NEW YORK - The lack of name-brand mutual funds to support its record-keeping business has lead to widespread speculation that Bankers Trust Co. soon may give up on that market.
Although an official Bankers Trust spokeswoman said the firm remains committed to the business, one company official said privately that a sale of its 401(k) record-keeping and administration unit has been under consideration "for a long time."
But speculation regarding a potential sale of the unit did not discourage two large plan sponsors earlier this month from selecting Bankers Trust as trustee and record keeper for their 401(k) plans.
SBC Communications Inc., San Antonio, expanded its Bankers Trust trustee and record-keeping responsibilities to include nearly $4 billion defined contribution assets from the newly acquired Pacific Telesis Group. The PacTel plans will be integrated with SBC's existing nearly $2 billion defined contribution plan assets bringing SBC's total defined contribution assets at BT to more than $6 billion.
Roger Wohlert, SBC managing director-finance and assistant treasurer, said discussion about a possible sale of the BT unit did not enter into its decision.
"We don't like reacting to rumors; I have enough real problems to concern me," he said.
Becky Lamkin, director-retirement plan administration at SBC, said, "We chose Bankers Trust because we were very pleased with the level of service they have provided us in the past. The proposal process solidified our confidence in the people and technology at Bankers Trust."
In addition, Coltec Industries Inc., New York, recently appointed BT as trustee of its $305 million defined contribution plans. A Coltec spokesman also mentioned BT's technology and service as reasons for selecting BT.
Industry analysts expect Bankers Trust to unload its record-keeping operation and return to its primary focus of managing institutional assets, including its popular index funds.
Bankers Trust has about 50 large 401(k) administrative clients. But it wasn't among the 25 largest bundled providers in Pensions & Investments' 1997 defined contribution service provider rankings. Nor was it among the 25 leading providers of 401(k) investment management services.
Bankers Trust has about $30 billion in internally managed defined contribution assets, of which about $20 billion is passively managed.
According to Morningstar Inc., a Chicago mutual fund rating service, BT's institutional Equity 500 Index Fund, its retail BT Investment Equity 500 Index Fund, its Global High Yield Securities Fund and International Equity Fund are the only five-star funds in its 15-fund lineup.
David Berry, senior vice president and director of research at Keefe, Bruyette & Woods, a New York research firm specializing in banking and financial services companies, said Bankers' record-keeping operation is not profitable and that the bank could not stay competitive in the direct 401(k) market without a family of recognizable retail mutual funds.
"It's a money loser for them. They are facing a lot of competition. . . . Bankers Trust has no retail mutual funds and is not in a position to compete on the funds side," said Mr. Berry.
He said Bankers could either sell the business or acquire retail mutual fund management capability as did J.P. Morgan & Co., New York. Morgan is acquiring a 45% stake in American Century Cos., Kansas City, Mo.
Mr. Berry said he is "not surprised" that Bankers would attempt to dispose of its 401(k) business since the record-keeping business is "not contributing to earnings" given the total amount of assets under management.
Mr. Berry said he believes Bankers eventually will sell its record-keeping business - "but the issue is the price."
A defined contribution financial analyst, who wished to remain anonymous, said it is difficult to estimate a definite price for the BT defined contribution unit, which has been described as high quality, but said it could fetch between $250 million and $300 million.
"If they just shut it down, they would make more money next year than they will this year," the analyst said.
Peter Starr, consultant at Cerulli Associates Inc., Boston, said it is unlikely that Bankers Trust is actively marketing its defined contribution unit "but that's not to say they aren't entertaining reasonable offers."
Mr. Starr described the Bankers Trust defined contribution administration and record keeping systems as a "Cadillac with 10,000 miles" and the addition of two new institutional clients probably doesn't affect the eventual disposition of the BT unit.
"If you are a large institutional plan and you have decided to go with Bankers Trust, if the ownership of the unit changes the competencies are still going to be there. The . . . platform is still going to be the same and you have already kicked the tires and are familiar with the capabilities doesn't really change things," he said.
One competitor said of Bankers Trust and the speculation: "I know they are trying to sell it; if they had had a good offer it would have already been sold."
"This business is funny because you can't serve in the 401(k) market without managing money if you want to be a record keeper, which is why a lot of large financial institutions are linking up with a third-party administrators who need the revenue stream from asset management," said the competitor, who requested anonymity.
Because most of Bankers Trust defined contribution business involves passive management, the revenue support for the record keeping is lacking, he said.
Following initial speculation that its 401(k) business would be sold, Bankers Trust sent a letter to clients affirming its commitment to the business. But, according to one plan sponsor who saw the letter, Bankers Trust did not deny the possibility of a sale.
"They sent a follow-up letter not exactly disclaiming the rumor," said the head of a Fortune 500 401(k) plan, who wished to remain anonymous. "They did not say exactly that they were not selling . . ..They probably did not want clients jumping ship before a sale. I was looking for a categorical denial or some statement that the reports were false."
"It is important enough that clients would expect you to say that."
Scott Graybill, director of corporate human resources at MAPCO Inc., Tulsa, which uses Bankers Trust as record keeper and investment manager for its $285 million 401(k) plan, said MAPCO officials will continue to watch the situation. Still, MAPCO has been satisfied with its relationship with Bankers Trust, he said.
"Our stance right now is that we will keep the lines of communication open with Bankers Trust and not jump the gun," Mr. Graybill said.
A meeting has been planned with Bankers Trust officials within the next few weeks to discuss the situation, he said.
Donald Butt, manager of investments at U S WEST Inc., Englewood, Colo., said "we are happy" with Bankers Trust as administrator for the company's $3.5 billion 401(k) plan. U S WEST has "no intention" of changing record keepers, he said.
Talk of a possible sale of the Bankers Trust 401(k) business "surprises us," Mr. Butt said.
"Like anyone else, they have holes in their product mix which they are now trying to fix," he said.
Another Bankers Trust plan sponsor client said he was told by bank officials that "if they were offered three times what the business is worth they would be remiss if they didn't at least listen to the offer. They have talked to some other vendors about selling, but no one is willing to pay them what they think it is worth."
Exactly what the business would bring is an open question because of its lack of profitability, according to industry sources.
In spite of the possibility that Bankers will exit the record keeping business, its clients have given it high grades in both administration and in fund management, according to research by LRP Market Research, a West Palm Beach, Fla.
Bankers Trust's plan administration landed in the top 10 when it was rated 93.1 out of a possible 100 by plan sponsor clients with more than $100 million in assets, and 100 by clients with between $5 million and $100 million. As a fund manager Bankers Trust was rated 95.7 by large clients and 91.2 by smaller ones.
The average score was 94.1 for large plans.
