According to NY Times’ Floyd Norris…Nearly 20 years ago, Bankers Trust was riding high. The bank, based in New York, had become known as an expert in then-newfangled derivative securities, and the profits were flowing in. In an era where commercial banks were often viewed as stodgy and unimaginative, it stood out as a shining light. Corporate treasurers sought its insights about ways to maximize income from idle cash. Wall Street firms scrambled to compete.
Then the tapes came out. On those tapes, recorded in 1993 and 1994, Bankers Trust execs were heard to discuss how they were misleading customers who did not understand what they were doing. Speaking among themselves, bankers used the term “R.O.F.” It stood for “rip-off factor,” the amount the bank could take from unsuspecting clients. Those clients included Procter & Gamble and Gibson Greetings, which had entered into contracts with Bankers Trust for complex interest-rate swaps that would raise the companies’ incomes a little if interest rates continued to fall — as the conventional wisdom then said they would — but result in enormous losses if rates rose only a little bit. Rates rose more than a little, and the companies soon found evidence they had been told lies and sued. Eventually, Bankers Trust was forced to settle.
Bankers Trust was never the same after that. It was still a swashbuckling trading firm, but in 1998 it made some bad bets of its own. It wound up being acquired by Deutsche Bank. On the way out, the company pleaded guilty to defrauding the state of New York by seizing abandoned funds that should have gone to the state….
http://www.nytimes.com/2012/03/16/business/the-return-of-the-rip-off-factor-on-wall-street.html
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