For Deutsche Bank, an eye on the world German giant hopes Bankers Trust deal makes it global power

Contrasting entities

Analysts say Deutsche must overcome its history of blunders

Banking

December 06, 1998|By Bill Atkinson and William Patalon III | Bill Atkinson and William Patalon III,SUN STAFF

Deutsche Bank AG has been compared to the mighty Titanic: big, ponderous, slow to turn, and captained by a management team known to blunder.

But the bank views itself much differently, espousing the motto: "Europe first, but not only Europe."

Now it is bent on fulfilling that dream of becoming the world's largest financial services company. Its intended growth vehicle: ailing Bankers Trust Corp., and its Baltimore-based BT Alex. Brown subsidiary, which Deutsche has proposed to buy for $10.1 billion.

Analysts have been cool to the deal, which Deutsche Bank says is key to its vision of becoming a global player -- a goal it has lusted after since its founding in 1870.

They are skeptical because Bankers Trust has a shaky record, and melding the cultures that differ corporately and ethnically will be a Herculean undertaking.

"Can they transform the company into a Merrill Lynch, Morgan Stanley, or Goldman Sachs?" asked Gerard S. Cassidy, a banking analyst for Tucker Anthony Inc. in Boston. "That is the key question. I don't think anyone knows the answer. They are buying damaged goods."

Deutsche Bank is cast in the classic Prussian mold: staid, risk averse and often criticized for being autocratic and slow in making decisions.

In contrast, Bankers Trust is free-wheeling, and trades in some of the riskiest areas -- derivatives, hedge funds, and the emerging markets -- which has sometimes led not only to huge losses but a sullied reputation.

For instance, Bankers Trust surprised Wall Street analysts in October revealing a bigger-than-expected $488 million loss in the third quarter -- thanks to ill-fated investments in junk bonds and Russian securities, and lending to a hedge fund that nearly failed.

"They are all very chummy at the moment," said Bryan Crossley, a European bank analyst in London at ABN AMRO. "Honeymoons don't last very long."

Deutsche Bank executives declined a request for an interview for this article.

Local impact

However this marriage works out, it is going to have a profound impact on Baltimore, where Alex. Brown employs about 1,500 people, and has enjoyed an impeccable reputation as a blue-chip investment banking company for its two-century existence.

But in the deal's aftermath, Alex. Brown could lose more autonomy, talented investment bankers could defect, and some could lose their jobs as Deutsche Bank cuts costs. Deutsche has said it plans to fire 5,500 people in London and New York, with no jobs lost in Germany. No matter how different the two companies and how painful the merger, Deutsche Bank will emerge a hulking organization by May, when the deal is expected to be approved by shareholders and regulators.

Deutsche Bank will rank No. 1 in the world with $830 billion in assets, fourth in the world among asset managers with $683 billion, and it will have more than 96,000 employees working in 50 countries.

It still won't exactly be an industry juggernaut: The new company would rank only 14th in the United States in terms of new issues of stocks and bonds; in worldwide mergers, it would rank only 11th, according to one report.

History

It has taken Deutsche Bank 130 years to near the founders' dreams of being a global financial powerhouse.

Founded in Prussia in January 1870, in the midst of the Industrial Revolution, Deutsche Bank's organizers had global aspirations even then. They bore-sighted the British banks that dominated the financing of Germany's best exporters, and quickly opened branches in Bremen and Hamburg, Germany, as well as Yokohama, Japan, Shanghai, China and London.

From the beginning, it has shaped itself chiefly as a banker for corporations.

In the late 1880s, Deutsche Bank helped Siemens AG wire Germany for electricity, financed construction of the Northern Pacific Railroad in the United States, and served governments -- the Ottoman Empire, for example.

In one of its darker periods, it helped finance Hitler's war effort in World War II. Neutral countries would not accept the Reichsmark, so Deutsche Bank did its foreign exchange

business in gold, much of it reportedly looted from Holocaust victims, according to historians.

Today, the bank is negotiating with the World Jewish Congress to make amends.

Deutsche Bank made its first appearance in the United States in 1971, opening an investment banking office, though today it still isn't a force in the world's most important capital market.

By 1989, in a major move to break into the debt-and-equity markets of Britain, it bought that country's Morgan Grenfell Group investment bank -- a deal that would later be wrought with problems. And in 1996, it made another bid to build a base in the United States, hiring away from Morgan Stanley & Co., a group of high-priced technology investment bankers in Silicon Valley -- a foray that also backfired when the group defected to Credit Suisse First Boston.

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