NEW YORK - Bankers Trust - Investment Management Group's efforts to reinvent itself have prompted many familiar veterans to leave.
Clients, however, seem to be staying, at least for now.
Nevertheless, observers in the industry - including former Bankers' executives - worry the changes could backfire at a time its parent is facing a painful restructuring.
They say the firm is threatening its franchise in traditional institutional investment products such as index funds by concentrating on products that are potentially more profitable but also more volatile, such as derivatives-based strategies.
Since the bank announced its new investment management direction a year ago, placing more emphasis on active strategies, more than 20 veterans have left the investment management group.
They include:
H. Kent Atkins, former chief investment officer. He started a new firm, NorthStar Asset Management Inc., and was joined by former Bankers Trust Managing Director Burke Vandermast, portfolio managers Karen Cronk and Nathalie Badan, and former marketing Vice President Richard Daniels.
Jonathan Lubran, who had headed the London office, and Tony Thompson, the London CIO, left for Foreign and Colonial Management Ltd.
Frederic Nelson, former managing director in charge of global quantitative investments, and Frank O'Keefe, a marketing executive, joined J.P. Morgan Investment Management.
Managing Director Win J. Neuger, who had headed all active management, left Bankers in February to join AIG Global Investors Inc.
Andrew Osinsky, who replaced Mr. Fisher, resigned from the firm in December, along with Jack Jacobs, another senior marketer.
Theresa Hamacher, hired last April as director of U.S. active equities, returned to Prudential Investment Advisors in October.
Anthony Balestrieri, assistant vice president of stable asset value strategies, left last April to join Mitchell Hutchins Asset Management.
Two securities lending officers - Managing Director Terry Toth and Vice President Patrick Avitabile - left in August for Northern Trust Co., Chicago, and Citibank, New York, respectively.
Another managing director, Robert R. Tarter, joined State Street Bank & Trust Co. as senior vice president and director of sales and marketing in the U.S. financial asset services area.
Robert H. Greenblatt and Steven A. Lauer, co-managers of Bankers Trust's domestic TAA strategy, left to start Polaris Capital Management Inc. Their first client, Plumbers & Gasfitters Local 107, Louisville, Ky., funded the allocation by moving assets from Bankers Trust's TAA allocation.
And, Wall Street headhunters report many employees are seeking to jump ship.
Business still seems good
Still, the firm appears to be holding onto most of its business.
Total assets in custodial and trust relationships are up, while investment management assets are only slightly below last year's levels.
Bankers Trust had set out to stress active investment products last year when it revamped its top management, but so far, passive management seems to dominate its product offerings.
While U.S. institutional, discretionary tax-exempt assets dropped from $132.1 billion in 1993 to $126.8 billion in 1994, the portion invested in domestic indexed equity rose 6.7%, to $60.1 billion, despite a mere 1.3% return by the Standard & Poor's 500 Stock Index.
Passive international equity assets under management jumped 11.9%, while the Morgan Stanley Capital International Europe, Australasia Far East Index rose 8.1%.
The firm's assets under management declined slightly since last year, according to statistics submitted to Pensions & Investments. Total assets dipped to $181.8 billion as of Jan. 1, 1995, down from $184.5 billion a year earlier.
Master trust, master custody and global custody assets increased to $469 billion from $415 billion.
Even in that area, Bankers has suffered defeats.
Last August, it lost to Mellon Trust in a global custody search by the Los Angeles County Employees' Retirement Association.
Bankers Trust, which had even brought in Chairman Charles S. Sanford Jr. for the presentations, was ruled out despite a zero-fee bid. Pension fund staffers faulted its accounting technology.
It was a high-profile defeat for Bankers Trust, which has long been considered one of the top custody vendors.
$6.9 billion increase reported
According to the numbers it submitted to P&I, Bankers Trust succeeded in adding $6.9 billion in assets from new clients in 1994, mainly for traditional products such as domestic indexing and guaranteed investment contracts, although it also added $429 million in derivatives-based assets and a sizable $4.74 billion in international equities. At the same time, it lost $764 million in indexed fixed-income assets, $1.23 billion in domestic bonds, $748 million in domestic equity and $147 million in international fixed income.
"We're near the top in the P&I rankings for new business in 1994," said Bankers Trust spokesman Tom Parisi, managing director of the company. "The results suggest (clients) value what we provide and continue to assign business to us."
Bankers Trust has a reputation as a top-flight global custodian and index fund manager, but those are low-fee businesses. On the other hand, derivatives strategies and international equity are potentially much more profitable, but as Bankers Trust's traders found out recently, they can be risky.
Bankers announced it expects an after-tax loss of approximately $125 million because of a drop in its derivatives revenue and trading losses in Latin American securities. Standard & Poor's Rating Service downgraded its financial outlook for Bankers Trust to negative, from stable, noting derivatives were central to the firm's strategic direction.
Yet investment management is one of the more stable sources of income for the corporation, said S&P analyst Tanya Azarchs. Along with corporate finance, investment management has been a positive factor in the company's results, but both have been dragged down by the trading operations, she said.
Additionally, the comings and goings of investment personnel cause some doubts about the new direction the firm has been set on since last year.
Cutbacks loom
Now, the investment management operation is faced with cutbacks brought on by recent reversals in the company's trading operations. Faced with litigation from derivatives-trading clients, falling stock and sagging revenue, Bankers Trust Co. is re-engineering, including staff cuts that reportedly could reach 10% of its worldwide work force.
"Last year was a transition year The new strategic direction has caused opposing staffers to leave; others have been displaced by the changes; and yet more might lose their jobs in the projected work force cut.
"It's just not a very happy and productive place at this moment, so people look elsewhere," said Franklin K. Brown, executive vice president and managing director at executive recruiters Handy HRM Corp., New York.
Last year's restructuring included the merger of the investment management and funds management units into one group covering institutions, hedge funds and high-net worth individuals, and the elimination of the London-based active international equity group.
Traditional investment managers - including Mr. Atkins, the former CIO - were sidelined into client service roles within the company's strategic advisory group, while executives with derivatives backgrounds filled key executive spots. Mr. Atkins was replaced by Ivan Wheen, a former currency trader, who was named head of global investment management.
The firm has moved to fill some of the void with some recent hires.
Bluford Putnam was named chief strategist of its global investment management group, and took over many of Mr. Atkins' responsibilities. John K. Burgess was named chief portfolio strategist for reserve investments, assuming some of the responsibilities of the NorthStar founders.
Other openings have been filled from within.
For example, Messrs. Greenblatt and Lauer were replaced by Vice President Phillip Green, a quantitative portfolio and currency manager, who took over as portfolio manager for TAA relationships. And, Mr. Wheen became acting head of equity investing after Mr. Neuger's departure.
The number of investment management personnel has remained relatively flat, according to Mr. Parisi.
Continuity questioned
Bankers Trust has a franchise, but there is a perception it has no stable methodology or continuity, especially on the buy side, said one headhunter. The firm has restructured itself to the point of needing to be restructured, he said.
"There's an opportunity for them to rebuild if they can somehow demonstrate that they are committed to a business and they're not going to modify that commitment in the next two or three years," said the headhunter.
"They've got a strong franchise. All they've got to do is put their foot down and say 'this is our policy' and stick with it."
Bankers Trust's Mr. Parisi says that's just what the firm is doing. The trading difficulties are unrelated to investment management, and the strategy put in place by Mr. Wheen will not be affected by the company's layoffs, he said.
"There are some businesses that we consider investment businesses that we think have significant growth potential. We want to be careful not to deprive ourselves of the opportunities of this business by doing anything that would affect a short-term gain, but deprive us of the long-term opportunities that we see in the business," he said. "Investment management is a business that we think has very strong potential."
Bankers Trust doesn't break down its financial results to show investment management's contribution to the bottom line, but the client advisory business - which includes investment management among other advisory functions -is a significant and growing factor, said Mr. Parisi. In 1994, it contributed $87 million of the $615 million of net income after taxes, up from $16 million in 1993.
Observers say investment management shouldn't be hard hit by the upcoming expense-reduction drive, partly because it has performed better for the bank than trading operations, and partly because its recent turnover has not left much fat to cut.
"They are trying to build client relationships, and one of the areas that are important to them is the investment management area. They're not going to de-emphasize that. If anything, they're going to continue," said S&P's Ms. Azarchs.
Most analysts and financial executives agree the firm will try to spare investment management and, if possible, put more emphasis into that area.
"It's a business where you have to pedal very hard to stay in place," said Ms. Azarchs.
"It is one of the strongest franchises Bankers Trust has. They certainly don't want to lose that."
