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Bankers Trust Names Newman as Chairman, President Resigns

October 19, 1995

NEW YORK (AP) _ Troubled Bankers Trust New York Corp. today named Frank N. Newman, a former Treasury Department official who joined the bank a month ago, as chairman and chief executive.

Newman, who was named vice chairman and chief financial officer at Bankers Trust in September, will succeed Charles S. Sanford Jr., who announced in May that he planned to retire next year amid mounting troubles in the bank’s derivatives business.

The bank’s president, Eugene Shanks Jr., considered the front-running inside candidate for the chairman’s post, also announced his resignation today. Newman, 53, was named his successor.

The management shuffle is the latest turn for the embattled bank, which faced damaging publicity about its derivatives sales department after a Cincinnati court unsealed 750 pages of documents detailing taped conversations of employees who spoke crudely of fleecing customers.

The documents were part of evidence filed in the court by Procter & Gamble Co. The company is suing Bankers Trust for $195 million, alleging securities violations and racketeering charges stemming after the it lost millions on risky derivatives contracts sold by Bankers Trust.

Derivatives are customized securities in which two parties agree to exchange payments with values based on an underlying formula that could be tied to something like interest or currency rates.

Choosing Newman, an outsider and a highly respected executive who formerly served as vice chairman at BankAmerica Corp., could help repair the bank’s image, badly tainted by the cavalier treatment of customers revealed in the tapes. The tapes were the subject of a recent Business Week cover story. The magazine waged a legal battle with Bankers Trust and the Cincinnati court to unseal the documents.

The conversations took place in 1993 and 1994. The bank has fired some individuals involved and said it took steps to change its culture. But tapping an outsider with a stellar reputation sends a message to customers that the bank is serious about getting back on track.

``I welcome the challenge that comes with this responsibility,″ said Newman in a news release.

He will take over as president today, chief executive on January 1, 1996 and will become chairman on April 16, 1996, the day Sanford plans to retire.

``Bankers Trust brings great strengths to the challenges that lie ahead,″ said Sanford in the release. He called Newman ``an outstanding leader.″

Bankers Trust, the nation’s seventh largest bank, also today reported an 8 percent drop in third quarter earnings, reflecting a $205 million write-off for derivatives, lower revenues from trading securities, derivatives sales and fees from investment banking activities compared to a year ago.

Net income totaled $155 million, or $1.72 a share, compared to $169 million, or $1.98 a share a year ago. The results exceeded analysts expectations.

The $205 million writeoff is for leveraged derivatives contracts _ an exotic and highly risky form of derivative _ that were not paid.

Late last year the bank said that contracts worth $423 million were in danger of nonpayment. The bank later wrote off $72 million, leaving a balance of $351. Aside from the $205 million in contracts written off, the bank said others contracts have been repaid and it continues to try to collect on the remaining balance of troubled deals.

Trading revenue totaled $257 million, down $21 million from a year ago but up $178 million from the second quarter.

Fees and commissions of $152 million fell 7 percent from the year-ago period.

In the first nine months, net income totaled $89 million, or 66 cents a share, compared to $514 million, or $5.97 a share in the same 1994 period.

Bankers Trust’s shares fell 25 cents to $69.50 in morning trading on the New York Stock Exchange.

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