Bankers Trust chief getting $100 million

Deutsche Bank official in Germany reveals Newman severance

Action called `pathetic'

Compensation

July 30, 1999|By Sean Somerville and Bill Atkinson | Sean Somerville and Bill Atkinson,SUN STAFF

Frank N. Newman, the Bankers Trust Corp. chief who oversaw the purchase of Alex. Brown Inc. and then the sale of Bankers Trust to Deutsche Bank AG, has walked away from it all -- with $100 million.

A Deutsche Bank senior official disclosed a $100 million severance package for Newman and a $25 million deal for former Bankers Trust Chief Financial Officer Richard Daniel at a news conference Wednesday in Frankfurt, Germany, according to published reports.

Newman's compensation rankled former Alex. Brown brokers and executives, who said Newman deserved a share of the blame for an exodus from Baltimore-based Brown and for huge losses at Bankers Trust.

"It is pathetic," said a former BT Alex. Brown broker. "From an Alex. Brown perspective, I could see nothing he did that was of any good."

"It is terrible," said another former BT Alex. Brown broker. "I think the performance [of Bankers Trust] was horrendous. For someone who was responsible to be rewarded by $100 million severance package, I think is outrageous. I have no idea how such a thing could happen. I would think the shareholders would be furious. That eats directly into the bottom line of the company."

Newman did not return a message left on an answering machine at his home yesterday. Deutsche Bank officials, who had previously called a $100 million estimate too high, would not discuss severance amounts.

Company officials said comments by controller Manfred Timmerman that included the disclosures were part of an explanation about accounting and suggested that the figures might be incorrect.

"We never have nor will we ever disclose the amounts that were paid," said Macy Edgerton, a Deutsche Bank spokeswoman.

But the company said it had no plans to clarify or correct any news reports that included the $100 million and $25 million figures.

Newman, who was chairman and chief executive officer when Bankers Trust bought Alex. Brown for $1.7 billion in September 1997, quickly became a symbol of a cultural clash between the New York-based bank and the Baltimore-based brokerage.

Alex. Brown veterans, who were used to the disciplined management of former Marine A. B. "Buzzy" Krongard, found themselves answering to Newman, a soft-spoken former deputy treasury secretary. Decision-making went from Baltimore to New York. Since that merger, at least 26 Alex. Brown employees have resigned -- including three top traders, four managing directors and 10 brokers.

Newman's record at Bankers Trust was mixed. He took over Bankers Trust in 1996 and helped restore its reputation after a derivatives scandal and cut its risks.

The bank's net income rose from $215 million in 1995 to $866 million in 1997. But the next year, Bankers Trust reported a net loss of $73 million, including a loss of nearly $500 million in the third quarter on investments in junk bonds and Russian securities. Deutsche Bank bought Bankers Trust for $9 billion June 4.

Joan T. Goodman, a Chicago-based analyst for Pershing, said the 1998 losses reached deeply into shareholders' pockets. "In that respect, I would have to say his performance wasn't that good," she said.

But Goodman added that the banking business was about risk-taking, which led to varying results for Bankers Trust under Newman. "When it was good, it was very, very good, and when it was bad, it was horrid," she said.

Officials at Deutsche Bank began to oppose Newman's appointment to the company's board in March, when the company pleaded guilty to shifting $19.1 million of unclaimed customer funds into its own account between 1994 and 1996 -- before Newman arrived.

Last month, Deutsche Bank said there could be firings over BT's mishandling of the investigation into the illegal fund transfers. Daniel's and Newman's resignations followed.

Newman's severance is by no means the highest awarded U.S. executives. Michael Ovitz, a former Disney president, received a severance package worth $140 million. Jon Corzine, the former chief executive of Goldman Sachs, received $234 million.

Patrick McGurn, director of corporate programs for Institutional Shareholder Services, predicted that severance packages like Newman's will start attracting criticism from investors. "What you get in these deals is purely feathering your nest," he said.

With two executives of big companies, it becomes clear that there is not enough room for both. Typically, one leaves with a ton of money. "It looks to investors like this was the payoff to get this deal through," McGurn said.

A former BT Alex. Brown executive said that chief executives who negotiate mergers typically receive large bonuses. But Newman "engineered the bank to the point where they had to sell it," the executive said. "To be rewarded for that essentially is outrageous."

Pub Date: 7/30/99

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