NEW YORK -- More than a year after the merger of the asset management divisions of Bankers Trust Co. and Deutsche Bank AG, a top Deutsche Asset Management executive says the firm is "kicking ass," but a consultant sees only "pockets of value within a general organizational mess."
On the positive side:
* Deutsche Asset has hired 40 people in the past year for different parts of the asset management division, including indexing and tactical asset allocation.
* The firm has won $19 billion in new mandates in the first half of 2000. "We are kicking ass," said Josh Weinreich, chairman of Deutsche Asset Management's Americas unit. Rich Goldman, managing director and head of global institutional sales in the Americas unit, said the firm has received a $1 billion active fixed-income assignment from the Minnesota State Board of Investment and has won several hundred million from the Merced County (Calif.) Employees' Retirement System; the Bucks County (Pa.) Employees' Retirement Fund; and the Wyoming State Investment Board.
Most of the new hirings are active equity and fixed income, according to Mr. Goldman.
* Revenue for the six months ended June 30 was ahead of plan, Mr. Weinreich said. The firm had first-half income of $966 million, a 79% increase from a year ago. Profit before taxes rose to $386 million, a 53% increase.
Return on equity was 99%, compared with 79% for the first half of 1999. All 1999 numbers combine Deutsche and Bankers Trust.
On the negative side:
* The $168 billion in U.S. institutional tax-exempt assets run by Deutsche as of March 31 reflected a 35% drop from the amount reported by Bankers Trust a year earlier, according to Pensions & Investments' Directory of Global and International Money Managers.
* A big part of the 35% drop was at least $40 billion in indexed assets, after Deutsche Asset lost the Bankers Trust indexing team to Merrill Lynch Quantitative Advisors Inc., New York. (A few months later, Deutsche hired a new team from State Street Global Advisors, Boston.)
Among the indexing clients that have terminated Deutsche Asset: New York City Employees' Retirement System, $20.2 billion in passive domestic equities; Teachers' Retirement System of the City of New York, $8.58 billion in a Russell 3000 index fund and $888 million in an EAFE index fund; Los Angeles County Employees' Retirement Association, $8.2 billion in domestic and international equity index funds; American Airlines Inc., $500 million in domestic equity indexing; Missouri State Employees' Retirement System, $400 million in an enhanced international equity index fund; and Virginia Retirement System, a $3 billion domestic equity index fund.
* Executives are struggling to integrate the assets of Morgan Grenfell, the U.K. money manager Deutsche acquired in June 1999. Morgan Grenfell's five-person New York sales team quit after the deal was announced.
* Deutsche lost Michael Dobson, chairman of the worldwide asset management business in June. Greg Fisher, who had been chairman of the global investment committee, and Friedrich Schmitz, who had been chairman of the global sales and marketing committee, also departed this year. Both men had been on the executive committee.
Clearly the firm, which manages more than $600 billion in assets worldwide, is coming back from a difficult year.
Mr. Weinreich claimed the firm had "budgeted" to lose a high percentage of its indexed assets.
He also said indexing is the least profitable part of the firm and that losing the team caused only a "blip" in lost revenue.
According to Missy DeAngelis, a spokeswoman for Deutsche, index assets make up 57% of total U.S. assets of about $250 billion, but only 11% of revenue.
As for Morgan Grenfell, Mr. Weinreich said Deutsche had retained the fixed-income group based in Philadelphia, which he insisted is more important to the firm than the group that left.
One consultant said of the personnel defections and the way the business has been run: "It has been very confusing to me."
A pension fund client that took billions in indexed assets away from Deutsche during the past year said fund officials were able to negotiate lower fees with Deutsche's competitors.
Mr. Goldman responded: "Our fees are competitive on indexing. . . . We offer relationship-based pricing to clients." He insisted that "the assets we lost were not based on our fees being too high."
The firm is winning more active management mandates now, he said. "New accounts have had a big positive impact on profitability."
The pension funds of DaimlerChrysler Corp., Auburn Hills, Mich., and Novartis Corp., New York, have stuck with Deutsche through the merger.
DaimlerChrysler, with a $22 billion U.S. pension fund, uses Deutsche for a Standard & Poor's 500 stock index fund portfolio, an enhanced indexed portfolio, active international equities and active emerging markets equities.
Mark Schmid, director of pension fund investments at the U.S. operation, said Deutsche "has done an outstanding job" over the past year. Indeed, his fund has given Deutsche additional assets to manage, although he declined to say exactly how much.
DaimlerChrysler also added four of Deutsche's mutual funds to its 401(k) plan offerings.
Novartis' relationship with Bankers Trust began in 1987. The $2.5 billion pension fund has active international equity and passive domestic equity accounts with the firm.
"We've noticed an improvement in the level of service since the merger," said Novartis Treasurer William McHugh. "Since the merger, the bank has regained its confidence and set a new tone within the organization."