The merger of Bankers Trust Co. and Alex. Brown Inc. may not generate much excitement in money management circles, but will add $12.5 billion in assets to Bankers Trust's money management hoard.
While Bankers Trust acquired Alex. Brown for its highly regarded investment banking and brokerage operations, the deal also brought a base of money management assets and mutual funds.
Alex. Brown has $12.5 billion under management divided among several units, including Alex. Brown Investment Management L.P. and Alex. Brown Capital Advisory & Trust Co. Those assets are dwarfed by Bankers Trust's massive global investment management unit, which has $226.8 billion under management, including $174.3 billion in tax-exempt assets, according to data submitted for Pensions & Investments' 1997 directory of money managers.
Bankers Trust agreed to acquire Alex. Brown in a stock swap worth about $1.7 billion. Alex. Brown shareholders will own approximately 20% of the post-merger Bankers Trust. The merger is expected to close by the fourth quarter, subject to regulatory and shareholder approval.
A.B. Krongard, chairman and chief executive officer of Alex. Brown, will become a director and a vice chairman of Bankers Trust; Mayo A. Shattuck III, president and chief operating officer of Alex. Brown, will be named a vice chairman. Alex. Brown will remain in Baltimore and its name will be incorporated into the post-merger firm, said a Bankers Trust spokesman. Alex. Brown officials were not available to comment.
Integration issues, including asset management, were not resolved in the rush to complete the agreement, said a spokesman for Bankers Trust. The agreement was supposed to be completed April 14, but early rumors forced Frank Newman, Bankers Trust chairman and chief executive officer, to make an announcement April 6, said the spokesman. Integrating asset management functions will be one of the issues addressed during the period leading to the closing in the fourth quarter.
Industry observers note Alex. Brown's money management units are not an obvious target of the acquisition. Bankers Trust is a large global manager with a large mutual fund family and extensive passive management operations, while Alex. Brown is mainly an active manager with a small mutual fund family, the Flag Investors funds. The $12.5 billion asset figure for Alex. Brown is slightly deceiving, because it includes a large portion of assets in broker-managed accounts, not portfolio management assets, said Mary McAvity, consultant with Cerulli Associates, Boston.
As in the case of several recent financial mergers - Morgan Stanley Co. and Dean Witter Discover & Co. being the latest - industry observers were underwhelmed by the deal's money management implications.
While increasing retail distribution of its mutual funds was at the center of Morgan Stanley's acquisition of Dean Witter, Alex. Brown's brokers don't sell mutual funds at the same clip; most analysis of the deal centered on the combination of Alex. Brown's underwriting and brokerage with Bankers Trust's large corporate clientele.
Many investment bankers saw it as a further sign of the inroads commercial banks are making into the brokerage business with the continued weakening of the Glass-Steagall Act.