Bankers Trust

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The Bankers Trust is a historic American banking organisation that was acquired by Deutsche Bank in 1998.

It was originally set up when banks could not perform trust company services. A consortium of banks all invested in a new trust company, which was called Bankers Trust, so that they could refer clients to that company knowing that Bankers Trust would not try and poach their customer.

Under the management of Charlie Sanford, Bankers Trust became a leader in the nascent derivatives business 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, BT attempted to make a virtue of necessity by specializing in trading and in product innovation.

For all its prowess in managing the risks in the trading room, however, the bank suffered irreparable reputational damage in early 1994, when some complex derivative transactions caused large losses for some major corporate clients. Two of these - Gibson Greetings and Procter & Gamble (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. The bank's row with P&G made the front page of major US magazines. This was worsened when several Bankers Trust bankers were caught on tape remarking that their client [Gibson Greetings] would not be able to understand what they were doing. The resulting reputational damage, combined with the lack of a natural client base and the inept management of new CEO Frank Newman, eventually proved fatal.

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 in the summer of 1998. While the Russia's default was officially blamed for them, many insiders knew that the new overly aggressive stance in lending spearheaded by Newman was indeed at the root of the bank's demise.

In November 1998, Deutsche Bank agreed to purchase Bankers Trust for $9.8 billion; the purchase was finalized on June 4, 1999. Newman received $110 million in severance.

In Australia, Bankers Trust was acquired by Westpac from Deutsche Bank and uses the name BT Financial Group. The Trust and Custody business that Deutsche Bank acquired from Bankers Trust was sold to State Street two years later.