Frank Newman, the highly regarded former deputy Treasury secretary, was named on Thursday to succeed Charles S. Sanford as chairman and chief executive of Bankers Trust New York Co.
The appointment, which came just one month after Mr. Newman joined Bankers Trust as its No. 3 executive, pushed out president Eugene Shanks, whom the company had tagged a "logical" successor to Mr. Sanford. Mr. Shanks resigned Tuesday.
Banking analysts said Mr. Newman's swift ascent came in response to persistent blows to Bankers Trust's reputation. The company has been under heavy fire for allegedly coercive tactics in Bankers Trust's derivatives sales.
"I am pushing hard to make sure that policies and procedures are firmly in place in areas where questions have been raised," Mr. Newman, 53, said in an interview. He added, however that he is "not going to be making dramatic changes."
After several difficult quarters, the bank is now on the rebound financially and reported third-quarter profits of $155 million on Thursday - an 8% decline from the year-earlier period, but a 70% improvement over the second quarter. (See story on page 5).
Mr. Newman, who will assume the CEO's post in January, is singularly suited to rebuilding relationships between Bankers Trust and its corporate customers, analysts said. Before holding the post at the Treasury Department, he was chief financial officer at BankAmerica Corp.
"I think it's just phenomenal news," said Robert Albertson of Goldman, Sachs & Co. "To me, he's the perfect choice. I can't think of anyone better in the banking industry today than Frank Newman to grab the reins of this institution."
Bankers Trust, the nation's seventh-largest banking company, was rocked two weeks ago by a Business Week cover story that detailed conversations of Bankers Trust derivatives salespeople discussing an "ROF," or "rip-off factor," that was apparently applied to the bank's corporate customers.
The story did substantial damage to Bankers Trust's credibility and it may have accounted for the quick elevation of Mr. Newman, said Raphael Soifer, an analyst at Brown Brothers Harriman.
"If it wasn't obvious before that Bankers Trust needed a new broom at the top to rebuild its reputation, it is now," Mr. Soifer said.
"This has become almost a Japanese situation - Shanks and Sanford had to fall on their swords," he added. "Newman brings a personal credibility not only with Wall Street but with Washington, which is going to be very important."
Bankers Trust is awaiting the results of a federal probe into its sales practices.
While Mr. Newman said he would work to improve Bankers Trust's customer relations, that will not be his sole focus.
He said he was "most anxious to get inside the economics of the individual businesses. There are a number of really quite sophisticated businesses that Bankers Trust is in. I'm anxious to see where we are being particularly successful and where we're not."
Mr. Newman joined the Clinton administration in 1993 after six years at BankAmerica. He had been widely considered a candidate for the top job at BankAmerica when chairman Richard Rosenberg announced his retirement in August.
That post ultimately went to BankAmerica vice chairman David Coulter - but Mr. Newman said Thursday that he was not disappointed by that decision.
"I have just been newly married for the second time," he said, "and my wife and I were committed to staying on the East Coast."
Mr. Newman, who was initially hired by Bankers Trust to be chief administrative officer, will assume the chief executive's title on Jan. 1 and the chairman's post on April 16, when Mr. Sanford, 58, steps down.
Despite his reputation for integrity and his turnaround experience, Mr. Newman will need to be a quick study to get his hands around a bank that is very different from BankAmerica, analysts said.
"The downside is he's never been a CEO before and he doesn't know this business," Mr. Soifer said. "He will need a learning curve, and this phased transition should get him up to speed by April when Sanford retires."
Mr. Shanks, for his part, made no secret of having wanted the CEO post.
"I am disappointed, of course, that I will not have the opportunity to serve as Bankers Trust's CEO," he said in a statement, but he added that he will leave with "a sense of accomplishment."
Hamish Maxwell, a Bankers Trust board member, said the company had hoped Mr. Shanks would stay.
Meanwhile, some other high-level changes are in the works. Timothy Yates, currently Bankers Trust's chief financial officer, is set to retire at the same time as Mr. Sanford. Analysts predicted Mr. Yates' successor would be named soon.
