BT Stock Skids as Deutsche Bank Deflates Deal Talk

Shares of Bankers Trust Corp. plunged 6% Monday after Deutsche Bank AG denied a rumor that it was negotiating to buy the New York banking company.

With no other likely buyer in sight, investors focused on the formidable task Bankers Trust faces in getting its house in order, given its reliance on the capricious high-yield, equity, and emerging-markets businesses, analysts said.

"They are in the center of all three firestorms" currently bedeviling the banking industry, said Robert Albertson, an analyst at Goldman, Sachs & Co.

The German bank told Der Spiegel early Monday that it was not in talks with Bankers Trust, sending the U.S. company's shares as much as $5.3125 lower. The stock closed at $62.9375, off $3.9375 for the day. Bankers Trust shares were at $58.938 early last week, when the merger rumor surfaced.

Bankers Trust must now move ahead with reengineering plans that were announced in tandem with a $488 million third-quarter loss last week.

The reorganization includes a retreat from emerging markets, a revamping of other rate-sensitive businesses, and an 8% cut in annual expenses, mainly from layoffs and less use of outside consultants.

"They were not well sized for their strategy," said David Berry, research director at Keefe, Bruyette & Woods Inc. Now it's a matter of "getting their risk profile down and staying liquid," among other strengthening moves, he said.

Bond analysts, meanwhile, were focusing on the impact of the third- quarter loss on Bankers Trust's capital ratios. (See article on page 34.)

Bankers Trust has in its favor high demand for its corporate banking services, said Mr. Albertson. He said the company's corporate finance pipeline is "holding up well, suggesting that if the market returns to normal next year, as we're expecting," BT is likely to post better results.

The activity came as broad stock indexes were mixed. Late-day selling caused the Standard & Poor's bank index to drop 0.10% and the Dow Jones industrial average to slip 0.24%. Shares of smaller companies eked out gains, with the Nasdaq bank index advancing 0.61% and the S&P 500 adding 0.16%. Activity on the New York Stock Exchange, where most bank stocks trade, was shut down briefly in the middle of the day to deal with a technological problem.

Trading in bank stocks Monday came after mixed third-quarter results banking companies have reported in the past two weeks.

For the biggest companies the quarter was "lousy" as hits from trading, other overseas exposure, and hedge fund loans pulled down the industry's overall performance, Mr. Berry said.

Regionals and community banks performed well as a group, suggesting "the damage, although severe, is pretty localized" within the money-center group, Mr. Berry said.

Pretax operating income for the nation's top 50 banking companies declined by 18%, to $14 billion, and their return on equity slipped to 12.7%, from 15.7% a year earlier, according to data compiled by Keefe.

The 10 biggest banking companies took the brunt of the damage, with pretax operating income coming in at $6.4 billion, down 38% from a year earlier, and return on equity at 10.3%, off from 15.3%.

The next tier of 40 banking companies fared much better, with pretax operating income of $7.6 billion, up 14%, and a return on equity of 16.5%, matching the year-earlier figure.

In trading Monday, Citigroup was off 31.25 cents, to $46.3125, and Chase Manhattan Corp., $1.125, to $54.5625, but J.P. Morgan & Co. added 18.75 cents, to $93.1875.

In the regional group, Fleet Financial Group gained 68.75 cents, to $38.9375; KeyCorp dipped 6.25 cents, to $29.50; and Mellon Bank Corp. added 81.25 cents, to $59.4375.

Shares of BankAtlantic Bancorp fell 6%, to $7.3125, as the company disclosed a $9.5 million third-quarter loss from mortgage prepayments, trading operations, and the amortization of goodwill related to two purchases.

BankAtlantic, the largest remaining independent bank in Florida, wrote down its residential mortgage portfolio by $15 million to reflect its value after a surge of repayments.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER