NatWest buy is 'all gain, no pain' for Bankers

Bankers Trust executives involved in last week's pounds 129m purchase of NatWest Markets' European equities business believe they have pulled off that rarest of coups - an all-gain, no-pain deal.

What Bankers Trust wanted was a stockbroking business built on solid management and a cohesive culture that could immediately slot into the bank's operations. "We benefited from the dress rehearsal of our review of BZW," said Donald Johnston, head of European mergers and acquisitions for Bankers Trust.

Bankers Trust will now concentrate on integrating NatWest's 900-strong team in eight offices in Europe and a US sales team in New York into its own US stockbroking and European bond and mergers and acquisitions operations. If all goes well the business - expected to generate sales of pounds 170m in 1997 - should pay for itself in a maximum of five years.

The only problem that arose in negotiations was the state of NatWest's back office computers, says an informed source. The problem was the high level of "fails" in executing stockbroking transactions. "If you have 11,000 fails," said the source, "each one costs money in terms of penalties paid and interest lost."

NatWest has agreed to take steps to remedy the back office. With that commitment, Bankers Trust says it is satisfied with the cost structure of its acquisition and will focus almost exclusively on increasing sales.

The bank plans to maximise the synergies between Wood Mackenzie (NatWest Markets' Edinburgh-based broker) and Alex. Brown (Bankers Trust's Baltimore, Maryland-based broker). Bankers Trust hopes to use the distribution capability of Alex. Brown to win the business of European companies floating new stock. "That's where the juice is," Mr Johnson said.

The US bank also wants to use its European equities business to gain better access to European corporate executives to discuss the ancillary businesses of complex debt offerings and corporate finance deals.

"Wood Mackenzie Consultants gets two-thirds of its revenue from selling research on the oil and gas industry," Mr Johnson said. "It knows about the energy situation in complex places like Central Asia. We know the risk of oil and gas transactions. We think we can put the two together and make money."

Bankers Trust's latest purchase is a further step in the New York institution's recovery programme. In 1995 it suffered a welter of bad publicity and customer defections after Business Week published transcripts of tape recordings showing that Bankers Trust derivative traders and salesmen were putting the bank before its customers.

In May 1996 Bankers Trust and Procter & Gamble settled a legal dispute over derivative transactions. Last December the Federal Reserve lifted its regulatory agreement with Bankers Trust concerning its leveraged derivatives business. In April Bankers Trust, which reported after-tax net income of $612m in 1996, merged with Alex. Brown.