Bankers Trust - History

History

A consortium of banks created Bankers Trust to perform trust company services for their clients.

In 1978, Bankers Trust exited retail banking under the direction of its CEO, Alfred Brittain III. The bank sold off its credit portfolio and branches to Bank of Montreal, eventually growing into a formidable capital-markets power.

Bankers Trust became a leader in the nascent derivatives business under the management of Charlie Sanford, who succeeded Alfred Brittain III, in the early 1990s. Having de-emphasized traditional loans in favor of trading, the bank became an acknowledged leader in risk management. Lacking the boardroom contacts of its larger rivals, notably J. P. Morgan, BT attempted to make a virtue of necessity by specializing in trading and in product innovation.

The company shied away from using market data distribution products from companies such as Reuters, instead choosing to develop its own systems in-house. A small development team based in London created BIDDS (Broadgate Information Data Distribution System) which included the Montage front-end package that traders used to obtain data from data feeds and broker screens.

In early 1994, despite all its prowess in managing the risks in the trading room, the bank suffered irreparable reputational damage when some complex derivative transactions caused large losses for major corporate clients. Two of these -- Gibson Greetings and Procter & Gamble (P&G) -- successfully sued BT, asserting that they had not been informed of, or (in the latter case), had been unable to understand the risks involved.

In 1997, Bankers Trust acquired Alex. Brown & Sons, founded in 1800 and a public corporation since 1986, in an attempt to grow its investment banking business.

The bank suffered major losses in the summer of 1998.

Shortly before the Deutsche Bank acquisition in November 1998, BT pled guilty to institutional fraud due to the failure of certain members of senior management to escheat abandoned property to the State of New York and other states. Rather than turn over to the states funds from dormant customer accounts and uncashed dividend and interest checks as required by law, certain of the bank's senior executives credited this money as income and moved it to its operating account.

Bruce J. Kingdon, the head of the bank's Corporate Trust and Agency group spearheaded the fraud and (in 2001) entered into a guilty plea in the US District Court for the Southern District of New York and was sentenced to community service. Certain of his subordinates were thereafter barred forever by the SEC from working in the securities markets.

With the Bank's guilty plea in the escheatment lawsuit, and thereafter its status as a convicted felon, it became ineligible to transact business with most municipalities and many companies which are prohibited from transacting business with felons. Consequently, the acquisition by Deutsche Bank was a godsend to the bank's shareholders, who avoided being wiped out.

In November 1998, Deutsche Bank agreed to purchase Bankers Trust for $10.1 billion; the purchase was finalized on June 4, 1999. CEO Frank N. Newman received $55 million in severance.

Deutsche Bank sold Bankers Trust Australian division to the Principal Financial Group in 1999 who, in turn, sold it to Westpac October 31, 2002. This organisation now uses the name BT Financial Group. Deutsche Bank announced on November 5, 2002 that it would sell The Trust and Custody division of Bankers Trust to State Street Corporation. The sale finalized in February 2003.