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."

Mass exodus

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.