Bankers Trust New York Corp. plans to reorganize its derivatives unit, hoping to rein in costs and boost profits as the business recovers from two years of losses.
The nation's seventh-largest banking company will scale back administrative and processing systems, which should bolster lagging returns, said Richard Daniel, chief financial officer.
Bankers Trust also plans to integrate sales of derivatives and other corporate finance services, shifting some derivatives sales efforts into the hands of bankers who manage its overall ties to clients. The bank's derivatives sales force will continue to call on clients as well.
"We will change the organization within the risk management business," Mr. Daniel said in an interview.
The changes would cap an 18-month effort by chairman Frank Newman to revamp the derivatives business. Bankers Trust's derivatives unit lost $74 million in 1995 after earning $163 million in 1994. No employees are expected to lose their jobs.
Derivatives are contracts whose value is tied to the price of some other asset, such as a bond or currency. They're used to guard against swings in the value of assets or to make leveraged bets. Though the derivatives business cut its losses in 1996 to $9 million and turned a profit in the last half of the year, the bank is battling high costs, Mr. Daniel said.
Bankers Trust reported 1996 net earnings of $612 million, or $6.78 a share-more than double the earnings reported in 1995.
This year, executives will decide how to reorganize administrative, or so-called back-office, operations to reflect the needs of handling interest rate swaps and other risk management transactions in which the bank now specializes.
The back office is still set up to handle the kind of leveraged transactions Bankers Trust focused on until demand dried up when interest rates rose unexpectedly in 1994, sparking big losses for many customers.
That means Bankers Trust won't have to hire more people to process transactions sold by bankers, although the bank is doing twice as many transactions as it did a year ago, Mr. Daniel said. "That should grow revenue at a faster pace," he said.
In addition, growth in expenses should slow. In the fourth quarter, derivatives-related expenses rose 7.4%, to $102 million.
Under the changes, the bank's derivatives sales force will work more closely with corporate bankers in international offices who offer loans, securities underwriting, and other financial services to companies and big investors. The changes, Mr. Daniel said, would better coordinate sales and allow the bank to offer derivatives and other risk management services to more clients. - Bloomberg Business News