Bankers Trust New York Corp.'s derivatives business will make money next year, but the unit will never be the earnings juggernaut it was in the early 1990s, the bank's top executive said.
"I expect it to be profitable some time next year, if not before this year is out," said chairman and chief executive Frank Newman.
The derivatives business lost $21 million in the first six months of this year and $202 million last year, when it was still buffeted by 1994's unexpected rise in interest rates. The rate rise decimated the market for its most profitable specialty - contracts used to make leveraged bets on markets, currencies, or rates.
In 1993, the heyday for the leveraged derivatives market, Bankers Trust, the seventh-largest U.S. bank company, earned $336 million, or 31% of its total profits, on derivatives.
"We don't think we'll ever see that kind of profit that we saw in '93," Mr. Newman said. He declined to say how much the business is expected to earn in 1997.
Bankers Trust settled a number of embarrassing lawsuits brought by clients such as Procter & Gamble Co., which had lost money on derivatives.
The bank company now focuses on selling derivatives that help companies and investors manage such risks as exposure to foreign currencies, rather than making bets, Mr. Newman said.
The business was headed back into the black in the first quarter, when it earned $1 million, only to lose $22 million in the second quarter as the value of contracts tied to copper fell along with the price of the metal.
Derivatives are contracts whose value is tied to the price of some other asset, such as a stock, bond, commodity, currency, or index.
Mr. Newman's comments came at a press briefing in connection with a meeting of regional business leaders on the company's Asian advisory board.
