We go way back
Few investment banks have more history than Alex. Brown. Prior to its acquisition by Bankers Trust in June 1997, and Bankers Trust's subsequent acquisition by Deutsche Bank (it is now called "Deutsche Banc Alex. Brown"), the firm was the oldest independent investment bank in the country. Founded by Alexander Brown in 1800, Alex. Brown has had an important financial hand in our nation's history. (Alexander Brown's sons founded what is now called Brown Brothers Harriman & Co., the nation's oldest and largest privately held bank.) In 1827, Alexander Brown and family were instrumental in forming and financing the pioneering Baltimore and Ohio Railroad. After the Civil War ended, conveniently situated Alex. Brown spearheaded the rebuilding of devastated Southern cities, by shipping goods and financing construction.
Alex. Brown built an impressive brick-and-Tiffany glass headquarters in 1900, a solid edifice which survived a 1904 fire that destroyed most of Baltimore's downtown. After the fire, Alex. Brown then helped refinance the rebuilding of its hometown. The firm went public in 1986, ending 186 years of partnership at Alex. Brown.
In 1997, the bank moved into new skyscraper digs in downtown Baltimore. In June 1997, New York-based Bankers Trust acquired Alex. Brown, effectively ending the bank's long independent history. In November 1998, Bankers Trust itself announced that it would be acquired by German monolith Deutsche Bank. The transaction was the largest acquisition of a U.S. financial services firm by a foreign bank. That $9 billion deal closed in June 1999.
Two years, two marriages
After years of holding out as a Baltimore-based, independent investment bank, Alex. Brown underwent two mergers in less than two years. In 1997, the firm was acquired by Banker's Trust for $1.6 billion. Initially, the merger met with favorable reaction from the street. The merger was expected to combine Bankers Trust's powerful high-yield and other corporate lending businesses with Alex. Brown's niche investment banking business to create a full service investment bank for growth companies in the U.S. However, the new company, BT Alex. Brown, failed to meet the market's optimistic expectations. In 1998, Bankers Trust reported a $73 million net loss, including a third-quarter loss of $500 million in investments in junk bonds and Russian securities. In addition to the poor investment results of the parent company, the Alex. Brown bankers also bristled under the new management. Key decisions were made in New York, instead of Baltimore. Many senior Alex. Brown bankers left to join other firms, and corporate morale plummeted.
In June of 1999, Deutsche Bank AG purchased the ailing Banker's Trust for nearly $9 billion. Obtaining Alex. Brown's banking and private client business (money management for wealthy individuals) was certainly a major factor in the decision for the mammoth German bank.
Analysts were wary of the merger. Gerard S. Cassidy, a banking analyst at Tucker Anthony Inc., told The Baltimore Sun that Bankers Trust was "damaged goods." He also noted that "the landscape has been littered with failed foreign bank acquisitions of commercial banks as well as investment banks." The merging of the corporate cultures seemed an even greater obstacle. "I'm not bullish on this deal," Evangelous Kavouriadas, an analyst with Sanford C. Bernstein, told The Baltimore Sun in November 1998. According to Kavouriadas, Deutsche Bank is "very centralized with its decision-making. They might try to manage their corporate banking and investment banking units as one." Still, some analysts were optimistic. After the poor performance of parent Bankers Trust, many industry experts felt BT Alex. Brown could only benefit from a takeover by a company with "deep pockets."
You've grown so fast
Alex. Brown didn't simply gain a large parent; it grew substantially as a result of the mergers. Before the merger, Alex. Brown had about 2,700 employees. After assimilating Bankers Trust bankers, BT Alex. Brown had approximately 5,000 employees around the world. The Deutsche Bank deal brought together BT Alex. Brown and Deutsche Bank Securities, the investment banking arm of Deutsche. And with Deutsche's deep pockts, the firm is expected to grow even more. Now, Alex. Brown is part of a firm, which employs over 90,000 people worldwide. Deutsche Bank has plans for more expansion. Deutsche Bank chairman Rolf E. Breuer's has outlined ambitious goals for Alex. Brown. In an interview with The American Banker, Breuer acknowledged Alex. Brown's "respectable presence among firms that provide mergers-and-acquisitions advice to middle-market companies," but feels expansion is necessary. "Alex. Brown is a fantastic franchise, but not for megadeals. We cannot continue to say we only do middle-market deals. Our customers expect us to do megadeals."
Insiders at BT Alex. were nervous after the announcement of the merger, according to reports from The Baltimore Sun. "There [were] definitely a lot of people doing some soul searching whether they want to stay on this boat or whether they want to move on," one former Alex. Brown executive reported. In order to give bankers incentive to stay with the firm, Bankers Trust promised to pay partial bonuses when the merger was completed (I-banks usually pay bonuses at year-end). Unsurprisingly, a series of noteworthy departures began a few weeks after the merger was finalized.
In June 1999, four managing directors in the healthcare investment banking group, including Russell T. Ray, left Deutsche Banc Alex. Brown to join the new Baltimore office of Credit Suisse First Boston (CSFB). Within the week, 35 people (including analysts and support staff) left Deutsche Banc Alex. Brown to join CSFB. The departures were particularly insulting to new parent Deutsche Bank. A year earlier, Frank Quattrone, "superstar" investment banker and head of technology at Deutsche Bank Securities, left the firm to join CSFB, taking nearly 100 members of Deutsche staff with him. The tactics used to entice the latest defection were particularly organized. In an effort to stave off more departures, Deutsche Bank filed a federal lawsuit, claiming (among other things) the theft of sensitive documents. The lawsuit also noted that some of the defectors had violated signed non-compete agreements, which prevented them from working for a competitor of Alex. Brown until December 31, 1999. The healthcare unit was one of the "star" departments of Alex. Brown's banking business and the loss of key individuals represented a major setback. Though the company claims to have restructured the unit, there is still concern for the long term. Michael Flanagan, an independent brokerage analyst at Financial Service Analytics, reported his feelings to The Baltimore Sun: "The organization, I get the impression, is disintegrating."
CSFB was not the only firm to establish a Baltimore office and poach from Deutsche Banc Alex. Brown's employees. In September 1999, Donaldson, Lufkin & Jenrette opened a Baltimore brokerage office and hired William F. Reinhoff from Deutsche Banc Alex. Brown to run the new operation.
Shortly after the healthcare group's departure, Frank N. Newman announced his resignation. Newman had engineered the merger of Alex. Brown and Bankers Trust. Newman reportedly received $100 million in severance, but the company would not confirm or deny the figure.
The company claims the losses, while disappointing, were not debilitating, and it has managed recently to recruit some new talent. For instance, in August 1999, the company managed to enact some revenge on nemesis CSFB by hiring Trygve Mikkelson, CSFB's U.S. healthcare banking chief.
Transformation into a "mega" company
Despite the numerous personnel issues, the merger transformed Deutsche Bank AG into the world's largest banking company and left Deutsche Bank with the largest European equity research team in the world. Deutsche Bank chairman Breuer, has stated that he wants to retain Alex. Brown's corporate culture, and perhaps even infuse some of the American entrepreneurial attitude into the European businesses. Breuer told The Baltimore Sun he had no plans to relocate Alex. Brown's employees. "I think Alex. Brown is hear to stay," Breuer said. Deutsche Bank also announced the severing of the "BT" from BT Alex. Brown. The company adopted Deutsche Banc Alex. Brown as the marketing name for the U.S. investment banking practice to capitalize on both Deutsche Bank's substantial European presence and the long history of the Alex. Brown name in America.
With $875 billion in assets as of June 30, 1999 and 90,000 employees worldwide, Deutsche Bank seems a formidable competitor in the investment banking arena. Deutsche Bank consolidated its enormous operation into five major business units: Global Corporates and Institutions (which includes global investment banking, global markets, global equities, global banking, North and South America, and Asia), Global Technology and Services, Asset Management, Corporates and Real Estates, and Private and Retail Banking.
Helping others grow
Like other banking boutiques, Alex. Brown focused on a limited number of industries, most notably health care and high tech. The historical focus according to one insider was a focus "on mid-sized to smaller growth companies in a couple of core industries. High tech, health care, media, real estate, transportation - those are really the prime groups." In addition to expanding the size of banking deals and taking on "mega deals," Breuer also wants the banking practice to pay attention the natural resources industry.
Deutsche Banc Alex. Brown is known for plugging capital into hot growth companies through equity (stock) offerings. The bank has taken public now-booming businesses such as America Online, Oracle, and Outback Steakhouse. In September and October 1999, the firm has managed offerings for Women.com, DSL.net , Ditech Communications and others. On the advisory side, Deutsche Banc Alex. Brown was ranked 10th in the Target Financial Advisor Ranking Report (Third Quarter 1999) issued by Global Securities Information Inc. With 6 transactions, valued at $1.8 billion, Deutsche Banc Alex. Brown is still not closing the "mega deals" like those of competitors Morgan Stanley (ranked number 1 with 11 transactions valued at $31.4 billion) or Goldman Sachs & Co. (ranked number 2 with 10 transactions valued at $20.9 billion).
Wait and see
In July 1999, Deutsche Bank reported profits of Euro 2.3 billion from its equity, bond, derivative and currency trading for the first two quarters of 1999. This was a Euro 500 million increase from its trading profits for all of 1998. The firm was ranked 13th overall in equity research by Institutional Investor Magazine in 1999 (they held 14th place in 1998). Continued improvements in trading and the rise of equity analysts would certainly add some extra boost to the investment banking practice.
The merger with Deutsche Bank Securities could vault Deutsche Banc Alex. Brown into the I-banking big leagues. However, the firm's bankers are still reportedly antsy about how the merger will shake out in the long run. Meanwhile, senior management has determined some new firm-wide strategies. In March 1999, for example, BT Alex. Brown and Deutsche Bank Securities announced that over-the-counter trading would be run out of Baltimore, while listed trading will be headquartered in New York. In June 1999, Deutsche Banc Alex. Brown announced that it would exit the restructuring advisory business. Also in June 1999, the company announced that it would expand its Northern California investment banking operations.
Deutsche Banc Alex. Brown's recruiting process usually begins with an on-campus interview. A pared-down group of candidates is then invited to visit the firm's offices, where candidates typically interview with several of the firm's employees. The firm says that it looks for candidates who demonstrate "initiative" and "excellence" and who will work well in a team environment. Current bankers suggest applicants "talk to people with experience in the industry" before interviewing at Alex. Brown. Consult either the firm's job hotline or its web site located at www.deutsche-bank.com for a list of current job openings.
New college grads or hires without previous work experience begin their careers as analysts. New employees with several years of banking experience or an MBA enter Alex. Brown at the associate level. Both analysts and associates are recruited by, and hired directly into, specific departments. One financial analyst reports that "Alex. Brown looks for smart people, and thinks that grades are very important in determining mental horsepower. Also, the company looks for a strong work ethic, and an outgoing and engaging personality, because you have to get along with clients when away from the office, and with peers when working 100 hours a week."
The firm reportedly cares about that elusive "fit" a great deal. "They want an outgoing, engaging personality," says one analyst. "Alex. Brown wants people who can get along with the clients on a two-week "roadshow" and be able to work with their peers during a couple of 100-hour week projects." A recent hire says that "athletes are definitely favored strongly at Alex. Brown. We look for people who are not only smart and hardworking, but cool guys who get along with others." Alcohol is a social lubricant, and the firm apparently doesn't mind a little imbibing. One associate relates the tale of a recent Super Saturday. "After everyone was through with their interviews, we take [the prospective applicants] out to dinner and have some drinks. Well, some of the guys had a bit too much, and decided to go swimming in Baltimore harbor. They got a little wet, but it didn't affect them jobwise -- a bunch of them got offers."
Charm city; Baltimore blues
Deutsche Banc Alex. Brown's Baltimore headquarters plays a crucial role in shaping its corporate culture. Insiders describe the firm as being both "less intense" and "less structured" than its Wall Street competitors. A "loose" organizational structure gives junior employees opportunities to develop "long-term relationships" with senior management and with clients. Some employees think that "the fact that the firm is not in New York makes for a more livable experience." As another analyst explains: "We are still an incredibly intense and successful firm, but at the same time, the analysts here are not beaten into the ground."
As for pay, says one associate: "It's comparable with the Street, otherwise they couldn't attract the people." The cost of living in Baltimore, of course, is significantly less than in New York. Reports one associate: "I live in a really superb condominium complex. I have maybe a 1300-square foot apartment, it's two-bedroom, with an indoor garage and fitness center, for $1,350. I could have gotten a really nice one bedroom for about $1,000." Another insider agrees that "the rents are incredibly cheap. Three analysts can live in a three-story house, with each getting his own bedroom, for $400 each. With those kind of expenses, you can afford to drive a nice car."
The perks make Alex. Brown employees happy too. "All the facilities are topnotch," says one analyst, "especially in the San Francisco branch, where the offices are on the top floor of a building that overlooks the city and the bay." The computer systems "have improved a lot over the last three years, all the better for faster-running Excel programs." The gabby and stressed should know they can make "unlimited long distance phone calls" at Alex. Brown. Other lovely perks: overtime meals, taxis, and bonuses. "When you travel you stay in the top hotels," says another. However, bemoans one Brown insider, "there is no company gym."
Baltimore itself has its good points and bad points, according to employees. One analyst says that "Baltimore sucks. There is nothing to do here. There are bars and things like that, but no clubs or other interesting places to go." A former employee points out that "Baltimore is really limited in the number of places you can live, because it's basically a crumbling city. You can live in a few neighborhoods, like Federal Hill or Phelps Point." Be wary of where you park it, however -- we hear that "in January 1998, the garage attendant at Alex. Brown's new parking garage was shot and killed." (Baltimore also has one of the highest homicide rates in the nation.)
What about the 'rents?
While Deutsche Bank has announced planned layoffs of 5,500 people over the next three years, most industry insiders expect few cuts for Alex. Brown bankers. Many believe that Breuer will follow through on his intentions to leave the Alex. Brown culture alone. "High tech is so strong at Alex. Brown, they kind of run their own show," reports one associate. "It's the same with health care." Most of the cuts are expected in London and New York, and BT bankers are more at risk
One insider talks about a visit by Deutsche Bank chairman Rolf Breuer shortly after the Deutsche/BT deal was announced. "He said Deutsche Bank is not interested in being a bulge-bracket U.S. player, that they're more interested in being what the American firms are in Europe. He wants to be a full-service firm, with all the capabilities, but is not seeking to compete with the Goldmans or Merrills." Continues that insider: "I got the feeling that he was very candid, very forceful. He said that Bankers Trust will not be set free on a long leash. He brought up [Deutsche Morgan Grenfell, Deutsche's formerly largely independent I-banking arm now folded into the bank], and said 'We learned from DMG, we just let those guys run wild.'"
Not the best financial training
While Deutsche Banc Alex. Brown may be a good place to work, it's not necessarily the best for financial training, insiders say. "With Alex Brown, it's equities, it's bringing companies to the market, IPOs, secondary offerings," explains one insider. "Equities is really not an analytically challenging type of work. It's highly profitable -- if you do well, you'll make a lot of money, but it's not the type of thing where you're doing a lot of analytic work. If you do M&A, you're going to do be doing a lot of the financial modeling, financial analysis, you learn a good deal, and you develop a set of tools." Continues that contact, "When you do equities, it's much more process-oriented work -- you have to be in tune with the market and have to know the market, you have to understand what it's doing. It's 'Can this company with this type of rating place a preferred offering?' It's more of a feel type thing."
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