Banking 'jewel' in new setting Deutsche Bank eager to enter U.S. market via BT, Alex. Brown

Merger to be voted on today

November 29, 1998|By William Patalon III | William Patalon III,SUN STAFF Sun staff writer Bill Atkinson and Bloomberg News contributed to this article.

Brokerage BT Alex. Brown Inc. may be the "crown jewel" that Germany's biggest bank, Deutsche Bank AG, gets by acquiring Bankers Trust Corp. in a $9 billion deal the boards of the two parent companies will vote on today.

But what happens to this Baltimore institution after the merger, how it gets managed and whether it gets to keep any of its remaining identity built up over nearly 200 years of investment banking is anybody's guess, banking industry analysts and experts say.

"I'm not bullish on this deal," said Evangelos Kavouriadis, international bank analyst with Sanford C. Bernstein in New York. Deutsche Bank "is very centralized with its decision-making. They might try to manage their corporate banking and investment banking units as one. And that could cause a lot of friction."

For the second time in less than two years, Alex. Brown is getting a new owner.

The first time, it was New York City-based Bankers Trust, which in September 1997 took control of the nation's oldest investment banking house in a deal valued at about $1.7 billion when it was first announced and $2.5 billion when it was finalized.

This time, the new owner will be Deutsche Bank, which is hot to be a player in the hottest market for stocks in the world -- the United States.

Neither Bankers Trust nor Deutsche Bank is an ideal parent since both are afflicted by problems, say many familiar with the investment banking industry.

The marriage with Bankers Trust was heralded as a perfect match because it and Alex. Brown offered completely different services: Bankers Trust was big in junk bonds and other types of corporate lending; Alex. Brown's $1 billion-plus in revenues made it one of the blue-chip underwriters of stocks -- especially in the ultra-hot technology, telecommunications and health care sectors.

Defections and low morale

As it has played out, the deal hasn't lived up to its billing. The aristocratic leadership at Bankers Trust has rankled many at Alex. Brown, and the New York investment bank pulled much of the decision-making to its headquarters. Defections from Alex. Brown followed and morale has plunged.

What's more, some risky lending done by the parent company backfired and has reduced the value of the overall company -- the opposite of what was supposed to happen after the Alex. Brown acquisition.

With completion of the proposed Deutsche Bank-Bankers Trust merger, Alex. Brown gets a new parent -- this one a German investment bank noted for sometimes-sloppy management, "opaque" European-style accounting, and decision-making that's highly centralized and yet also much slower than is often needed to compete in today's frenetic capital markets.

But the once-independent Alex. Brown is probably one of the main reasons Deutsche Bank is making this deal, securities analysts and industry experts say.

In terms of stock underwriting -- raising cash for private companies by taking them public, or raising additional money for already public firms by doing secondary stock offerings -- Wall Street firms such as Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley Dean Witter & Co. are the elite.

But Alex. Brown is a pristine regional firm, said John E. Fitzgibbon Jr., editor of the IPO Reporter, a New York-based newsletter that tracks new stock offerings.

"It's a crown jewel among regional empires," Fitzgibbon said.

What's not clear is whether that crown jewel will be burnished -- or tarnished -- under Deutsche Bank.

It's generally agreed that Deutsche Bank badly mismanaged its acquisition of London-based investment banker Morgan Grenfell, which it acquired about nine years ago. Decision-making was eventually pulled from London back to Frankfurt, rankling many of Grenfell's high-profile players and causing highly publicized and embarrassing defections.

In June, the German bank even said it was retiring the Morgan Grenfell name, announcing that Deutsche Morgan Grenfell would from then on be known as Deutsche Bank Securities.

Deutsche Bank said the change was made in order to develop a single brand name in the U.S. banking and securities business.

A flubbed foray

Then there was Deutsche Bank's flubbed foray into the high-profile, potentially lucrative and fast-growing arena for financing high-tech companies.

In 1996, well-known Frank Quattrone and members of his technology group left Morgan Stanley to join Deutsche Bank Securities, by most accounts cutting a deal that benefited them more than their new employer.

Even so, there were some successes: In 1997, Deutsche Bank Securities took public, the online bookseller that has made a huge splash and now has a market value exceeding many well-established companies even though it's not yet profitable.

However, Quattrone and his cadre have since left, opting to join Credit Suisse First Boston's new technology group, yet another embarrassing defection and another black mark on Deutsche Bank's effort to build a reputation as a respected and effective global investment bank.

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