In a move that industry obsewers speculate could eventually work against it, Bankers Trust New York Corp. has undertaken an internal review of its derivatives sales practices and reassigned five executives who were directly involved in selling financial instruments to Procter & Gamble Co. and Gibson Greetings Inc.
The observers noted that the reassignments could be viewed as an admission of fault by Bankers Trust, giving Procter & Gamble and Gibson Greetings the upper hand in their separate lawsuits against the bank.
Those lawsuits charged Bankers Trust with using pressure tactics, intentionally misleading its clients, and withholding information from them.
Bankers Trust insists its sales practices were above board and denies the charges in the lawsuits.
A spokesman for the bank said its reassigning of the executives comes after a lengthy internal investigation of its derivatives business. "We are satisfied that these are isolated incidents and that it is in no way a systemic problem," the spokesman said.
While the spokesman refused to name the reassigned employees, both The New York Times and The Wall Street Journal have identified one of the executives involved as managing director Jack Lavin, who was in charge of corporate derivatives coverage. A member of his group, managing director Gary Missner, also has been identified as being reassigned.
Neither could be reached for comment.
The bank will also merge its corporate derivatives coverage group with its financial institutions sales force. The newly consolidated group will report to managing director Max Whatmore.
According to Heinz Binggeli, a managing director of Emcor, a New York risk management consultancy, Bankers Trust's latest action levels the playing field for Procter & Gamble and Gibson Greetings.
"Bankers Trust is now admitring that something is not quite right," he said. "It balances the picture a little bit more now."
Other analysts pointed out that Bankers Trust's actions are a way of reassuring its clients that it is capable of dealing with the situation internally.
All the negative publicity, coupled with a weak trading environment, took its toll on the bank's stock, which fell below its year low in early trading Monday. The stock was off $1 to $61. Previously, its low for the year was $61.50.
Salomon Brothers analyst Diane B. Glossman said BT shares are being affected by negative publicity from the two derivatives lawsuits and an announcement last week by Moody's Investors Service that it may downgrade Bankers Trust's debt.
Ronald I. Mandle, an analyst with Sanford C. Betastein & Co. said the black cloud hanging over Bankers Trust led many analysts to revise their earnings estimates for the bank for this year. In September, Mr. Mandle reduced his 1994 earnings estimate for the bank from $2.09 per share to $2.
'Their lower stock price is definitely related to their derivatives losses," Mr. Mandle said. "The weak trading environment has hurt them as well."
