At the Central Intelligence Agency's headquarters in Langley, Va., seven weeks ago, A. B. "Buzzy" Krongard's phone kept ringing.

The callers didn't want to talk about international security or the latest round of negotiations for peace in the Middle East. They were former associates begging the tough but respected Krongard to dump the spy agency and return to run BT Alex. Brown Inc.

"I think Buzzy had over 500 phone calls," a source familiar with the situation said. "If I were his secretary, I would have just hung up the phone."

The barrage came just eight months after Krongard had stunned friends and family by announcing he would leave the Baltimore-based investment banking company he headed for six years, and give up $4 million in salary and bonus to become counselor to CIA Director George Tenet.

The calls were evidence of how rocky the merger between Alex. Brown and Bankers Trust Corp. of New York has become.

Melding of the two companies has not been achieved as effortlessly as predicted when the two merged Sept. 2, 1997.

The Sun interviewed more than two dozen people including current and former employees, analysts and others in the industry, none of whom wanted to be quoted by name. Current employees requested anonymity for fear of losing their jobs, while former executives are still working in the industry and want to maintain cordial relations with Bankers Trust.

Frank N. Newman, chairman and chief executive of Bankers Trust, also declined to comment.

Since the acquisition, morale at the firm has fallen, and many worry about their futures. Six of the 11 highest-ranking executives at Alex. Brown have left since the takeover.

The country's seventh-largest bank lost millions of dollars after betting big on Russian securities. It became entangled in an international hedge-fund scandal that made multibillion-dollar bets around the globe and nearly failed.

Its stock price has been sliced in half. And rumors swirl about layoffs and that Bankers Trust might be a takeover target itself.

Alex. Brown employees also grumble that they can't make decisions and that Bankers Trust executives don't know how to manage the investment banking company.

"People really feel sold out," a former Alex. Brown executive said. "I think it has become us and them. That wasn't the idea."

But those are just recent signs of trouble. In fact, executives have had difficulty putting the companies together from the beginning, according to those interviewed by The Sun.

Onset of troubles

The first sign of trouble was in January, when Bankers Trust held its annual partners meeting at the New York Public Library. More than 200 executives from the two companies and their spouses were invited to meet for several days of training. Teams of Bankers Trust and Alex. Brown partners worked together demonstrating how they could win business.

On Jan. 23, they met in the library's cavernous main hall, chatting and sipping cocktails. Dinner followed in a large room downstairs, and as the evening neared an end, Newman stood to address the gathering. Then he presented his wife, Lizabeth, who introduced the evening's entertainment -- the cast of the Broadway musical "High Society," which performed for close to an hour.

The Alex. Brown executives were shocked by the extravagance. "We just looked at each other" curiously, recalled an Alex. Brown partner.

Added another: "That was a little much for us. You didn't need to have 'High Society.' Buzzy would have had dinner, thanked everybody and gone home."

That wasn't the only cultural difference between the two companies. Meetings that once had been concise and decisive now dragged on, and decisions weren't made.

"You never get a sense for who makes decisions, because you could never get things done," said a former Alex. Brown executive. "It was certainly not a culture we were used to. We were used to decisions that were made by people and not by consensus."

Executives who were used to controlling their budgets, hiring employees and overall decision-making suddenly found themselves stripped of power. "That was all switched to New York," said a former executive.

Unlike at Alex. Brown, where memos had to be signed for accountability, correspondence from Bankers Trust arrived unsigned in many instances. "No one has responsibility for anything," the former executive said.

Even "casual day" caused a stir. The uniform at Alex. Brown was crisp business attire. But Bankers Trust condoned polo shirts and khakis on Fridays during the summer months. While some liked the relaxed style, others in Baltimore complained it was inappropriate. There is "nothing casual" about the business, one employee noted.

Differences at the top

But the biggest disparity between the companies is at the top. Krongard and Newman have vastly different personalities and management styles.

Krongard, short and powerfully built, spent most of his working life at Alex. Brown and had become almost legendary within the close-knit company as a relentless worker driven to perfection. He held employees to the same standards, wrote poetry and quoted philosophers. And he liked the rough and tumble. On a diving trip, he punched a great white shark in the jaw, and he enjoyed collecting guns and training with a police SWAT team, and became an accomplished martial artist.

Newman is of slight build and soft-spoken. He is considered bright and has a Rolodex brimming with the names of Washington's elite, which he developed as deputy secretary of the Treasury for President Clinton after stints as chief financial officer at Wells Fargo & Co. and at BankAmerica Corp.

His reputation and contacts helped him win the Bankers Trust CEO title in 1996 when someone was needed to rebuild the bank's image after being hammered by a derivatives scandal.

While his credentials sparkled, Newman's personal tastes made some Alex. Brown employees uneasy. He traveled like a foreign dignitary -- chauffeured in a limousine and flanked by bodyguards who wore wires in their ears and spoke into concealed microphones.

"They were all over the place," said a former Alex. Brown executive. "They accompany him everywhere he goes."

"It was somewhat comical," said another. "We all thought it was amusing, because you'd see these guys and they would talk into their lapels."

It didn't take long, though, for issues of style to be replaced with concerns about the very survival of Bankers Trust.

An exodus of executives

By summer, three top Alex. Brown executives had left the company, including Krongard; W. Gar Richlin, head of investment banking; and David L. Hopkins Jr., head of asset management.

More bad news came in a flurry. In the first 24 days of September: Bankers Trust reported a $350 million loss from trading in Russian securities, which prompted it to warn investors that it would lose money in the third quarter.

The bank was forced to pay $300 million as part of a $3.5 billion bailout of high-flying Long-Term Capital Management LP, a hedge fund that was on the brink of failure.

Standard & Poor's Corp. downgraded the bank's debt rating.

The bank's stock price plummeted more than 52 percent, to $64.437, from $136.437. It fell as low as $49.18, but has since recovered, closing at over $64 Friday.

Since the acquisition was a stock swap, the impact of that decline reached into the pockets of Alex. Brown employees. Krongard, for example, who owns about 700,000 shares, saw the value of his holdings plunge to $45 million Sept. 24, from $95.5 million April 22, when the stock peaked.

In the midst of the turmoil, top Alex. Brown executives continued defecting. Donald R. Heacock, co-head of the private client division, left. He was followed by Robert F. Price, head of Brown's legal department, and Beverly L. Wright, the chief financial officer.

Other executives who had been with the company for years resigned for new jobs at competing firms. And a half-dozen traders and support staff were laid off because of a slowdown in stock-trading volumes.

The departures further depressed the morale of Alex. Brown employees, who were already shaken by the revelations of the Russian and hedge-fund fiascoes.

Everyone "is unsettled and embarrassed. We went from a business that we clearly understood well to a business that many of us don't have the same degree of familiarity with," an Alex. Brown executive said.

"There has never been this kind of risk taken," added another former executive. "All of a sudden, you find out your parent has lent money to Russia and to hedge funds, and we don't even know why."

Calming the waters

The mood was so bad at Alex. Brown that Newman had to do something to try to calm the waters. One of his first calls was to Krongard. Newman asked the former CEO what he should do to rally the troops, sources said.

Krongard reportedly advised him to meet them and explain what had gone wrong.

On Sept. 30, Newman took Bankers Trust's corporate jet to Baltimore to face Alex. Brown employees. About 200 of them squeezed into a large audiovisual room on the 14th floor of the tower on South Street. Others were patched in by telephone.

"He came down to say, 'We sort of screwed up a little, but the bank is solid, bear with us,' " said an executive who attended the meeting. "I thought he did a good job."

Others who attended said the meeting was cordial and helpful.

In fact, several sources said the meeting might have put out the brush fire -- except another round of punches followed:

Some in the industry began to openly wonder whether Bankers Trust would go belly up because of its losses, although most dismissed that speculation.

On Oct. 21, there were reports that Germany's Deutsche Bank AG had approached Bankers Trust about merging, further putting in doubt its future and the future of employees in Baltimore.

The next day, Bankers Trust stunned Wall Street by announcing a $488 million loss in the third quarter, although Newman told analysts that the company has plenty of capital and was already making money from its operations.

Also that day, Ted Virtue, Bankers Trust's head of global finance and the president of BT Alex. Brown, came to Baltimore and announced a plan to change how about 200 people in institutional sales would be paid.

Although they would receive a larger salary, Virtue said, their bonuses would be paid only at the end of the year instead of the tradition of paying the bonuses throughout the year.

If the workers didn't like the plan, Virtue said, they could "vote with their feet," said several sources who attended the meeting.

"If you would have talked to people in the lobby that day, they wanted everybody fired from Bankers Trust," an Alex. Brown executive said.

Said another source: "People were mad. They were offended because it was delivered with some arrogance. It was delivered in a way that showed a lack of sensitivity to the merger."

Fearing the rift between the two companies would never heal, several senior members of Alex. Brown confronted Virtue, insisting that he back down. A week later, Virtue relented.

That decision cooled the tempers. Alex. Brown executives saw Virtue's move as a "turning point" -- a sign that the two companies might work out their differences.

But many say Bankers Trust has not recovered.

"I don't believe Bankers Trust is out of the woods yet," said Gerard S. Cassidy, a bank analyst at Tucker Anthony Inc. in Boston. "If we go through another September or October within the next six months, Bankers Trust may have to join forces with somebody to remain healthy."

Even though the acquisition has resulted in a rocky 14 months, Alex. Brown executives hope that most of the bad news is behind them.

"When you meld two cultures, you have some rough spots," said an Alex. Brown executive. "This really needs to work. It is important to all of us."

Pub Date: 11/15/98