Bankers Trust
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Bankers Trust was a historic American
banking A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
organization. The bank merged with Alex. Brown & Sons in 1997 before being acquired by
Deutsche Bank Deutsche Bank AG (, ) is a Germany, German multinational Investment banking, investment bank and financial services company headquartered in Frankfurt, Germany, and dual-listed on the Frankfurt Stock Exchange and the New York Stock Exchange. ...
in 1999. Deutsche Bank sold the Trust and Custody division of Bankers Trust to State Street Corporation in 2003.


History

In 1903 a group of New York national banks formed
trust company A trust company is a corporation that acts as a fiduciary, trustee or agent of trusts and agencies. A professional trust company may be independently owned or owned by, for example, a bank or a law firm, and which specializes in being a trust ...
Bankers Trust to provide trust services to customers of state and national banks throughout the country on the premise that it would not lure commercial bank customers away. In addition to offering the usual trust and commercial banking functions, it also acted as a "bankers' bank" by holding the reserves of other banks and trust companies and loaning them money when they needed additional reserves due to unexpected withdrawals. Bankers Trust Company was incorporated on March 24, 1903, with an initial capital of $1.5 million. Despite technically having numerous stockholders, the voting power was held by three associates of
J.P. Morgan JP may refer to: Arts and media * ''JP'' (album), 2001, by American singer Jesse Powell * ''Jp'' (magazine), an American Jeep magazine * '' Jönköpings-Posten'', a Swedish newspaper * Judas Priest, an English heavy metal band * ''Jurassic Pa ...
. Thus, it was widely viewed as a Morgan company. J. P. Morgan himself held a controlling interest, and Edmund C. Converse, a steel manufacturer turned financier and then president of Liberty National Bank, was chosen to serve as Bankers Trust's first president. Bankers Trust quickly grew to be the second largest U.S. trust company and a dominant Wall Street institution. During the
Panic of 1907 The Panic of 1907, also known as the 1907 Bankers' Panic or Knickerbocker Crisis, was a financial crisis that took place in the United States over a three-week period starting in mid-October, when the New York Stock Exchange suddenly fell almost ...
, Bankers Trust worked closely with J.P. Morgan to help avoid a general financial collapse by lending money to sound banks. In 1911, it acquired the Mercantile Company and, a year later, the Manhattan Trust Company. In 1914 Converse resigned to become president of Astor Trust Company, another Morgan company. He was succeeded by his son-in-law Benjamin Strong Jr. Strong served as president for less than a year, leaving Bankers Trust to become the first governor of the
Federal Reserve Bank of New York The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is responsible for the Second District of the Federal Reserve System, which encompasses the New York (state), State of New York, the 12 norther ...
after helping to establish the
Federal Reserve System The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of ...
. Strong was succeeded by Seward Prosser, who became the third president of Bankers Trust. By 1915, Bankers Trust was doing approximately $30,000,000,000 of business, consisting of solely business from companies and no safes or other deposits were from the general public. In 1916, it completed alterations to the Bankers Trust Building, its offices at the corner of
Wall A wall is a structure and a surface that defines an area; carries a load; provides security, shelter, or soundproofing; or serves a decorative purpose. There are various types of walls, including border barriers between countries, brick wal ...
and Nassau Streets that it had built 4 years earlier. Under Prosser's leadership, Bankers Trust merged with the Astor Trust Company on April 23, 1917. The merger had been rumored for some time as both banks had a number of directors in common; Prosser was president of the Bankers and a director of the Astor and Edmund C. Converse was president of the Astor and a director of the Bankers. The Astor continued "with no change in management, as the uptown branch of the Bankers Trust Company." The new company had capital of $11,250,000, "undivided profit of more than $5,000,000 and deposits of about $300,000,000." In October 1917, the company became a member of the Federal Reserve system. Prosser served as president of the merged entity until 1923 when was elected chairman of the board and was succeeded by Albert Arthur Tilney. Prosser served as chairman until his death in 1942. Tilney's presidency was short-lived, however, as Henry J. Cochran, who had been a vice president at the company for twelve years, was elected as the fifth president in 1929. Upon Cochran's elevation to the presidency, Tilney assumed the newly created position of vice chairman of the board of directors. Cochran served as president until 1931 when S. Sloan Colt was elected the sixth president and Cochran became vice chairman of the board. In 1956, Alex H. Ardrey became president of Bankers Trust. Ardrey joined the bank in 1930 as a vice president and was elected executive vice president in 1948. In 1957, 42 year old William Moore, an executive vice president and director, became chairman and chief executive officer of the Bankers Trust Company succeeding Colt who had become chairman in 1956, when Ardrey became president. In 1960, Wallis B. Dunckel, a senior vice president who had been with the bank since 1923, was elected president of Bankers Trust to succeed Ardrey, who was elected vice chairman. In 1966, Alfred Brittain III, then head of the foreign department, was elected president of Bankers Trust to succeed Dunckel who retired. In 1966, Bankers Trust acquired a one-third interest in an
Antwerp Antwerp (; ; ) is a City status in Belgium, city and a Municipalities of Belgium, municipality in the Flemish Region of Belgium. It is the capital and largest city of Antwerp Province, and the third-largest city in Belgium by area at , after ...
banking company, Banque G.&C. Kreglinger, S.A. which was renamed to Banque de
Benelux The Benelux Union (; ; ; ) or Benelux is a politico-economic union, alliance and formal international intergovernmental cooperation of three neighbouring states in Western Europe: Belgium, the Netherlands, and Luxembourg. The name is a portma ...
after the transaction. The other one-third partners were Plouvier et Cie., S.A., a Belgian group composed of the former Kreglinger owners, and L'Union des Mines- La Henin, a French investment and holding company in which Bankers Trust had an equity interest.


1980s and early 1990s

In 1980, Bankers Trust exited retail banking under the direction of Brittain. The bank attempted to sell its credit portfolio and branches to
Bank of Montreal The Bank of Montreal (, ), abbreviated as BMO (pronounced ), is a Canadian multinational Investment banking, investment bank and financial services company. The bank was founded in Montreal, Quebec, in 1817 as Montreal Bank, making it Canada ...
; however, the deal was not completed due to a disagreement over
BankAmericard Visa Inc. () is an American multinational payment card services corporation headquartered in San Francisco, California. It facilitates electronic funds transfers throughout the world, most commonly through Visa-branded credit cards, debit c ...
(known today as Visa). Bank of Montreal wanted to include BankAmericard in the terms of sale, but Bankers Trust did not want to sell the new credit card program licensed from
Bank of America The Bank of America Corporation (Bank of America) (often abbreviated BofA or BoA) is an American multinational investment banking, investment bank and financial services holding company headquartered at the Bank of America Corporate Center in ...
due to its profitable future. Eventually, Bankers Trust sold 89 branches to five banks including Republic National Bank of New York. Republic National Bank of New York expanded its branch network to 32 with the opening of a new branch in Manhattan's World Trade Center and the acquisition of a dozen Bankers Trust Company branches—ten in Manhattan, one in the Bronx, and one in Brooklyn. 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 John Pierpont Morgan Sr. (April 17, 1837 – March 31, 1913) was an American financier and investment banker who dominated corporate finance on Wall Street throughout the Gilded Age and Progressive Era. As the head of the banking firm that ...
, 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 Reuters ( ) is a news agency owned by Thomson Reuters. It employs around 2,500 journalists and 600 photojournalists in about 200 locations worldwide writing in 16 languages. Reuters is one of the largest news agencies in the world. The agency ...
, 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 A trading room gathers trader (finance), traders operating on financial markets. The trading room is also often called the Front office (finance), front office. The terms "dealing room" and "trading floor" are also used, the latter being inspir ...
, the bank suffered irreparable reputational damage when some complex
derivative In mathematics, the derivative is a fundamental tool that quantifies the sensitivity to change of a function's output with respect to its input. The derivative of a function of a single variable at a chosen input value, when it exists, is t ...
transactions caused large losses for major corporate clients. Two of these— Gibson Greetings and
Procter & Gamble The Procter & Gamble Company (P&G) is an American multinational consumer goods corporation headquartered in Cincinnati, Ohio. It was founded in 1837 by William Procter and James Gamble. It specializes in a wide range of personal health/con ...
(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 1995, the
Securities and Exchange Commission The United States Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its primary purpose is to enforce laws against market m ...
sanctioned Gibson Greetings for its handling of derivatives trading, and Bankers Trust settled the P&G case in May 1996.


1997 merger and 1998 sale

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 during the
1998 Russian financial crisis The Russian financial crisis (also called the ruble crisis or the Russian flu) began in Russia on 17 August 1998. It resulted in the Russian government and the Russian Central Bank devaluing the Russian rouble, ruble and sovereign default, defau ...
since the bank had a large position in Russian government bonds. In late 1998, shortly before Bankers Trust was acquired by
Deutsche Bank Deutsche Bank AG (, ) is a Germany, German multinational Investment banking, investment bank and financial services company headquartered in Frankfurt, Germany, and dual-listed on the Frankfurt Stock Exchange and the New York Stock Exchange. ...
, BT pleaded 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, some 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. Some 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 windfall to the bank's shareholders, who avoided losing their entire investments. In November 1998, Deutsche Bank agreed to purchase Bankers Trust for $10.1 billion; the purchase was finalized on June 4, 1999. At the time, Deutsche Bank owned a 12% stake in
DaimlerChrysler Mercedes-Benz Group AG (formerly Daimler-Benz, DaimlerChrysler, and Daimler) is a German multinational automotive company headquartered in Stuttgart, Baden-Württemberg, Germany. It is one of the world's leading car manufacturers. Daimler-B ...
but United States banking laws prohibit banks from owning industrial companies, so Deutsche Bank received an exception to this prohibition through 1978 legislation from Congress. CEO Frank N. Newman received $55 million in severance. He had led the Bankers Trust acquisition of Alex. Brown & Sons and ensured that the bank would hold a large position in Russian government bonds. On June 4, 1999, Deutsche Bank merged its Bankers Trust and Deutsche Morgan Grenfell to became Deutsche Asset Management (DAM) with Robert Smith as the CEO.


Later sales

In 1999, Deutsche Bank sold the Bankers Trust
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n division to the
Principal Financial Group Principal Financial Group, Inc. (PFG) is an American global financial investment management and insurance company headquartered in Des Moines, Iowa, United States. History PFG was first founded under the name Bankers Life Insurance Company. Ba ...
who, in turn, sold the Investment Banking Business to Macquarie Group in June 1999 and the asset management division to
Westpac Westpac Banking Corporation, also known as Westpac, is an Australian multinational banking and financial services company headquartered at Westpac Place in Sydney. Established in 1817 as the Bank of New South Wales, it acquired the Commerc ...
on 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.


Controversies

In 1995, litigation by two major corporate clients against Bankers Trust shed light on the market for over-the-counter derivatives. Bankers Trust employees were found to have repeatedly provided customers with incorrect valuations of their derivative exposures. Chapter 12: Procter & Gamble, pp. 199–215, Chapter 13: Gibson Greeting Cards, pp.  217–220. The head of the US
Commodity Futures Trading Commission The Commodity Futures Trading Commission (CFTC) is an Independent agencies of the United States government, independent agency of the US government created in 1974 that regulates the U.S. derivatives markets, which includes futures contract, fut ...
(CFTC) during this time was later interviewed by Frontline in October 2009: "The only way the CFTC found out about the Bankers Trust fraud was because
Procter & Gamble The Procter & Gamble Company (P&G) is an American multinational consumer goods corporation headquartered in Cincinnati, Ohio. It was founded in 1837 by William Procter and James Gamble. It specializes in a wide range of personal health/con ...
, and others, filed suit. There was no record keeping requirement imposed on participants in the market. There was no reporting. We had no information." - Brooksley Born, US CFTC Chair, 1996-'99. Several Bankers Trust brokers were caught on tape remarking that their client ibson Greetings and P&G, respectivelywould not be able to understand what they were doing in reference to derivatives contracts sold in 1993. As part of their legal case against Bankers Trust,
Procter & Gamble The Procter & Gamble Company (P&G) is an American multinational consumer goods corporation headquartered in Cincinnati, Ohio. It was founded in 1837 by William Procter and James Gamble. It specializes in a wide range of personal health/con ...
(P&G) "discovered secret telephone recordings between brokers at Bankers Trust, where 'one employee described the business as 'a wet dream,' ... another Bankers Trust employee said, '...we set 'em up.'" The bank's row with P&G made the front page of major US magazines during 1995. On October 16, 1995, the US magazine
BusinessWeek ''Bloomberg Businessweek'', previously known as ''BusinessWeek'' (and before that ''Business Week'' and ''The Business Week''), is an American monthly business magazine published 12 times a year. The magazine debuted in New York City in Septembe ...
published a cover story that P&G was pursuing racketeering charges against Bankers Trust: "The key evidence: some 6,500 tape recordings." Both the magnitude of losses and the litigation by well-known companies caused market regulators to intervene. Concerns motivated by the particular Bankers Trust case eventually extended to the OTC derivatives market in general. The US CFTC embarked on a failed attempt to take over part of the bank regulators' role in regulating the OTC derivatives market in the late 1990s. The thesis of an October 20, 2009, broadcast of the PBS television magazine Frontline, ''Early Warnings of the Economic Meltdown'', was that the failure of Congress to allow CFTC a role in regulating derivatives was a key element eventually leading to the
2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
.


Notable former employees


Business

* Mary Vail Andress – first woman executive at a major New York bank (1924) *
Jeff Bezos Jeffrey Preston Bezos ( ;; and Robinson (2010), p. 7. ; born January 12, 1964) is an American businessman best known as the founder, executive chairman, and former president and CEO of Amazon, the world's largest e-commerce and clou ...
– chief executive officer of Amazon.com * Greg Coffey – hedge fund manager * Chris Corrigan – private investor and former CEO of
Patrick Corporation Patrick Corporation is an Australian seaport operator with operations in Port of Brisbane, Brisbane, Fremantle Harbour, Fremantle, Port of Melbourne, Melbourne and Port Botany (seaport), Sydney. Formerly listed on the Australian Securities Exch ...
* Henry P. Davison – banker * Brady Dougan – chief executive officer of
Credit Suisse Credit Suisse Group AG (, ) was a global Investment banking, investment bank and financial services firm founded and based in Switzerland. According to UBS, eventually Credit Suisse was to be fully integrated into UBS. While the integration ...
* Richard Farleigh – private investor *
John Key Sir John Phillip Key (born 9 August 1961) is a New Zealand retired politician who served as the 38th prime minister of New Zealand from 2008 to 2016 and as leader of the National Party from 2006 to 2016. Following his father's death when ...
– former New Zealand Prime Minister and investment banker * Jack Langer (born 1948/1949) - basketball player and investment banker * Jerome Powell - Chair of the Federal Reserve of the United States * Herbert L. Pratt – director of BT from 1917–38, and head of Standard Oil Company of New York * Sally Shelton-Colby – banker and diplomat * Benjamin Strong, Jr. – Secretary (1904–09), Vice-President (1909–13), President (1913–14), then first head of New York Federal Reserve (1914–28) *
Nassim Taleb Nassim Nicholas Taleb (; alternatively ''Nessim ''or'' Nissim''; born 12 September 1960) is a Lebanese-American essayist, mathematical statistician, former option trader, risk analyst, and aphorist. His work concerns problems of randomness ...
– author and financial mathematician * Albert H. Wiggin – president of Chase National Bank * Robert G. Wilmers – Chief Executive Officer and Chairman of M&T Bank


Other

* Maxim Dlugy – chess
International Grandmaster Grandmaster (GM) is a Chess title, title awarded to chess players by the world chess organization FIDE. Apart from World Chess Championship, World Champion, Grandmaster is the highest title a chess player can attain. Once achieved, the title is hel ...
* Jack H. Jacobs – Medal of Honor recipient *
Charlie Rose Charles Peete Rose Jr. (born January 5, 1942) is an American journalist and talk show host. From 1991 to 2017, he was the host and executive producer of the talk show ''Charlie Rose (talk show), Charlie Rose'' on PBS and Bloomberg L.P., Bloombe ...
– television reporter


References

{{Deutsche Bank Banks based in New York City Defunct banks of the United States 1998 disestablishments in New York (state) 1903 establishments in New York (state) Defunct banks of New York City