After easily absorbing Alex. Brown & Sons, Bankers Trust New York Corp. expects somewhat rockier going with its next acquisition, chairman Frank N. Newman said.

The pending purchase of the European cash and equity businesses of Natwest Markets "is going to be harder than it was with Alex. Brown," Mr. Newman told a gathering of bank and financial analysts Thursday night. The $217 million deal, unveiled in December, is expected to close in the second quarter.

Mr. Newman said Alex. Brown, the Baltimore-based investment bank that Bankers Trust acquired last year, "was a well-run company at peace with its processes." By contrast, he said, Natwest Markets has operated in "an atmosphere of turmoil" as its parent company, National Westminster Bank PLC of London, sold it off in pieces. He said cultural and technology issues would be especially challenging.

"We're putting a lot of attention into it. It's going to take more work," Mr. Newman told the analysts. But he added, "Fortunately, it's also much smaller."

The Natwest deal would bring Bankers Trust 900 employees in equity underwriting, trading, and research, and eight new offices in Europe. Bankers Trust already employs 3,000 people in 25 European offices. In contrast, the $1.7 billion Alex. Brown deal brought 2,000 employees.

Mr. Newman, who made the remarks in a wide-ranging after-dinner speech to the Bank and Financial Analysts Association, said his bank's focus in 1998 would be on "getting the most out of the things we've put together." He said that means integrating Natwest Markets and realizing the full potential of Alex. Brown.

Striking one of his familiar themes, Mr. Newman questioned the banking industry's aggressive pursuit of acquisitions.

"In many businesses, the most successful companies are not necessarily the biggest and the most vertically integrated," he said.

He said that among the world's 10 largest banks-seven of which are Japanese-it was hard to point to many that deliver superior returns or are competitive leaders.

Analysts said the idea is beginning to resonate in the industry amid the wave of megamergers. "There is a growing recognition that size is not everything," said Diane Glossman, an analyst at Lehman Brothers. "What you're trying to generate is returns and consistency."

Mr. Newman told the audience that size was critical in only a handful of banking businesses, including mortgages, credit cards, and securities processing.

Even in those businesses, "economies of scale begin to diminish, and one needs to make a judgment whether to stop growing," he said.

The acquisitions of Alex. Brown and the Natwest unit fit Mr. Newman's model of making targeted acquisitions that bring "synergies," and using them to build expertise in niche businesses.

Bankers Trust touched off a wave of bank-brokerage combinations last year when it bought Alex. Brown, a 200-year-old firm that specializes in equity underwriting, research, and advisory for below-investment-grade companies.

Mr. Newman said at the time that the firm complemented Bankers Trust's own expertise in underwriting debt for the same market segment. Likewise, the acquisition of Natwest's European equities business complements the bank's own European-based debt underwriting capabilities.

The struggle to absorb the Natwest unit has contrasted sharply with the integration of Alex. Brown, which by most accounts has gone smoothly.

Ebullient markets and a strong pipeline for deals last year may have contributed, according to analysts. "Part of the reason it's going better than expected is because the markets are so strong," said Bradley Ball, an analyst at Credit Suisse First Boston. "It would have been hard to forecast the markets being as benevolent as they have been."

Mr. Ball said Alex. Brown would be "the horse for earnings this year" at Bankers Trust.

But that acquisition is far from over, analysts said. "They still have a lot of work to do in figuring out how to make the most of the opportunity and how best to integrate Alex. Brown's operations," said Lawrence Cohn, an analyst at Ryan, Beck & Co.

Still, Mr. Newman said the Natwest integration would be more difficult. For instance, because Bankers Trust took only a piece of Natwest, it has had to contend with a variety of technical issues, such as unwinding computer systems.

Analysts said Bankers Trust would have to temper its investments in the European business this year. "They have a substantial building process to do," Mr. Cohn said. "They will grow as quickly as they can absorb resources, but it will be slow going."

But with the Natwest business in place, Bankers Trust will be well- positioned in Europe to take advantage of the common European currency, Mr. Newman said.

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