Bankers Trust, Deutsche Bank May Tie Knot

Germany’s Deutsche Bank is in talks to buy Bankers Trust Corp., three executives familiar with the discussions said, in a deal that would be worth more than $8 billion--and would be the largest foreign takeover of a U.S. financial firm.

The purchase, which has been rumored for the last month and could be announced today, would give Germany’s biggest bank control of the eighth-largest U.S. bank--but one that has been reeling lately from heavy losses in emerging markets and heated competition in investment banking.

For its part, Deutsche Bank would gain a major U.S. foothold after failing to build a U.S. investment-banking business that can compete with the likes of Merrill Lynch & Co. and Goldman, Sachs & Co.

Deutsche Bank’s board met Saturday in Frankfurt, and the board of New York-based Bankers Trust met Sunday, the New York Times reported. The rumored price: $90 a share, a 17% premium to Bankers Trust’s close Friday of $77.25.

Both banks declined to comment.

“It’d be a great combination . . . [because] it gives the Germans entry into the U.S.,” said Charles Vincent, the co-director of equity research at PNC Bank Corp.

Bankers Trust, with $176 billion in assets, mostly caters to businesses worldwide via investment banking, securities trading, money management and stock and bond custodial services.

But the firm has suffered two black eyes this decade, first with its large “derivative” securities business in the early ‘90s, and this year with turmoil in global markets that caused the bank to report a $488-million third-quarter deficit amid huge trading losses.

Those losses have pulled the stock down from a peak of $136.44, triggered cuts in Bankers Trust’s credit rating and spurred the bank to pare staff, including closing its Moscow office.

A deal between Deutsche Bank and Bankers Trust would be a further step in the sweeping consolidation of the global financial services industry, as companies race to become larger and better-equipped to serve customers without regard to national borders.

Deutsche Bank in the 1990s has tried to develop a U.S. investment banking business on its own. It spent more than $1 billion to buy Britain’s Morgan Grenfell in 1989, and it recruited some top investment bankers in the U.S.

Those plans came apart as costs spun out of control. In January, Deutsche Chief Executive Rolf Breuer ended a three-year spending spree, halting the bank’s attempts to build an in-house investment banking business. Staff departures then soared, which Deutsche Bank admitted left a “gaping hole” in its investment banking business.

“The franchise has to be replaced,” Michael Philipp, the bank’s head of worldwide equities, told U.S. employees on a conference call in July. “If we don’t do anything, we’re sitting here dead in the water.”

Deutsche Bank needs to compete in the U.S., the world’s largest capital market, as rivals vie for more business in Germany and the rest of Europe. When Deutsche Telekom went public in 1996, Deutsche Bank underwrote the stock offering with Goldman Sachs. German auto maker Daimler-Benz relied on both Deutsche and Goldman to advise on its takeover of Chrysler Corp.

Bankers Trust purchased Alex. Brown Inc., a Baltimore-based investment firm, for $2.7 billion last year, and in 1996 it bought Wolfensohn & Co., an investment bank that specializes in merger advice. Recently, Bankers Trust has added the European equities business from Natwest Markets.

Even so, buying Bankers Trust wouldn’t make Deutsche Bank one of the top 10 U.S. investment banks, according to rankings by Securities Data Co.

Bankers Trust “would not necessarily be an end to the building process” for Deutsche Bank, wrote Michael Mayo, analyst at CS First Boston, in a recent report.

Deutsche Bank would also face the challenge of melding the two organizations. Credit Suisse Group had mixed success for six years after its 1990 takeover of investment bank First Boston Inc. And Citigroup, the company formed by the merger of Travelers Group Inc. and Citicorp, last month dismissed its president and heir apparent, James Dimon, amid strains in the combined company.

A Deutsche-BT deal would likely be approved by the Federal Reserve with the caveat that the German bank doesn’t expand into non-banking businesses prohibited by U.S. law, analysts said.