Massive departures are expected from Bankers Trust Corp.'s junk bond business once Deutsche Bank completes its acquisition of the company, scheduled for today.
More than a dozen sources said the exodus will come in July, after these bankers receive bonus checks that were intended to keep them on board only until the merger closed.
Several high-yield industry groups from Bankers Trust-including health care and technology-have been shopping themselves around as teams, Wall Street sources said.
"I don't think there's anyone whose office they haven't waltzed through yet," said one senior banker at a rival firm.
And some Wall Street firms are already in the process of drawing up contracts to hire some of the Bankers Trust high-yield teams, one source said.
Bankers Trust employs about 200 junk-bond professionals, and sources indicated that dozens could leave.
Meanwhile, two notable executives at Bankers Trust have been shown the door: Joseph Russell, head of bond trading and distressed debt, and Arthur Penn, head of fixed-income capital markets. Neither has been offered a job at the combined bank.
Mr. Russell's and Mr. Penn's ousters are the result of an intense power struggle between two camps-one led by Edson Mitchell, Deutsche's head of global markets, who previously spent many years at Merrill Lynch & Co., and the other by Ted Virtue, Bankers Trust's head of global finance, formerly of Drexel, Burnham, Lambert.
In the end, although Mr. Virtue has a job at the combined bank, Mr. Mitchell won the tug of war.
Though some Bankers Trust executives have snared top jobs running equities and advisory work at the combined company, many of their senior collegues in high-yield have been passed over.
Mr. Mitchell, who is in charge of global markets at Deutsche, has been on a hiring spree. He has particularly favored Merrill, where he was co- head of global debt for about a decade until he left for Deutsche in 1995. During his tenure at Merrill, Mr. Mitchell received much of the credit for the firm's No. 1 ranking in global debt markets.
So far this year, Mr. Mitchell has hired six professionals from Merrill. His most important recruit has been Thomas Gahan, Merrill's head of leveraged finance and distressed debt. Mr. Gahan is slated to become Deutsche's global head of credit products.
For his part, Mr. Gahan says that he is "excited about the prospect of combining Bankers Trust's historical position in high-yield and leveraged finance with Deutsche's contacts, distritution, and capital," but he declined to comment on the specific departures of Bankers Trust executives.
The decision to hire Mr. Gahan immediately threw into doubt the future of Mr. Russell, whose career path at Bankers Trust has largely paralleled Mr. Gahan's at Merrill.
One lonely Bankers Trust survivor is Mr. Russell's second-in-command, Brian McGrath, who has been tapped to co-head U.S. high-yield trading with a Deutsche executive.
But what has really shocked some investment bankers is Mr. Mitchell's decision to hire Merrill's Richard Byrne to run high-yield capital markets, pushing out Mr. Penn.
Mr. Byrne, formerly head of Merrill's high-yield credit research, has no experience in capital markets. He spent most of his 14 years at the firm in the research department.
By contrast, Mr. Penn, who now runs Bankers Trust's junk bond capital markets area, has spent the bulk of his 14-year career working on the complex structuring of new issues. He made his start at Drexel Burnham, doing stints in both mergers and acquisitions and corporate finance.
Mr. Virtue's inability to secure appointments for Mr. Russell and Mr. Penn, who both reported directly to him, has encouraged many other Bankers Trust's junk bond professionals to look for work, either individually or in groups.
At least two key players in Bankers Trust's junk bond shop have already left.
Head of high-yield research Brett M. Levy left Bankers Trust in February to take the same position at Credit Suisse First Boston.
Glenn Reynolds, Deutsche's head of high-yield research, is expected to get that job at the combined bank.
And Donaldson, Lufkin & Jenrette-by far the largest junk bond shop based on volume of new issuance-has already scooped up Adam Brown, one of Bankers Trust's top salesmen.
The diminution of Mr. Virtue's influence is a dramatic reversal. Before the merger was announced, Mr. Virtue, as president of Bankers Trust's securities subsidiary, BT Alex. Brown Inc., was considered a candidate to succeed Bankers Trust chief executive Frank Newman.
"Though we had some tough personnel decisions to make, I believe we are well-positioned to be a dominant player in the market," said Mr. Virtue, who will run investment banking for the Americas and co-head global debt with Deutsche's Grant Kvalheim.
Mr. Virtue-like Mr. Penn a Drexel Burnham alumnus-was one of the first executives to sign a contract with Deutsche, giving him an annual salary of $12 million for the first three years.
At the time the merger was announced last fall, Deutsche Bank said it would create a bonus pool of about $400 million to retain Bankers Trust employees until the deal closed.
In addition, Bankers Trust offered key employees a larger than usual percentage of their 1998 annual bonus in stock-which they would not receive if they quit before the merger.
The German bank promised them a portion of last year's bonus in cash, on the basis of on when the merger closes.
"This plan encourages people to stay until the day their check clears, but not one day more," said a source close to the deal.
This strikes some market observers as odd, given that Deutsche executives once extolled the virtues of merging Bankers Trust's expertise in high-yield debt with the German bank's dominance of the European bond market-where there is a growing interest in junk bonds.
Combining the two banks' bond businesses was one rationale of the $10.1 billion deal. The other was Deutsche Bank's eagerness to gain entree into the U.S. equities market.
Bankers Trust was one of the first U.S. firms on the ground drumming up interest in junk bonds. Their position there is so strong that Deutsche executives viewed the European operations as "one of the jewels in the crown," according to a Deutsche Bank spokesman in London.
Deutsche dominates Europe's bond market, ranking No. 1 in euro- denominated bond issuance last quarter, with 11.1% of the market, according to Thomson Financial Securities Data. And Deutsche executives hoped to marry this with the high-yield group at Bankers Trust-the seventh-largest junk bond underwriter in the U.S. market last year.
While most of the top Bankers Trust high-yield executives in New York are losing their jobs, the majority of Bankers Trust's London team will be moving into Deutsche's sprawling new building in the heart of the city's financial district-including Martin Dent, head of European high-yield trading, and Youssef P. Khlat, head of European high-yield capital markets.
Deutsche's head of global high-yield, Gopal Menon, is quitting. Mr. Menon joined Deutsche last July from Bankers Trust's London office, where he ran European debt origination and capital markets.