Bankers Trust New York Corporation Business Information, Profile, and History
History of Bankers Trust New York Corporation
Bankers Trust New York Corporation, a multibillion-dollar bank holding company, is one of the largest commercial banks in the United States. The nature of the company's business has changed repeatedly since it was founded in 1903. It was first a bankers trust company; by the end of the 1920s it was a wholesale financial-services provider; next it was a retail banking supermarket in the 1960s, with nearly disastrous results; and finally it became a wholesale banker again. Thanks to former Chairman Alfred Brittain III and his successor, Charles S. Sanford, Bankers Trust is now a strong international merchant bank, providing a variety of wholesale banking services to governments, institutions, corporations, and wealthy individuals in the United States and abroad.
In the 1890s and early 1900s, national banks were at a competitive disadvantage to state-chartered trust companies and other financial institutions. The United States was industrializing rapidly and credit needs of growing companies offered the financial-services industry many opportunities for profit and growth. National banks, however, were regulated so stringently that they could not take full advantage of these opportunities. Unlike trust companies, national banks had to satisfy strict capital and reserve requirements, could not branch nationally or overseas, and had no trust powers.
In 1903 a group of New York national banks decided to fight the trust companies on their own ground. The banks formed a trust company, Bankers Trust, to provide trust services to customers of state and national banks throughout the country. Banks could safely refer their fiduciary business to Bankers Trust because the new company would not compete with them for interest-bearing deposits as other trust companies did.
Bankers Trust Company was incorporated on March 24, 1903, with an initial capital of $1.5 million. Legendary financier J. P. Morgan held a controlling interest, and Edmund C. Converse, a very successful steel manufacturer turned financier and then president of Liberty National Bank, was chosen to serve as Bankers Trust's first president.
Bankers Trust opened its doors at 143 Liberty Street on March 30, 1903. Within three months it had deposits totalling $5.75 million; within four months it had outgrown its original premises and moved to Wall Street.
Bankers Trust's stability during the March, 1907 money panic bolstered the company's reputation. A year after that panic, Converse decided to diversify the company's services. Accordingly, in 1908, Bankers Trust established a foreign department to process transactions with correspondent banks. The following year, the company promoted and distributed traveler's checks for the American Bankers Association. The traveler's checks were successful in the United States and abroad, and the company's capital grew to $7.5 million.
Two years later, Bankers Trust made its first merger. Merger prospects were plentiful at the time because the New York State Assembly had recently enacted antitrust legislation requiring insurance companies to divest their banking and trust interests. In August, 1911 Bankers Trust acquired the Mercantile Trust Company, and in March, 1912 it acquired the Manhattan Trust Company. These mergers raised the company's capital to $20 million and its deposit base to over $134 million. Within nine years its deposits reached $168 million and its capital and surplus had increased to $25 million.
In January, 1914 Converse resigned to become president of Astor Trust Company, another Morgan company. Benjamin Strong Jr., Converse's son-in-law, succeeded him. Strong served as president for less than a year, leaving Bankers Trust to become the first governor of the Federal Reserve Bank of New York after helping to establish the Federal Reserve system. Seward Prosser was elected to succeed him.
In the early years of his leadership, Prosser faced a crucial challenge. State institutions had been granted the right to perform trust functions and national banks expected to receive this privilege shortly; such a restricted-purpose organization was no longer needed. In addition, the Federal Reserve banks increasingly held the reserve deposits of national and state banks, a service that Bankers Trust had provided for years.
Prosser transformed Bankers Trust from a single-purpose organization into a full-service commercial bank. In April, 1917 Bankers Trust acquired the Astor Trust Company, still headed by Converse. Prosser made Astor Trust into Bankers Trust's first retail branch. In October, 1917 the organization became a member of the Federal Reserve system.
Bankers Trust was now a commercial bank and Prosser, who became the company's first chairman in 1923 and was succeeded as president by A. A. Tilney, turned his attention to diversifying services. In 1919 the three year old securities department was expanded and developed into a bond department. In March of that year, a special wire office was opened in Chicago to facilitate nationwide distribution of the bond department's offerings. Wire offices were soon opened in 11 more U.S. cities. In 1928 the bank formed the Bankers Company, a wholly owned subsidiary, to replace the bond department and take over the business of underwriting and distributing securities.
The postwar boom in foreign travel and business encouraged Prosser to establish a Paris office in 1920. Two years later an agency was opened in London for the convenience of American customers traveling in England. The agency was so successful that a permanent office was opened in 1924. By 1928 Bankers Trust was one of the leading U.S. banks in Europe.
Bankers Trust was also a pioneer in the field of pension management. The company had established a pension plan for its own employees in 1913. Gradually, it started a similar service for its corporate customers. In the 1920s, the trust division began packaging pension and other employee-benefit plans for companies like the Bell System. These plans soon made up a major part of the company's trust business.
In 1929 Tilney became the first vice chairman and Henry J. Cochran was made president. Cochran was replaced in 1931 by S. Sloan Colt, who also became CEO. Cochran succeeded Tilney, and Tilney succeeded Prosser as chairman. Prosser became the first chairman of the managing committee.
Following this shuffling of the bank's executives, Bankers Trust undertook a major retrenchment program to combat the effects of the Depression. The Bankers Company was discontinued (a move that was necessary to meet the requirements of the Glass-Steagall Act, which mandated the separation of investment and commercial banking activities). In addition, the bank's Paris branch was closed in 1931, and the bank stopped issuing traveler's checks.
Despite the overall retrenchment, the trust department was allowed to continue growing. Bankers Trust had built its name on its fiduciary business, and that department added employees in the mortgage, real estate, and trust investment groups in order to protect its trusts throughout the Depression.
Bankers Trust emerged from the Depression lean but healthy and, in 1935, began making loans to help businesses rebuild. Also in 1935, the bank's assets exceeded $1 billion for the first time.
Foreseeing U.S. involvement in World War II, the bank closed its recently established Paris and Berlin representative offices in 1939. On a Saturday in 1944 its London office was bombed. No one was injured; the debris was cleared on Sunday, and on Monday the office was open for business.
Following the war Bankers Trust extended credit to increasing numbers of small- and medium-sized businesses and to individuals, and broadened the services available to its retail-banking customers. A metropolitan division was organized to attract small and large accounts throughout New York City; consumer checking accounts and Christmas club accounts were offered, and loans to individuals and small businesses were made with minimal security.
In 1948 Alex H. Ardrey was elected executive vice president and in 1949 Francis S. Baer was made senior vice president. In 1950 Bankers Trust, under the leadership of president William H. Moore, executed the first of several mergers which would transform the bank from a provider of specialized services into a diversified wholesale and retail operation. That year Bankers Trust merged with Lawyers Trust Company and acquired the banking businesses of Title Guarantee & Trust Company and Flushing National Bank. During the next two years the bank merged with Commercial National Bank & Trust Company and Bayside National Bank. In 1955 the company merged with Fidelity Trust Company and acquired Public National Bank, a retail bank with the fourth-largest branch network in New York City.
Federal and state regulators unexpectedly opposed Bankers Trust's more ambitious merger plans. In 1959, the company announced a possible merger with Manufacturers Trust Company. Had the merger been accomplished Bankers would have become the fourth-largest bank in the United States. Representative Emanuel Celler of the House Judiciary Committee, however, urged the New York State Banking Commission and the Federal Reserve board to block the merger. As a result, Bankers Trust abandoned its plans.
In late 1960, Bankers Trust agreed to form a bank holding company with the County Trust Company of Westchester County, New York, the largest commercial bank in the county, with 39 branches and assets of over $380 billion. Bankers Trust found the affiliation with County Trust particularly desirable because its established deposit base would allow Bankers Trust to enter the profitable suburban market quickly. The previous March, the state legislature had passed a banking bill that allowed New York City financial institutions to expand into the suburbs under certain conditions, which the proposed merger met. The state banking board, however, vetoed the plan, citing the threat such a merger would pose to independent suburban banks.
In 1965 Moore, now chairman, decided to try a different tactic. Following the lead of Citibank, Moore incorporated a bank holding company, BT New York Corporation (later Bankers Trust New York Corporation) in preparation for expansion into a number of financial-services fields. Bankers Trust Company and three upstate New York banks became BT New York's principal subsidiaries. At the same time Alfred Brittain III became president of the bank.
During the late 1960s and early 1970s Moore initiated an aggressive policy of diversification and expansion. Before this Bankers Trust was mainly a wholesale bank catering to large corporations and wealthy individuals. During this period, Bankers Trust acquired a number of upstate New York retail banks, doubling the number of its retail branches, to 169 between 1966 and 1972. The company also expanded aggressively into international, real estate, and construction, and middle-market lending. In 1968 Bankers Trust acquired Coleman & Company, a factoring company. In 1969 it formed BT Credit Company. This subsidiary was formed to operate a BankAmericard (later Visa) plan. The company also acquired a mortgage bank and an equipment-leasing company in the late 1960s.
During this period Bankers Trust also became more aggressive in challenging existing banking legislation. In 1973 Bankers Trust challenged the constitutionality of two Florida laws. The first prohibited out-of-state banks and bank holding companies from acquiring or controlling Florida trust and investment companies. The second restricted the provision of trust services in the state to Florida banks and trust companies. In 1980 the Supreme Court unanimously struck down the laws as violations of the interstate commerce clause of the Constitution.
In 1974 Brittain became chairman of the holding company when Moore retired. Charles S. Sanford became vice chairman and John W. Hannon became president of the trust company. The new management team's first challenge was to survive the recession brought on by the oil crisis. Bankers Trust was particularly hard hit by this recession, experiencing some of the worst loan losses in the country, especially in its real estate loan portfolio. In late 1976 the Federal Reserve board turned down the company's proposal to acquire First National Bank of Mexico, New York. The Federal Reserve board uncharacteristically announced that the proposal was denied because Bankers Trust was experiencing financial difficulties. Although the board later issued another statement saying that the company was sound, the damage was done--public confidence in Bankers Trust was not fully restored until the mid-1980s. By the end of 1978 Bankers Trust was the least profitable major U.S. bank.
In 1979 Bankers Trust experienced a turnaround that is largely attributable to Brittain and Sanford. The two men looked at the company's strengths and weaknesses and decided to return to wholesale banking. In their view, retail banking was expensive and risky and the company could not hope to compete with New York's commercial-banking giants. Brittain and Sanford began turning Bankers Trust into a merchant bank, selling 89 retail branches in the metropolitan New York area to the Bank of Montreal. By 1981 all of the company's retail operations had been divested, except for branches in Binghamton, New York, which were sold in late 1984. Proceeds from the sale of retail operations were used to develop the company's four core businesses: commercial banking, money and securities markets, corporate financial services, and fiduciary services.
This merchant-bank strategy required a major restructuring of the company. In 1985 they established PROFITCo., a division that consolidated the company's payments system, securities processing, investment management, and private client businesses. Next they created a financial services division which combined the company's financing, intermediary, and trading and funding activities.
In 1988 Bankers Trust had a record profit of $647.7 million (its 1987 profit was $1.2 million). The company's system of assigning risk factors to loan capital allows the bank to determine how much capital to allot to ventures in certain risk categories and has become the industry standard for controlling loan risks. RAROC (risk-adjusted return on capital) and other improvements have helped Bankers Trust substantially improve its capital position and its return on capital in the late 1980s.
Banker Trust's goal in the 1990s is to become a global leader in the increasingly competitive field of wholesale merchant banking. To that end, the board, led by current-Chairman Sanford, has identified certain short-term goals whose purpose is to help the bank achieve its ultimate end. In the 1990s, Bankers Trust will try to increase its capital base further; to enhance its global presence; and to improve the quality and liquidity of its assets in order to react to opportunities more quickly. These short-term goals should made the bank a healthier and stronger bank than it has been in decades, regardless of whether it achieves it ultimate goal of becoming an international leader in wholesale banking.
Principal Subsidiaries: Bankers Trust Company;
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