Bankers Trust Corp. announced on Thursday a worse-than-expected loss of $488 million for the third quarter, which is prompting a retreat from emerging markets and further restructuring plans.
The loss was about $100 million more than analysts had expected, and at $4.98 a share it was $1.28 worse than the consensus forecast that followed Bankers Trust's disclosure of steep trading losses during July and August.
By contrast, the $139.8 billion-asset banking company earned $246 million in the third quarter of 1997.
Chairman and chief executive officer Frank N. Newman said losses in debt trading and equity holdings eclipsed gains in less market-sensitive activities like securities processing.
"This quarter's disappointing loss occurred during one of the most severe global market dislocations in the post-World War II era," Mr. Newman said. "Bankers Trust has accelerated actions to reduce the firm's risk profile and launched an aggressive cost-reduction program."
The company said it will cut $300 million, or 8%, from annual expenses, mostly through layoffs and restricted use of outside professionals. Bankers Trust did not specify the number of job cuts, but some analysts predicted it would be 10% to 12% of the work force, or 2,000 to 2,400 people.
More than at other, larger competitors, the troubles at Bankers Trust have raised questions about the company's future independence. Last week, Deutsche Bank of Germany was reported to be in preliminary talks about a takeover, and analysts gave the rumors some credence.
Some market watchers, however, said the latest results may make it more difficult for Bankers Trust to find a buyer. "Why would you want to take on this headache now?" said Steven Eisman, an analyst at CIBC Oppenheimer.
David Berry, director of research at Keefe Bruyette & Woods Inc., said current market conditions may spark even more consolidation in the banking industry. "There will be deals," he stated.
These questions are turning a brighter spotlight on Mr. Newman, a former deputy Treasury secretary, was hired in 1995 to help the bank out of its troubles with derivatives trading.
"Back then, they were supposed to be gone, but they came right back," said Thomas Hanley, an analyst at Warburg Dillon Read.
Though some observers have said confidence is waning in Mr. Newman, he is also presented with a second turnaround opportunity.
He moved to transform the bank holding company through two acquisitions- of Alex. Brown & Sons in 1997 and the European equity and research unit of Natwest Group earlier this year. Bankers Trust became much more of an investment bank catering to below-investment-grade clients.
Mr. Newman has also built up asset management and securities processing capabilities, two businesses seen as providing a less volatile stream of revenues. But market-related activities still make up 60% to 70% of revenues and profits.
"He has been able to broaden the business mix," said Diane B. Glossman, an analyst at Lehman Brothers. But it is still "a company that doesn't have consumer and doesn't have a huge base of annuity-like income."
The restructuring moves would come just as the bank faces a slowdown in revenues from its core investment banking and corporate finance businesses, Mr. Newman said.
The cutbacks, which would require an unspecified charge against fourth- quarter earnings, would target investment banking, trading, emerging markets, and other capital markets staff. The emerging markets sales, trading, and underwriting unit is slated to be taken apart and folded into other groups, the bank said.
The restructuring is scheduled to be completed within a year, with most of the layoffs done by the first quarter 1999, the Bankers Trust said.
Bankers Trust halved its cross-border exposure to emerging markets during the third quarter, to 4% of total assets.
The retreat from overseas-actually initiated late last year with a consolidation of Asian operations-comes after a $409 million loss in trading during the quarter. The bank attributed much of the loss to writedowns of Russian securities and mark-to-market losses on high-yield securities.
The third-quarter provision for credit losses was $110 million, compared to $10 million a year earlier. Nonperforming assets were $375 million, up from $5 million.
Loans to hedge funds totaled $834 million. In addition to the $300 million infusion to Long-Term Capital Management, a Greenwich, Conn., fund that nearly collapsed in September, the Bankers Trust has $225 million in proprietary investments in 50 other hedge funds.
Within individual business units, the losses were most severe in investment banking and emerging markets.
Revenues from investment banking plummeted to $153 million from $650 million. After expenses and taxes, the unit had a loss of $142 million compared to profits of $157 million last year.
Emerging markets lost $309 million, compared to profits of $43 million last year. Revenues from trading and sales were $7 million versus $132 million last year, and the unit ultimately lost $97 million, compared to a profit of $9 million.
Revenues from global institutional services, which includes securities processing, grew 5%, to $256 million.