profits for the fourth quarter, Cohn said.

"The third quarter is now history, thankfully," Newman told analysts in the meeting, sources said. "It is not something I want to go through again."

He said Bankers Trust would emerge from this a stronger, more focused and less risky company that could perform well in good times and bad, sources said.

"We are keeping the core strengths," he reportedly told the analysts.

Those businesses include the safekeeping of securities for investors, trust operations, handling cash transfers from one bank to another, and Alex. Brown's brokerage operations.

He said "dramatic changes" would be made to its emerging markets unit, which contributed heavily to $409 million in trading and securities losses in the quarter, primarily from investments in plunging Russian securities.

Newman said the company will consolidate its emerging market activities and it has already slashed its lending and derivative exposure to $6.6 billion from $11.8 billion as of Dec. 31, 1997, in Asia, Latin America and Russia.

He also said the junk bond portfolio has been restructured. It contributed heavily to the investment banking unit's quarterly loss of $142 million. The unit made $157 million for the period a year ago.

While Bankers Trust does not break out BT Alex. Brown's numbers, analysts said losses, if any, would be minimal.

Newman indicated to analysts that Bankers Trust's hefty quarterly dividend of a $1 per share would not be cut, but that is the board of directors' prerogative, sources said.

Bankers Trust is well capitalized, and analysts said it should pull through, given time.

"I think this is the bottom in terms of the earnings picture and they will start to improve from here," Mandle said.

Pub Date: 10/23/98

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