Two of the nation's biggest commercial banks are helping to consolidate their own industry.
J.P. Morgan & Co. and Bankers Trust New York Corp. have quietly emerged as strong competitors to traditional Wall Street firms in advising banks on mergers and acquisitions.
Morgan and Bankers Trust have distinctly different cultures, of course, which are reflected in their approaches to their advisory activities.
Morgan is marketing itself to other banks that it has known through years of correspondent banking and other relationships.
Bankers Trust is trying to carve a reputation as a specialty shop for complex situations. Among its clients are troubled thrifts and healthy companies eager to buy them. Morgan, which worked on five announced bank deals in 1991, has already participated in eight consolidations for banking clients this year. It is currently advising Signet Banking Corp. in the competition to buy Washington, D.C.-based First American Corp., and has numerous international deals in the works.
Bankers Trust, which weighed in with just two advisory assignments for financial institutions last year, recently grabbed headlines by helping First Union Corp. in its $212 million deal to buy Dominion Bankshares Corp. in Virginia.
Bankers Trust has advised on three bank or thrift deals this year and says it has several more in the pipeline.
Nobody is claiming that the commercial banks will bump Goldman, Sachs & Co., First Boston Co., or other traditional powerhouses from their top advisory perches. It is unlikely, for example, that other money-center banks will use Bankers Trust or Morgan as their chief advisers anytime soon.
But Wall Street is starting to take the pair seriously when they push their wares to regional institutions and international companies.
The old argument that another bank would avoid fattening the coffers of a big-city rival appears to be losing force.
"There is some sense that maybe a commercial bank can give us better advice because it understands the regulatory environment," the chief financial officer of a regional bank who asked for anonymity.
First Bank Taps Morgan
David Edstam, the treasurer of First Bank System Inc., Minneapolis, retained Morgan to advise it on the sale of up to 25% of the company two years ago to two institutional investors.
"I didn't think about them being a competitor," Mr. Edstam said.
Morgan and Bankers Trust would agree, of course. Both have been eschewing the label "commercial bank" for years, preferring to think of themselves as investment banking or merchant banking firms that just happen to have begun life as traditional lenders. It is only recently, however, that they have looked to their banking pasts as marketing tools for their advisory futures.
"We have been in this industry a long time, and we think we understand it," said Gail Rogers, a managing director in charge of bank mergers and acquisitions at Morgan. As a provider of credit to other banks, she added, "we've spent a lot of time analyzing counterparty exposure."
Five of Morgan's eight announced deals this year reflect its august international reputation. It worked on the privatization of the two biggest banks in Mexico, for example, and is now advising the State Bank of South Australia on a broad restructuring program.
Morgan has been particularly active in Latin America. Its biggest known banking assignment was for Mexican financial service giant Valores Monterrey on its $2.8 billion deal to buy 56% of Bancomer.
Morgan's advisers worked hand in hand with its corporate finance bankers, who also helped the company raise the capital for the deal.
Bankers Trust has trod a more complicated path. Known more for its trading prowess than for its corporate finance and investment banking skills, the nation's seventh-largest bank has had an up-and-down history in recent years with its advisory business.
After several reorganizations, the unit is now promoting itself as a specialist in "difficult' deals, often focusing on undercapitalized clients that are seeking to restructure through spinoffs and other means.
"Five years ago we decided to get in through restructurings," said Richard Brown, a managing director who runs Bankers Trust's financial institutions advisory business. "We tend to be involved in things that are less than conventional."
The company's two most important clients have been the troubled Meritor Savings Bank and the thriving First Union. In 1989, Bankers Trust worked on a restructuring the Philadelphia based thrift that involved the sale of 54 branches to Mellon Bank Corp. for $355 million. This past summer, it helped Meritor sell its weak Florida branches to First Union.
First Union, in turn, used Bankers Trust when it purchased the failed Southeast Banking Corp. from the government last year for $212 million. It again turned to the New York bank this summer to purchase DFSoutheastern Inc., a Georgia thrift, for $146 million.
Bankers Trust has missed out on some deals too, but Mr. Brown claims it has learned from the experience. The company tried to sell Kohlberg Kravis Roberts & Co. a plan for restructuring the failed Bank of New England Corp., an assignment that was never granted. Kohlberg joined up with Fleet Financial Corp to buy the Boston-based company.
Regional bankers who have worked with both Bankers Trust and Morgan on investment banking deals compliment both, but say the experiences are quite different.
Morgan rarely makes a mistake, and let's you know it, said one southern banker. The nation's fifth-largest bank company likes to run the show, and has been known to solemnly lecture clients on the right and wrong way to negotiate.
Corporate finance teams from Bankers Trust tend to act like cowboys, said another banker. They are innovative, but they have to be reined in.
However, in recent years the Bankers Trust merger experts have developed a more restrained approach and have taken a leaf from Morgan on doing detailed homework.
"My experience has been that you have a lot of investment bankers who can make a good presentation but who really don't understand the underlying facts about what they're presenting," said Michael High, the chieffinancial officer of Meritor. "Of all the ones we've worked with, [Bankers Trust's] seem to roll up their sleeves and get involved and understand the details of the transaction."
Meritor was impressed enough with Bankers Trust's branch sales work three years ago to use it again this year for the sale of its Florida branches.
Morgan, for its part, impresses both its clients and their adversaries.
"I've dealt with people this good, but I don't think I've dealt with anyone better," said Edward Dunn, who spent 26 years at Alex. Brown & Co., the Baltimore-based investment bank, before joining Mercantile Bankshares Corp. in 1988.
Mr. Dunn, who is now president of the Baltimore banking company, met up with Morgan when the New York bank was representing Baltimore Trust Co., which Mercantile bought two years ago.
"I was prepared to think banks wouldn't have the experience to have an effective touch, but I really felt I was looking at an experienced party across the table," he said.
William Boardman, head of Banc One Corp.'s hyperactive acquisition team, has also sat across the table from several clients represented by Morgan. He left with praise not only for the New York bank's negotiating skills but also for its strategy in building a bank advisory business.
"It has done an excellent job of taking banking relationships and developing them," said Mr. Boardman, an executive vice president at the Ohio company.
Priase for the Blue Bloods
Even clients that have been unsuccessful in their acquisition bids have praise for the blueblooded bank advisers.
"We chose Morgan 40 years ago, and they've served us very well," said George Schaefer, president and chief executive of Fifth Third Bancorp. The Cincinnati bank used Morgan in its frustrated $1.2 billion bid to buy Star Banc Corp. earlier this year.
Despite the encomiums, Wall Street rivals could be excused for scoffing at the idea that a commercial bank belongs in their league.
Both Morgan and Bankers Trust are well behind industry leader Goldman Sachs, which has advised on 12 banking deals in the United States this year with a value of $5.2 billion, according to Goldman.
When all mergers worldwide are considered, including those for financial companies, First Boston ranks first while Morgan is No. 11. Bankers Trust is in the 26th spot, according to Securities Data Co.
The banks take those league tables as a challenge.
Experience in the Trenches
Morgan's Ms. Rogers, in fact, is attempting in a small way to break the Morgan mold. She is an alumna of Irving Bank Corp., and was involved in its unsuccessful attempt to fend off Bank of New York Co.
Indeed, Morgan helped work on Irving's defense strategy. Some people believe the experience helped toughen Ms. Rogers and Morgan, helping them overcome bankers' traditional antipathy to unfriendly deals.
"If you're looking for a cast of characters who've been involved in unfriendly bank deals, there aren't many - but Gail is one," said Michael Brumm, chief financial officer at Fifth Third. He said Ms. Rogers' experience was one reason Fifth Third hired Morgan for its Star Bank bid.
Added Mercantile's Mr. Dunn, who bargained with Ms. Rogers on the Baltimore Trust deal: "She's sharp as a tack."
Some rival bankers are more skeptical. William Dougherty, executive vice president at Key-Corp, said that developing strong profiles in new businesses is difficult, something "you have to evolve into."
But Morgan, he added, has been aggressively wooing his Albany, N.Y.-based company and is likely to "eventually prevail."
Morgan's attempt to deliver a seamless team approach to serving clients is also seen as a boon to its merger team. Merger specialists are expected to refer clients to its capital markets and corporate finance specialists - and vice versa. Clients are encouraged to have Rolodexes full of Morgan names, one banker said.
"It would be very rare for us to go knock on the door of a bank that Morgan does not have a relationship with," said Peter Atwater, Morgan's head of asset finance.
To ensure cooperation, Morgan's relationship managers now give performance reviews to merger specialists and to corporate finance bankers that work with their clients.
At Bankers Trust, the emphasis among bank M&A practitioners is on innovation. First Union's winning bid for the hotly contested government sale of Southeast is a case in point.
Bankers Trust developed a unique structure whereby First Union and the government could share losses from Southeast.
Wall Street investment bankers say they bump into Morgan bankers much more often than those from Bankers Trust. But Bankers is getting repeat business from its clients, and its officials claim that 1993 will be a banner year for new business.
In the meantime, some observers believe that Morgan and even Bankers may be working their way up to doing assignments for their money-center brethren.
Morgan has underwritten securities for Citicorp and Chemical Banking Corp., a path that is often an entree for other business. It also is believed to have lent money to Chase Manhattan Corp. two years ago when the company was in financial straits, another favor that could be repaid someday with an advisory mandate.
"Maybe by the end of the decade it won't seem unusual," said Raphael Soifer, an analyst at Brown Brothers Harriman & Co.