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Bankers Trust

From Alfawiki
Bankers Trust
Company typeBanking institution
IndustryBanking, Financial services
FoundedMarch 24, 1903; 123 years ago (1903-03-24)
FounderCoalition of New York national banks
Defunct1999 (1999)
FateAcquired by Deutsche Bank
SuccessorDeutsche Bank
Headquarters
New York City
,
United States
Area served
United States
Key people
Edmund C. Converse (founding president), Seward Prosser (president), Charles S. Sanford, Jr. (early 1990s leader)
ProductsTrust services, derivatives trading, risk management

Bankers Trust was a prominent American banking institution with a significant historical presence. In 1997, it merged with Alex. Brown & Sons, and two years later, in 1999, it was acquired by Deutsche Bank. Subsequently, in 2003, Deutsche Bank divested Bankers Trust's Trust and Custody division to State Street Corporation.

History

Established in 1903 by a coalition of New York national banks, Bankers Trust specialized in providing trust services across the United States without engaging in competition for commercial banking clients. It also operated as a "bankers' bank," maintaining reserves on behalf of other banks and offering loans during periods of liquidity constraints. The company was incorporated on March 24, 1903, with an initial capital of $1.5 million. Control over voting rights was held by three associates linked to J.P. Morgan, effectively positioning Bankers Trust as part of the Morgan enterprise. Edmund C. Converse, previously president of Liberty National Bank, served as the institution’s inaugural president.

Rapidly ascending to become the second-largest trust company in the U.S., Bankers Trust established itself as a vital player on Wall Street. During the Panic of 1907, it collaborated closely with J.P. Morgan to reinforce financial stability by extending credit to solvent banks. The company expanded through acquisitions, purchasing the Mercantile Company in 1911 and the Manhattan Trust Company in 1912. Converse stepped down in 1914 to lead Astor Trust Company; his successor for a brief period was his son-in-law Benjamin Strong Jr., who later became the first governor of the Federal Reserve Bank of New York. Following this transition, Seward Prosser assumed the presidency.

By 1915, Bankers Trust managed an estimated $30 billion in assets, exclusively serving corporate clients rather than individual depositors. In 1917, under Prosser’s leadership, it merged with Astor Trust Company, increasing its capital base to $11.25 million and deposits approaching $300 million. That same year, the institution became a member of the Federal Reserve System.

Prosser continued as president until 1923 before moving to chairman, after which Albert Arthur Tilney briefly took over before Henry J. Cochran became president in 1929. S. Sloan Colt succeeded as president in 1931 with Cochran assuming the vice chairman role. In 1956, Alex H. Ardrey was appointed president following his tenure since 1930; William Moore was named chairman and CEO the following year.

Wallis B. Dunckel was elected president in 1960 and was succeeded by Alfred Brittain III in 1966. That year also saw Bankers Trust acquire a one-third interest in Antwerp-based Banque G.&C. Kreglinger, S.A., which was subsequently renamed Banque de Benelux, forming a partnership with Belgian and French investors.

1980s and early 1990s

During the early 1980s under Brittain’s guidance, Bankers Trust exited the retail banking sector. The bank sought to sell its credit portfolio and branch network to Bank of Montreal, but negotiations collapsed due to disputes over BankAmericard (now Visa). Retaining ownership of its credit card operations due to anticipated profitability, Bankers Trust instead sold 89 branches to five different banks, including Republic National Bank of New York, which expanded its footprint by acquiring twelve branches in New York.

In the early 1990s, led by Charles S. Sanford, Jr., Bankers Trust shifted its strategic focus towards derivatives trading and risk management innovation, moving away from conventional lending activities. Unlike competitors such as J.P. Morgan, which benefited from extensive boardroom influence, BT concentrated on trading expertise and developed proprietary market data platforms. Its London division created BIDDS (Broadgate Information Data Distribution System) accompanied by the Montage interface for traders.

Despite robust risk management systems, Bankers Trust suffered reputational harm in early 1994 when complex derivative deals caused substantial losses for corporate clients including Gibson Greetings and Procter & Gamble (P&G). Both companies initiated lawsuits against BT alleging insufficient disclosure and misunderstanding of associated risks. In 1995, the Securities and Exchange Commission sanctioned Gibson Greetings over derivatives accounting irregularities, while Bankers Trust reached a settlement with P&G in May 1996.

1997 Merger and 1998 Divestiture

In 1997, Bankers Trust expanded its investment banking operations by acquiring Alex. Brown & Sons, a firm established in 1800 and publicly traded since 1986.

The institution incurred substantial losses during the 1998 Russian financial crisis due to its considerable holdings in Russian government securities.

Shortly before being acquired by Deutsche Bank in late 1998, Bankers Trust admitted guilt in an institutional fraud case involving senior management’s failure to escheat abandoned assets to New York and other states. Rather than transferring funds from inactive accounts as mandated, executives improperly recorded these funds as income and redirected them into operational accounts.

Bruce J. Kingdon, who led the Corporate Trust and Agency division, was central to this misconduct; he pleaded guilty in 2001 and received a community service sentence. Several employees under his supervision faced permanent bans from participating in securities markets imposed by the SEC.

As a consequence of the guilty plea, Bankers Trust lost eligibility to conduct business with numerous municipalities and corporations that restrict dealings with convicted felons. The acquisition by Deutsche Bank thus shielded shareholders from complete financial loss.

In November 1998, Deutsche Bank announced its intention to acquire Bankers Trust for $10.1 billion, with the transaction finalized on June 4, 1999. At that time, Deutsche held a 12% interest in DaimlerChrysler, but U.S. banking regulations prohibit banks from owning industrial companies; however, Deutsche benefited from a congressional exemption dating back to 1978. CEO Frank N. Newman, who had overseen the Alex. Brown acquisition and supported the bank’s Russian bond investments, received $55 million in severance compensation.

On June 4, 1999, Deutsche Bank combined Bankers Trust with Deutsche Morgan Grenfell to establish Deutsche Asset Management (DAM), appointing Robert Smith as chief executive officer.

Subsequent Divestitures

In 1999, Deutsche Bank divested Bankers Trust’s Australian operations to Principal Financial Group. Principal later sold the Investment Banking segment to Macquarie Group in June 1999 and transferred the asset management business to Westpac on October 31, 2002. This entity now operates under the name BT Financial Group.

On November 5, 2002, Deutsche Bank disclosed plans to sell Bankers Trust’s Trust and Custody division to State Street Corporation; this deal was completed in February 2003.

Controversies

In 1995, litigation initiated by prominent corporate clients exposed deficiencies in Bankers Trust’s management of over-the-counter derivatives. Investigations revealed that employees frequently issued inaccurate valuations of derivative positions. The US Commodity Futures Trading Commission (CFTC) only became aware of these irregularities following legal actions, highlighting gaps in regulatory oversight at that time.

Confidential recordings captured brokers admitting that clients such as Gibson Greetings and Procter & Gamble (P&G) lacked understanding of the complex derivatives they were sold. P&G’s lawsuit incorporated thousands of these recordings, which attracted widespread media coverage. In October 1995, BusinessWeek reported on P&G pursuing racketeering allegations against Bankers Trust based on this evidence.

The magnitude of losses combined with high-profile lawsuits triggered regulatory scrutiny extending beyond Bankers Trust to encompass the broader OTC derivatives marketplace. The CFTC’s unsuccessful effort in the late 1990s to regulate OTC derivatives underscored persistent regulatory challenges. A 2009 PBS Frontline documentary linked this regulatory shortfall as a contributing factor to the financial crisis of 2008.

Corporate

Miscellaneous

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