Bankers Trust Beats Out Nonbanks for GM Contract
Bankers Trust Co. has won a lucrative contract to administer employee benefits plans for General Motors Corp., strengthening the bank's claim that it is balancing risky trading activities with steady, fee-based activities.
The New York bank outbid three nonbank rivals to nab the assignment, which involves record keeping, custody, and toll-free telephone information services for 275,000 employees and retirees. They have $7.4 billion invested in 401(k) and other savings plans.
GM anticipates it will pay Bankers Trust nearly $10 million in annual fees, said William Cowell, director of the automaker's stock plans.
Mr. Cowell said the bank bid "very aggressively" against Metropolitan Life Insurance Co., GM's former trustee and recordkeeper; Hewitt Associates, a pension plan administrator; and Putnam Companies, the mutual fund sponsor.
|Ins' with GM
Bankers Trust already is a trustee of GM's pension plan and does administrative work for hourly workers who participate in its 401(k) plans.
Bankers Trust's expertise in fielding employee queries over toll-free lines contributed to its successful bid, Mr. Cowell said. Met Life, for example, would have had to build an "800" program from scratch. GM now fields employee investment inquiries in-house.
Bankers Trust is the nation's biggest trustee for 401(k) and other defined contribution plans, overseeing $80 billion to $100 billion of assets for about 2 million participants. Its biggest master trust client previously was IBM Corp., with 175,000 employees.
Many banks have abandoned processing for employee-assisted savings plans as too labor-intensive. But Bankers Trust decided several years ago to invest heavily in the business and become a low-cost provider.
50 to Be Hired
To serve the GM account, the bank expects to hire about 50 employees in the next year to supplement about 60 working in its Los Angeles-based service center.
Bankers Trust also is developing plans to open a customer-service site in Nashville and may expand "800" phone service to pension plans, said Joan Green, a senior vice president.
The bank does not break out its sector costs, but a spokesman said it invests about $350 million per year in technology.
"GM is clearly one of the biggest plans around, and to get any piece of business from them is a major coup," said the head of product management and strategic planning for securities services at a rival bank, who asked for anonymity.
Market Undervalues Stock
The GM business comes as executives at the bank's parent, Bankers Trust New York Corp., continue to lament a stock market price they said undervalues the company's true worth.
Officials in recent months have stressed the bank's ability to profits by selling a variety of services and products to customers rather than by making bets on markets for its own account.
Chairman Charles S. Sanford may have been thinking of the GM account last May when he used an automobile maker as an example of a company that might use Bankers Trust for a variety of purposes.
The car company might start by using the bank's trading expertise to help it structure specific risk-avoidance strategies. The relationship could then be expanded, Mr. Sanford said, so that the bank could provide a range of other services.
Another Coup at GM
GM, in fact, has already sent Bankers Trust another piece of business associated with the master trust arrangement. The bank was picked to manage a fixed-income retirement fund for the automaker, sources said. Investment management is a much more lucrative area than strict custodial and trust services, where fees have declined in recent years.
The GM contract was awarded at the end of April but has not been formally announced. Record keeping and phone services for GM will begin in 1992; the trustee services are already in effect.
In the second quarter, Bankers Trust earned $185 million on $641 million of noninterest revenues. These included $329 million from trading activities and $141 million from fiduciary and funds management activities, such as master trust.