<PAGE>
BANKERS TRUST NEW YORK CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
Pages 1-25 represent portions of the 1993 Annual Report to Stockholders which
are not required by the Form 10-K report and are not "filed" as part of the Form
10-K.
The Form 10-K cover page and cross reference index are on pages 89 and 90,
respectively.
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
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<TABLE>
<CAPTION>
Table 1 Five-Year Summary of Selected Financial Data
($ in millions, except per
share data) 1993 1992 1991 1990 1989
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
For the Year
Net interest revenue
(book basis) $ 1,314 $ 1,147 $ 737 $ 793 $ 903
Noninterest revenue 3,364 2,331 2,522 2,327 2,032
Income (loss) before
cumulative effects of
accounting changes $ 1,070 $ 639 $ 667 $ 665 $ (980)
Cumulative effects of
accounting changes (75) 446 - - -
------- ------- ------- ------- -------
Net income (loss) $ 995 $ 1,085 $ 667 $ 665 $ (980)
======= ======= ======= ======= =======
Per Common Share
Primary Earnings Per Share
Income (loss) before
cumulative effects of
accounting changes $ 12.40 $ 7.23 $ 7.65 $ 7.71 $(12.10)
Cumulative effects of
accounting changes (.89) 5.30 - - -
------- ------- ------- ------- -------
Net income (loss) $ 11.51 $ 12.53 $ 7.65 $ 7.71 $(12.10)
======= ======= ======= ======= =======
Fully Diluted Earnings
Per Share
Income (loss) before
cumulative effects of
accounting changes $ 12.29 $ 7.22 $ 7.65 $ 7.70 $(12.10)
Cumulative effects of
accounting changes (.88) 5.29 - - -
------- ------- ------- ------- -------
Net income (loss) $ 11.41 $ 12.51 $ 7.65 $ 7.70 $(12.10)
======= ======= ======= ======= =======
Cash dividends declared $ 3.24 $ 2.88 $ 2.605 $2.3825 $2.1425
-as a percentage of net
income /(1)/ 26% 40% 34% 31% N/M
Book value, end of year
/(2)/ 51.90 43.23 34.93 30.70 26.28
Market price
High 83 1/2 70 1/8 68 46 3/4 58 1/4
Low 65 3/4 50 39 1/2 28 1/2 34 1/2
End of year 79 1/8 68 1/2 63 3/4 43 3/8 41 3/8
Price/earnings ratio, end
of year /(1)/ 6.4x 9.5x 8.3x 5.6x N/M
Cash dividend yield, end
of year 4.5% 4.6% 4.4% 5.9% 5.6%
At Year End
Total assets $92,082 $72,886 $63,959 $63,596 $58,451
Long-term debt 5,597 3,992 3,081 2,650 2,435
Preferred stock of
subsidiary 250 - - - -
Common stockholders'
equity 4,284 3,621 2,912 2,524 2,136
Total stockholders' equity 4,534 4,121 3,412 3,024 2,386
Profitability Ratios
Return on average common
stockholders' equity
/(1)/ 26.33% 19.52% 23.10% 26.74% N/M
Return on average total
stockholders' equity
/(1)/ 25.01% 17.65% 20.59% 24.10% N/M
Return on average total
assets /(1)/ 1.25% .86% 1.09% 1.04% N/M
Capital Ratios
Common stockholders'
equity to
total assets, end of year 4.65% 4.97% 4.55% 3.97% 3.65%
Total stockholders'
equity to
total assets, end of year 4.92% 5.65% 5.33% 4.76% 4.08%
Average total
stockholders' equity to
average total assets 4.91% 5.44% 5.29% 4.30% 4.96%
Risk-based capital ratios
(1992 year-end
guidelines)
Tier 1 capital 8.50% 7.75% 6.11% 5.43% 4.48%
Total capital 14.46% 13.64% 10.86% 10.03% 8.26%
Leverage Ratio 6.28% 6.05% 5.15% 4.49% 3.75%
Employees, at December 31
In domestic offices 8,300 8,096 7,745 8,689 9,177
In foreign offices 5,271 4,821 4,343 4,626 4,308
------- ------- ------- ------- -------
Total 13,571 12,917 12,088 13,315 13,485
======= ======= ======= ======= =======
</TABLE>
N/M Not meaningful.
(1) These figures exclude the cumulative effects of accounting changes recorded
in 1993 and 1992.
(2) Beginning December 31, 1990, this calculation includes the effect of common
shares issuable under deferred stock awards.
26 BANKERS TRUST
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Bankers Trust New York Corporation and Subsidiaries
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FINANCIAL REVIEW
Management's discussion and analysis of Bankers Trust New York Corporation's
results of operations and financial condition appears on pages 27 through 47.
The discussion and analysis should be read in conjunction with the financial
statements and supplemental financial data which begin on page 50.
RESULTS OF OPERATIONS
1993 Summary and Highlights
Bankers Trust New York Corporation and subsidiaries (the "Corporation", or the
"Firm") earned a record $1.070 billion before cumulative effects of accounting
changes for the year 1993, up $431 million, or 67 percent, from the $639 million
recorded in 1992. On the same basis, primary earnings per share were $12.40, up
72 percent from $7.23 in 1992.
The 1993 results reflected record levels of trading, net interest and
fiduciary and funds management revenue, as well as a 25 percent improvement in
corporate finance fees, a nearly ten-fold increase in net revenue from equity
investment transactions and a lower provision for credit losses. These factors
were partially offset by a 29 percent rise in noninterest expenses, driven by
higher incentive compensation expense.
The Corporation's net income for 1993 was $995 million, or $11.51 primary
earnings per share, versus net income of $1.085 billion, or $12.53 primary
earnings per share, in 1992.
The following financial highlights demonstrate the success of the
Corporation's strategy as it has evolved over the past several years:
- The Corporation's focus on profitability and risk-adjusted return on capital
("RAROC") produced a competitively high 26.33 percent return on equity for
1993, up from 19.52 percent for 1992, before cumulative effects of accounting
changes in each year;
- The strategic change in the Corporation's business from a more traditional
"originate and hold" outlook to one emphasizing an active underwriting and
distribution capability has improved asset quality and overall liquidity; and
- A strengthened capital position is reflected in increases during 1993 of 18
percent and 20 percent in common stockholders' equity and book value per
common share, respectively.
The Corporation has maintained its commitment to building its various client-
oriented revenue streams, which are complemented by its proprietary trading
activities. Over the past several years, the Corporation has become a recognized
leader in these client-oriented businesses, with particular emphasis in the area
of risk management. The Corporation's focus on client-oriented businesses is
apparent in its business functions, which cut across the organizational
structure.
Business Functions
In addition to the reported income statement categories, the Corporation breaks
down and analyzes its business on the basis of five interrelated business
functions, which represent its core business activities. Their definitions and
respective shares of income before cumulative effects of accounting changes are
presented below:
- Client Finance: Meeting the credit and capital needs of clients.
- Client Advisory: Providing advice and structuring transactions designed to
implement client financial strategies.
- Client Financial Risk Management: Helping clients manage their financial
exposure.
- Client Transaction Processing: Providing operating and administrative
services to clients.
- Trading and Positioning: Proprietary activity involving securities,
derivatives, currency, commodity and funding transactions, as well as
positions assumed as part of client risk management activities.
Because the Corporation's business is complex in nature and its operations are
highly integrated, it is impractical to segregate the respective contributions
of the business functions with precision. For example, the Client Advisory
function is difficult to split from the Client Finance function, since most
complex financings include both an element of advice and the arrangement of
credit for the client. Further, transactions undertaken for purposes of Client
Financial Risk Management may contain an element of Client Finance or Trading
and Positioning. Finally, the Trading and Positioning function serves as an
element of support for client-based activities. As a result, estimates and
subjective judgments have been made to apportion revenue and expenses among the
business functions. In addition, certain revenue and expenses have been excluded
from the business functions because, in the opinion of management, they could
not be reasonably allocated or because their attribution to a particular
function would be distortive. In 1993 and 1992, approximately $60 million and
$40 million, respectively, of corporate expenses and, in 1992, approximately $95
million of revenue (principally interest), were not allocated or attributed to
business functions. The corporate expenses included items such as premises costs
for temporarily unoccupied space; the interest revenue in 1992 primarily related
to cash receipts and proceeds from past due claims on refinancing countries.
Despite these important qualifications concerning the precision of the
allocation of income before cumulative effects of accounting changes among the
functions, the Corporation believes that the categories and the amounts
presented provide a reasonable insight into the sources of its income. Subject
to the foregoing limitations, estimates and assumptions, a discussion of
significant factors affecting the results is presented below.
Client Finance - Client Finance activities generate net interest revenue and
corporate finance fees from the following major products: debt and equity
underwriting, commercial paper, lending, loan syndication, leasing, structured
finance and private placements. Client Finance income in 1993 rose to $76
million from a slight loss in the prior year, principally due to a strong market
for debt underwritings worldwide, improved profitability of loan syndications
and a decline in credit costs attributable to the improvement in the loan
portfolio.
Client Advisory - Client Advisory activities include asset management, trust
advisory, merger and acquisition, strategic risk management, insurance and other
specialized advisory services. These activities principally give rise to
fiduciary and funds management revenue, and fees and commissions. Client
BANKERS TRUST 27
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Bankers Trust New York Corporation and Subsidiaries
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Advisory income declined by approximately 45 percent, to $63 million, in 1993.
While the majority of services earned higher revenue than in 1992, this was
offset by increased investments in 1993 in human resources and technology
necessary to support business expansion and enhance the related infrastructure.
Performance-based funds management fees declined from their 1992 level.
Client Financial Risk Management - Primary risk management products include
derivatives contracts related to interest rates, currencies, equities and
commodities (or indices thereof), and credit. These products generate both
trading and net interest revenue. The Corporation continues to benefit from the
expanded use of an increasingly sophisticated array of risk management products
by clients on a global basis. As a result, Client Financial Risk Management
income increased by approximately 50 percent in 1993, to $336 million.
Client Transaction Processing - This business function produces net interest
revenue, fiduciary and funds management revenue, and fees and commissions from
money transfer, securities custody and clearance, securities lending, and
retirement plan recordkeeping and administrative services. Processing volumes in
1993 were up slightly. However, profit margins in Client Transaction Processing
were generally flat to slightly down, which together with higher expenses due to
significant investments in new systems (designed to improve future margins), led
to a modest decline in income, to $60 million.
Trading and Positioning - Trading and Positioning activities involve U.S.
government and agency securities, foreign government securities, various
derivative positions (including those assumed on behalf of clients), currencies,
equities (including private equities which are generally held for the
intermediate- to long-term) and increasingly, commodities, which generate
trading, net interest and other revenue. 1993 provided favorable market
conditions surrounding interest rates, upon which the Corporation capitalized in
its mainstream U.S., European and Japanese bond trading. The year also afforded
profitable trading opportunities in emerging markets, especially Latin America.
As a result, income from Trading and Positioning activities tripled, to $594
million, in 1993.
Financial Reporting Matters
Effective January 1, 1993, the Corporation adopted the new Statements of
Financial Accounting Standards ("SFAS") for postretirement benefits other than
pensions (SFAS 106) and postemployment benefits (SFAS 112). In adopting SFAS 106
and SFAS 112, the Corporation recorded charges to earnings of $100 million and
$7 million, respectively, (or $70 million and $5 million, respectively, net of
income taxes) for the cumulative effects of these changes in accounting
principles. Effective January 1, 1992, the Corporation adopted the new
accounting standard for income taxes (SFAS 109), resulting in the recording of a
$446 million credit to earnings for the cumulative effect of that accounting
change.
Effective with its December 31, 1993 financial statements, the Corporation
changed its reporting of earnings per common share. The Corporation now reports
primary and fully diluted earnings per share. Previously, the Corporation's
reported earnings per common share were based solely on the number of average
common shares outstanding, due to the fact that the difference between that
figure and primary earnings per share was not significant. The Corporation is
now reporting primary and fully diluted earnings per share for all prior periods
presented.
As used throughout this Annual Report, the term "international" signifies
information based on the domicile of the customer, whereas the term "foreign
office" refers to the location in which the transaction is recorded.
- --------------------------------------------------------------------------------
Statement of Income Analysis
Net Interest Revenue
Fully taxable net interest revenue for 1993 was a record $1.396 billion, up $197
million, or 16 percent, from 1992. Net interest revenue of $1.199 billion in
1992 had increased by $430 million, or 56 percent, from the amount earned in
1991.
The $197 million increase in net interest revenue during 1993 was due to a
$274 million, or 84 percent, increase in trading-related net interest revenue,
which totaled $601 million for 1993. The Firm's trading-related net interest
revenue began to climb significantly in the third quarter of 1992, and, on a
year-over-year basis, it increased in each quarter of 1993.
A significant portion of the Firm's trading and risk management activities
involve positions in interest rate instruments and related derivatives. The
revenue from these activities can periodically shift between trading and net
interest, depending on a variety of factors, including risk management
strategies. Therefore, the Corporation views trading revenue and trading-
related net interest revenue together. Within the section on trading revenue
herein (page 32), this revenue is discussed as a whole (trading and trading-
related net interest) for 1993 versus 1992.
Aside from trading-related net interest revenue, the Corporation's fully
taxable net interest revenue for 1993 declined by $77 million, or 9 percent,
from 1992. This decrease was primarily attributable to the combination of lower
levels of average interest-earning assets, particularly loans, and a $38 million
decline, to $48 million, in interest recognized on past due claims with
Argentina and Brazil.
For the 1992-versus-1991 comparison, excluding an increase of $59 million in
interest revenue recognized on nonaccrual Brazilian and Argentine assets, fully
taxable net interest revenue increased by $371 million. This increase was
almost entirely due to substantially higher trading-related net interest
generated by government securities positions used in interest rate and currency
arbitrage activities and as hedges of derivative products and foreign currency
trading positions. These activities benefited greatly from the extremely steep
yield curve that existed throughout most of 1992. Also, these securities
positions resulted in a sharply higher level of average interest-earning assets
than in 1991.
Total interest revenue recognized during 1992 on nonaccrual Brazilian and
Argentine assets was $86 million, which repre-
28 BANKERS TRUST
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Bankers Trust New York Corporation and Subsidiaries
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sented a combination of cash receipts and proceeds from sales of past-due-
interest instruments issued by these refinancing countries. Partially offsetting
these factors was a lower contribution from earning assets financed by
noninterest-bearing funds, which resulted from the lower rate environment of
1992.
Table 2 Net Interest Revenue Analysis
The table below presents the Corporation's trend of net interest revenue,
average balances and rates. For further details on these statistics, see pages
81 through 83.
<TABLE>
<CAPTION>
($ in millions) Year Ended December 31, 1993 1992 1991
- --------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Net interest revenue
Book basis $ 1,314 $ 1,147 $ 737
Tax equivalent adjustment* 82 52 32
------- ------- -------
Fully taxable basis $ 1,396 $ 1,199 $ 769
======= ======= =======
Average balances
Interest-earning assets $76,798 $66,329 $52,808
Interest-bearing liabilities 69,676 59,563 47,834
------- ------- -------
Earning assets financed by
noninterest-bearing funds $ 7,122 $ 6,766 $ 4,974
======= ======= =======
Average rates (fully taxable basis)
Yield on interest-earning assets 5.88% 6.44% 8.24%
Cost of interest-bearing liabilities 4.48 5.16 7.49
------- ------- -------
Interest rate spread 1.40 1.28 .75
Contribution of noninterest-bearing funds .42 .53 .71
------- ------- -------
Net interest margin 1.82% 1.81% 1.46%
======= ======= =======
</TABLE>
* The applicable combined federal, state and local incremental tax rates used to
determine the tax equivalent adjustments (which recognize the income tax
savings on tax-exempt assets) were 42 percent for 1993 and 41 percent for 1992
and 1991.
- --------------------------------------------------------------------------------
Summary of Credit Loss Experience
Charge-Off Procedures and Adequacy of the Allowance
for Credit Losses
As part of the Corporation's overall management and control process, the Credit
Audit Department is charged with the responsibility for performing an ongoing
independent examination of the portfolio, including loans, credit-related
commitments, derivatives and other financial instruments. All significant items
in the portfolio are reviewed annually; those under special supervision, such as
cash basis loans and renegotiated loans, are reviewed quarterly. In addition,
all levels of management are required to bring to the attention of the Credit
Audit Department any credit risk where an additional review of the
counterparty's financial position is believed to be warranted. The Credit Audit
Department reports at least quarterly to the Audit Committee of the Board of
Directors which, in turn, reports to the full Board of Directors with
recommendations for charge-offs. The Board has the final decision-making
responsibility in authorizing charge-offs.
In addition to the above procedures, federal and State of New York bank
examiners perform examinations of the Corporation's credit risks. The reports
on these examinations are reviewed by the Credit Audit Department with the Audit
Committee.
The provision for credit losses is dependent upon management's evaluation as
to the amount needed to maintain the allowance for credit losses at a level
considered appropriate in relation to the risk of losses inherent in the
portfolio. Various factors are collectively weighed by management in
determining the adequacy of the allowance. The Credit Audit Department and bank
regulatory authorities assess and issue reports on the quality of the portfolio
and on the adequacy of the allowance. As part of their annual audit, the
Corporation's independent auditors assess the adequacy of the allowance and the
provision for credit losses. These procedures include discussions with
management, a review of selected credit files and an evaluation of the periodic
reports issued by the Credit Audit Department and regulatory examiners.
In the opinion of management, the allowance, when taken as a whole, is
adequate to absorb reasonably estimated credit losses inherent in the
Corporation's portfolio.
BANKERS TRUST 29
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Bankers Trust New York Corporation and Subsidiaries
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Table 3 Analysis of the Allowance for Credit Losses
The following table analyzes the changes in the allowance for credit losses.
<TABLE>
<CAPTION>
($ in millions) Year December 31, 1993 1992 1991 1990 1989
- -------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Allowance for credit losses, beginning of year $1,620 $1,806 $2,169 $2,732 $1,314
------ ------ ------ ------ ------
Charge-offs
Domestic
Commercial and industrial 64 164 89 110 219
Financial institutions 4 - 2 - 3
Real estate
Construction 6 3 1 6 1
Mortgage 51 35 22 1 6
Other 1 - 1 4 1
International
Nonrefinancing country 302 98 152 118 36
Refinancing country 32 43 220 250 243
------ ------ ------ ------ ------
Total charge-offs 460 343 487 489 509
------ ------ ------ ------ ------
Recoveries
Domestic
Commercial and industrial 19 7 24 28 16
Financial institutions - - - 1 -
Real estate
Mortgage 1 1 - - -
Other 2 2 - 1 2
International
Nonrefinancing country 7 16 5 15 23
Refinancing country 42 23 20 12 11
------ ------ ------ ------ ------
Total recoveries 71 49 49 57 52
------ ------ ------ ------ ------
Total net charge-offs /(1)/ 389 294 438 432 457
Losses on sales and swaps of refinancing country loans - 117 163 325 2
------ ------ ------ ------ ------
Total net charges to the allowance 389 411 601 757 459
Provision for credit losses 93 225 238 194 1,877
------ ------ ------ ------ ------
Allowance for credit losses, end of year $1,324 $1,620 $1,806 $2,169 $2,732
====== ====== ====== ====== ======
Percentage of total net charges to average loans for the year 2.54% 2.45% 3.15% 3.57% 2.00%
====== ====== ====== ====== ======
/(1)/ Components:
Secured by real estate $ 116 $ 71 $ 61 $ 17 $ 7
Real estate related 3 27 40 11 1
Highly leveraged 15 117 63 126 110
Other nonrefinancing country 265 59 74 40 107
Refinancing country (10) 20 200 238 232
------ ------ ------ ------ ------
Total $ 389 $ 294 $ 438 $ 432 $ 457
====== ====== ====== ====== ======
</TABLE>
Provision and Allowance for Credit Losses
The provision for credit losses amounted to $93 million for 1993, compared with
$225 million for 1992 and $238 million in 1991.
Total net charge-offs for 1993 were $389 million, compared with $294 million
in the prior year and $438 million during 1991. Nonrefinancing country net
charge-offs for 1993 were $399 million and included charge-offs of $221 million
which resulted from the sale of Mexican government Par and Discount Bonds and
industrial development bonds, as well as the loss on revaluation to market value
of the remainder of these bonds as the result of their designation as available
for sale in connection with the adoption of SFAS 115 at December 31, 1993. Net
charge-offs of $119 million of real estate loans and $15 million of loans to
highly leveraged borrowers were also recorded during 1993. For 1992,
nonrefinancing country net charge-offs were $274 million, which included $117
million of loans to highly leveraged borrowers, $98 million of real estate loans
and $59 million to other borrowers, $50 million of which was attributable to a
single domestic commercial credit. In 1993, the Corporation recorded $10
million of refinancing country net recoveries. In 1992, refinancing country net
charge-offs totaled $20 million, which included charge-offs of the Corporation's
remaining medium- and long-term loans (after sales of $295 million of such loans
which resulted in losses of $117 million during the year) to all refinancing
countries other than Brazil and Venezuela. Gross charge-offs during 1993 were
$460 million, compared with $343 million for 1992.
The allowance for credit losses decreased to $1.324 billion at December 31,
1993, from $1.620 billion at year end 1992 and $1.806 billion at December 31,
1991. The allowance was equal to 136 percent, 118 percent and 103 percent of
total cash basis loans at December 31, 1993, 1992 and 1991, respectively. Total
medium- and long-term loans to refinancing countries were $131 million at
December 31, 1993, which consisted mostly of cash basis loans to Brazilian
borrowers. At December 31, 1992, the Corporation's refinancing country loan
portfolio, consisting
30 BANKERS TRUST
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primarily of loans to Brazilian borrowers, had a total book value of $259
million, which amount approximated the then-current net realizable value of this
portfolio. This total was down from $588 million of total loans to refinancing
countries at December 31, 1991. It was for this reason that, during 1992, the
Corporation discontinued its former practice of viewing a portion of the
allowance as being related to refinancing country loans.
During 1991, the Corporation reclassified its Mexican outstandings (primarily
Mexican government bonds received as part of that country's Brady Plan
restructuring) and Chilean outstandings (together totaling $788 million) to
nonrefinancing country status. These reclassifications were made in light of
significant improvements in the two nations' economies. At December 31, 1991,
the Corporation's credit loss allowance included a reserve of $259 million which
could have been viewed as related to its total refinancing country loans. This
amount represented 44 percent of such loans (net of collateral consisting of
U.S. Treasury securities) at that date. However, the Corporation felt that a
more correct way to view its coverage ratio related to its refinancing country
loan portfolio was to include the allowance for credit losses related to such
loans plus the cumulative charge-offs of such loans, expressed as a percentage
of the adjusted total face amount of refinancing country loans. In this regard,
at December 31, 1991, the Corporation's coverage of its medium- and long-term
refinancing country loans was 73 percent, while the coverage of total
refinancing country loans was 72 percent.
In 1991, the provision for credit losses totaled $238 million, an increase of
$44 million from 1990. In 1990, the provision for credit losses totaled $194
million, down $1.683 billion from 1989 primarily due to the $1.600 billion
special provision for refinancing country credit losses recorded during 1989.
Pursuant to a regulatory requirement, the table below provides the components
of the allowance for credit losses by loan classification. This breakdown of
the allowance at each year end reflects management's best estimate of possible
credit losses and may not necessarily be indicative of actual future charge-offs
by loan classification. It should be further emphasized that the Corporation
believes that the allowance must be viewed in its entirety and is therefore
available for credit losses in its entire portfolio.
<TABLE>
<CAPTION>
(in millions) December 31, 1993 1992 1991 1990 1989
- -------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Domestic
Commercial and industrial $ 115 $ 162 $ 147 $ 148 $ 92
Financial institutions 8 19 32 32 21
Real estate
Construction 15 10 10 3 3
Mortgage 65 50 60 28 25
Other 1 4 12 15 12
------ ------ ------ ------ ------
Total domestic 204 245 261 226 153
International 190 403 599 1,112 1,299
------ ------ ------ ------ ------
Total allocated 394 648 860 1,338 1,452
Unallocated portion*
Domestic 599 368 347 195 84
International 331 604 599 636 1,196
------ ------ ------ ------ ------
Total allowance for
credit losses $1,324 $1,620 $1,806 $2,169 $2,732
====== ====== ====== ====== ======
</TABLE>
* This amount and any unabsorbed portion of the allocated allowance is also
available for credit losses in the entire portfolio.
For purposes of providing information required by regulatory authorities and
subject to the above limitations, the following table presents an analysis of
the changes in the international component of the allowance for credit losses:
<TABLE>
<CAPTION>
(in millions)
Year Ended December 31, 1993 1992 1991 1990 1989
- ---------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $1,007 $1,198 $1,748 $2,495 $1,077
------ ------ ------ ------ ------
Net charge-offs
Charge-offs 334 141 372 368 279
Recoveries 49 39 25 27 34
------ ------ ------ ------ ------
Total net charge-offs 285 102 347 341 245
Losses on sales and swaps of
refinancing country loans - 117 163 325 2
------ ------ ------ ------ ------
Total net charges to the
allowance 285 219 510 666 247
Provision for credit losses 40 61 148 112 1,665
Reallocation to domestic allowance 241 33 188 193 -
------ ------ ------ ------ ------
Balance, end of year $ 521 $1,007 $1,198 $1,748 $2,495
====== ====== ====== ====== ======
</TABLE>
The 1993 reallocation of $241 million from the international to the domestic
component of the allowance for credit losses was based on the continuing
evaluation of the Corporation's overall credit portfolio. The reduction in the
international allowance was primarily attributable to the sale of Mexican
government Par and Discount Bonds during 1993 and the designation of the
remainder of these bonds, as well as certain Brazilian government bonds, as
securities available for sale.
The 1991, 1990, and 1989 international allowances included $259 million,
$1.487 billion and $2.418 billion, respectively, of reserves which could have
been viewed as related to refinancing country loans. The 1991 year-end
allowance related to refinancing country loans decreased $1.228 billion from
year end 1990, due to the reallocation of $865 million to the portion of the
allowance which could have been viewed as available for nonrefinancing country
loans, net charge-offs of $200 million and losses of $163 million resulting from
sales of $377 million of loans. The net charge-offs consisted of gross charge-
offs of $220 million and recoveries of $20 million. The 1991 reallocation was
due mainly to the reclassification of Mexican and Chilean loans to
nonrefinancing country status, as well as the deterioration of certain major
economies around the world and the resultant increase in nonrefinancing country
cash basis loans.
During 1990, the allowance relating to refinancing country loans decreased
$931 million from year end 1989, due to losses of $325 million resulting from
sales and swaps of $1.006 billion of loans; net charge-offs of $238 million; and
a reallocation of $368 million to the portion of the allowance which could have
been viewed as available for nonrefinancing country loans. The net charge-offs
consisted of gross charge-offs of $250 million and recoveries of $12 million.
BANKERS TRUST 31
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Bankers Trust New York Corporation and Subsidiaries
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Trading Revenue
The Corporation conducts its global trading of debt and
equity securities, money market instruments, derivative products and foreign
exchange as an integrated business because of the dynamic interplay between
worldwide interest rates, exchange rates and equity indices. Trading revenue is
generated by proprietary activities and client-related activities. Proprietary
activities include the trading of U.S. government and agency securities, foreign
sovereign securities and foreign exchange and currency options, and commodities,
as well as the intermediate and longer-term proprietary trading of liquid
securities, foreign exchange and derivative products. The Firm also trades
restructured loans, bonds, equities and other instruments of Latin American and
other emerging markets issuers. Trading activities also encompass the Firm's
dealer business of providing risk management products for clients, including
derivatives such as swaps, options, forwards and other similar types of
contracts.
A significant portion of the Firm's trading and risk management activities
involve positions in interest rate instruments and related derivatives. The
revenue from these activities can periodically shift between trading and
trading-related net interest, depending on a variety of factors, including risk
management strategies.
Trading-related net interest revenue represents interest earned on cash
instruments held in the trading positions for either proprietary trading or risk
management purposes, less the cost to fund both cash and derivatives positions.
For the year 1993, trading revenue was a record $1.631 billion, up $735
million, or 82 percent, from the $896 million reported in 1992, which had been
$333 million lower than 1991. Similarly, trading-related net interest increased
to $601 million, up $274 million, or 84 percent, from $327 million in 1992. The
$1.009 billion increase in combined trading revenue and trading-related net
interest revenue in 1993 resulted from the Firm's increased positioning in
sovereign bonds and other interest rate-sensitive securities and particularly in
instruments denominated in European currencies and in Yen as well as in the
issues of several emerging markets countries. These positions were acquired in
connection with both proprietary and client risk management activities.
The table below quantifies the Firm's 1993 trading revenue and trading-related
net interest revenue by major category of market risk. These categories are
based on management's view of the predominant underlying risk exposure of each
of the Firm's trading positions.
<TABLE>
<CAPTION>
Trading-
Related
Net
(in millions) Trading Interest
Year Ended December 31, 1993 Revenue Revenue Total
------- -------- ------
<S> <C> <C> <C>
Interest rate risk $1,066 $642 $1,708
Foreign exchange risk 191 - 191
Equity and commodity risk 374 (41) 333
------- -------- ------
Total $1,631 $601 $2,232
======= ======== ======
Year ended December 31, 1992 $ 896 $327 $1,223
======= ======== ======
</TABLE>
The 1992 decline in trading revenue compared to 1991 was offset by higher
trading-related net interest revenue. The decrease in trading revenue in 1992
was primarily attributable to a sharp decline in profits from the trading of
emerging markets assets, as well as losses from certain fixed income trading
strategies. In addition, although trading revenue from client-related risk
management businesses contributed over one-half of trading revenue in 1992,
these businesses did experience an overall decline in trading revenue from that
recorded in 1991.
During both 1991 and 1992, the Corporation modified its accounting policy with
regard to certain emerging markets trading account assets, with an immaterial
effect on net income in each year. See Note 1 of Notes to Financial Statements.
The Corporation's business is affected by global factors, including, but not
limited to, economic and political conditions, broad trends in business and
finance, legislation and regulation affecting the U.S. and foreign business and
financial communities, currency, commodity and equity values, market conditions
and the level and volatility of interest rates. Among other effects, these
factors affect the volume and price levels of securities, foreign exchange
rates, futures and commodities transactions and the stability and liquidity of
markets. In particular, in the first quarter of 1994, market conditions have
been difficult due to, among other things, the Federal Reserve Board's decision
to raise short-term interest rates and the breakdown of U.S.-Japan trade talks,
which conditions have adversely affected certain of the Corporation's trading
positions. The Corporation issued a public statement on March 2, 1994, that
"... its operations thus far in 1994 have been profitable." The Corporation's
operations in 1994 continue to be profitable as of the date of this document.
Fiduciary and Funds Management Revenue
Fiduciary and funds management revenue was a record $703 million in 1993, up $55
million, or 8 percent, from the $648 million earned in 1992, which was $81
million higher than the $567 million recorded in 1991. The increase in 1993 was
primarily due to new business in securities lending and retirement services, as
well as higher levels of private banking assets under management. These
improvements were partially offset by a decline in performance-based funds
management fees. The increase in 1992 was due primarily to higher revenue from
asset management activities, particularly performance-based foreign exchange
funds management for institutional clients, as well as from private banking
services.
32 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Fees and Commissions
Total fees and commissions were $710 million for 1993, which represented an
increase of $122 million, or 21 percent, from the $588 million earned in 1992,
which had been $77 million higher than the $511 million recorded in 1991. Of
the 1993 increase, $81 million related to corporate finance fees, which rose by
25 percent, to $407 million. The 1993 increase in corporate finance fees was
driven by higher revenue from securities underwriting and loan and lease
syndication activities, as the year's extremely favorable market conditions led
many of the Firm's clients to restructure their balance sheets. The largest
components of the remaining $41 million increase were fees from the structuring
of products for employee benefit plans and fees for brokerage services.
Corporate finance fees of $326 million for 1992 were higher by $77 million, or
31 percent, than the 1991 total. This had represented the first full-year
increase in corporate finance fees since 1988. The 1992 increase in corporate
finance fees was due primarily to higher fees from securities underwriting,
financial advisory and loan syndication activities.
Other Noninterest Revenue
Other noninterest revenue totaled $307 million for 1993, an increase of $104
million from 1992. The largest factor in this increase was a nearly ten-fold
increase in net revenue from equity investment transactions, including write-
offs, to a record $126 million. This category of other noninterest revenue
included $32 million of total equity write-offs in 1993 (down from $52 million
in 1992), as well as a $16 million gain on the sale of the Corporation's
minority interest in A.F.P. Provida, S.A., a Chilean pension fund administrator.
Also contributing to the year-to-year increase in other noninterest revenue were
a $14 million increase in insurance premium revenue, a 1993 gain on the sale of
the Corporation's Bankstat business and slightly higher gains on sales of
certain other assets. Partially offsetting these factors were a higher level of
losses from the revaluation of non-trading foreign currency positions and a 1993
writedown of assets previously acquired in satisfaction of indebtedness as well
as gains during 1992 from the partial curtailment of an overseas defined benefit
plan ($15 million) and the sale of the San Francisco branch of the California
subsidiary ($10 million).
Other noninterest revenue totaled $203 million for 1992, up $34 million from
1991. The increase was due largely to a lower level of losses in 1992 from the
revaluation of certain non-trading foreign currency positions. Also
contributing to the increase were the combined effects of the recognition during
1992 of the $15 million overseas benefit plan curtailment gain, versus a $6
million gain from the partial curtailment of the principal domestic plan in
1991; the $10 million gain in 1992 on the San Francisco branch sale, and modest
gains on sales of other assets, versus losses on such sales in 1991. Partially
offsetting these factors was a $12 million decline in net revenue from equity
investment transactions, to $13 million. In 1992, the latter category included
$52 million in write-offs, compared to $34 million of equity write-offs in 1991.
Noninterest Expenses
Total noninterest expenses were $3.035 billion for 1993, an increase of $688
million, or 29 percent, from the $2.347 billion recorded in 1992. Incentive
compensation and employee benefits expense increased by $442 million, or 61
percent, driven by a higher bonus accrual recorded in connection with the higher
earnings, although higher severance expense was also a factor in the increase.
Salaries expense was up $57 million, or 9 percent in 1993. The average number
of employees increased by 7 percent from the 1992 figure, to 13,334.
All other noninterest expenses totaled $1.176 billion for 1993, which was $189
million, or 19 percent, higher than in 1992. Increases in other real estate
expense, fees for professional services, agency personnel fees, the provision
for policyholder benefits and contributions expense accounted for two-thirds of
the total 1993 increase.
Noninterest expenses totaled $2.347 billion for 1992, an increase of $160
million, or 7 percent, over the $2.187 billion recorded in 1991. Personnel-
related expenses of $1.360 billion for 1992 increased by $124 million, or 10
percent, from 1991. Salaries expense increased $24 million, or 4 percent, while
incentive compensation and employee benefits expense increased $100 million, or
16 percent. The latter increase was due largely to higher incentive
compensation, based on higher earnings and an $18 million increase in 1992
resulting from an amendment of a performance award program. Partially
offsetting these factors was a decline in severance expense in 1992.
All other expenses totaled $987 million for 1992, up $36 million, or 4
percent, from 1991. Increases were recorded in a variety of expense categories
driven by higher levels of business activity, including agency personnel fees,
travel and entertainment, and fees for professional services. These factors
were partially offset by a $22 million charge recorded during 1991 related to
the cost of vacated premises.
Income Taxes
Income tax expense for 1993 amounted to $480 million, compared with $267 million
for 1992. The effective tax rate for 1993 was 31 percent, while the 1992
effective tax rate was 29 percent. These figures exclude the income taxes
included in the reported cumulative effects of accounting changes for SFAS 106
and SFAS 112 (1993) and SFAS 109 (1992).
The effective tax rate for 1991 was 20 percent. Excluding the effect of $63
million of previously unrecognized federal tax benefits recorded that year, the
effective tax rate for 1991 was 28 percent.
In connection with the adoption of SFAS 109, a valuation allowance of $227
million was recorded effective January 1, 1992. The valuation allowance, the
amount of which was unchanged through December 31, 1993, related to deferred tax
assets the realization of which are dependent on the source and mix of future
income.
BANKERS TRUST 33
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
International Operations
International operations have made a significant contribution to consolidated
results, consistent with the emphasis the Corporation has placed on foreign
markets. The Corporation's assets and summarized results of operations for 1993,
1992 and 1991 have been segregated between domestic and international operations
in Note 21 of Notes to Financial Statements. This analysis, which is based on
the domicile of the customer, incorporates numerous subjective assumptions.
International net income totaled $865 million for 1993, compared with $964
million for 1992. International operations contributed 87 percent and 89
percent of the Corporation's net income in 1993 and 1992, respectively. Included
in 1992 net income was the $446 million credit for the cumulative effect of
adopting SFAS 109, which was primarily attributable to the Western Hemisphere.
International income before cumulative effects of accounting changes increased
by $347 million in 1993, to $865 million. Significant geographic components of
this increase follow.
United Kingdom earnings improved by $388 million, as trading revenue improved
significantly and was partially offset by higher noninterest expenses. Asia
income increased by $51 million, primarily due to higher trading revenue in Hong
Kong, Singapore, Tokyo and Seoul, offset in part by lower net interest revenue
and higher noninterest expenses. Western Hemisphere income declined by $35
million, primarily due to lower interest revenue from nonaccrual Brazilian
assets and a higher provision for policyholder claims, partially offset by
increases in trading revenue, insurance premium revenue and interest revenue
from nonaccrual Argentine assets. Australia/New Zealand earnings decreased by
$24 million, primarily due to higher noninterest expenses and lower trading
revenue, partially offset by higher fiduciary and funds management revenue and
fees and commissions.
Domestic net income increased by $9 million in 1993. Excluding the cumulative
effects of adopting SFAS 106 and SFAS 112, domestic earnings increased by $84
million. Significant favorable variance factors included higher net interest
revenue, fees and commissions, and other noninterest revenue as well as a lower
provision for credit losses. Partially offsetting these favorable factors were
lower trading revenue and higher noninterest expenses.
International total assets were $47.8 billion at December 31, 1993, compared
with $37.0 billion at December 31, 1992 and represented 46 percent and 43
percent of total consolidated assets (before intersegment eliminations),
respectively. The $10.8 billion increase was primarily due to increases in
United Kingdom and Europe trading account assets.
International net income totaled $964 million for 1992, compared with $402
million for 1991. International operations contributed 89 and 60 percent of the
Corporation's net income in 1992 and 1991, respectively. Excluding the
cumulative effect of adopting SFAS 109, international income rose in 1992 by
$116 million.
The increase in 1992 international income before cumulative effects of
accounting changes as compared to 1991 was primarily due to improved results in
the United Kingdom. United Kingdom earnings improved by $104 million, as higher
net interest revenue and a lower provision for credit losses were only partially
offset by lower noninterest revenue. A $19 million increase in Asia income
reflected higher trading revenue in Tokyo and Hong Kong, offset in part by lower
net interest revenue. Australia/New Zealand income was $18 million higher due
to increases in fiduciary and funds management revenue and net interest revenue,
offset in part by lower trading revenue. Middle East/Africa earnings declined by
$19 million, due to higher noninterest expenses. Income for Europe was $15
million lower than in 1991, primarily due to decreased trading revenue, offset
in part by higher net interest revenue and a lower provision for credit losses.
Western Hemisphere net income in 1991 exceeded its income before taxes in that
year. This was primarily due to the recognition of income tax benefits
attributable to less-developed-country credit loss provisions which had been
recorded in earlier years.
Domestic net income decreased by $144 million in 1992. Significant variance
factors included lower trading revenue and increases in both the provision for
credit losses and noninterest expenses. These were partially offset by
increases in net interest revenue, corporate finance fees and fiduciary and
funds management revenue.
International total assets were $37.0 billion at December 31, 1992, compared
with $40.4 billion at December 31, 1991 and represented 43 percent and 50
percent of total consolidated assets (before intersegment eliminations),
respectively. The $3.4 billion decline was primarily due to decreases in
Australia/New Zealand, United Kingdom and Western Hemisphere. The Australia/New
Zealand decline was primarily due to decreases in trading account assets and
investment securities. Declines in United Kingdom and Western Hemisphere were
primarily due to movements in intersegment balances.
34 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
CHANGES IN FINANCIAL CONDITION
A discussion of significant changes in the Corporation's on- and off-balance
sheet activities, both of which affect financial condition, is included below.
Balance Sheet Analysis
Table 4 below highlights the trends in the balance sheet over the past two
years. Because annual averages tend to conceal trends and year-end balances can
be distorted by one-day fluctuations, fourth quarter averages for each year are
provided to give a better indication of trends in the balance sheet.
Table 4 Condensed Balance Sheets - Fourth Quarter Averages
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
Assets
<S> <C> <C> <C>
Interest-bearing deposits with banks $ 2,042 $ 2,777 $ 4,157
Federal funds sold 488 746 513
Securities purchased under resale agreements 8,791 14,148 9,317
Securities borrowed 2,343 - -
Trading account assets 41,942 26,547 18,371
Investment securities
Taxable 5,541 5,321 5,248
Exempt from federal income taxes 1,030 901 727
------- ------- -------
Total investment securities 6,571 6,222 5,975
Loans
In domestic offices 8,446 10,997 10,673
In foreign offices 5,765 6,026 7,497
------- ------- -------
Total loans 14,211 17,023 18,170
------- ------- -------
Total interest-earning assets 76,388 67,463 56,503
Cash and due from banks 1,971 1,466 1,608
All other assets 10,300 7,246 9,866
Allowance for credit losses (1,494) (1,667) (1,829)
------- ------- -------
Total $87,165 $74,508 $66,148
======= ======= =======
Liabilities
Interest-bearing deposits
In domestic offices $ 8,511 $ 8,231 $ 6,093
In foreign offices 12,410 11,798 14,401
------- ------- -------
Total interest-bearing deposits 20,921 20,029 20,494
Securities sold, not yet purchased 7,430 5,693 2,758
Securities sold under repurchase agreements 21,671 18,800 13,394
Other short-term borrowings 14,504 11,009 12,566
Long-term debt 5,450 4,102 2,961
------- ------- -------
Total interest-bearing liabilities 69,976 59,633 52,173
Noninterest-bearing deposits 3,932 4,417 3,706
All other liabilities 8,577 6,267 6,863
------- ------- -------
Total Liabilities 82,485 70,317 62,742
------- ------- -------
Preferred Stock of Subsidiary 250 - -
------- ------- -------
Stockholders' Equity
Preferred stock 250 500 500
Common stockholders' equity 4,180 3,691 2,906
------- ------- -------
Total Stockholders' Equity 4,430 4,191 3,406
------- ------- -------
Total $87,165 $74,508 $66,148
======= ======= =======
</TABLE>
The condensed average balance sheets are presented on a different basis than the
spot balance sheets, in that the various categories of interest-earning assets
and interest-bearing liabilities exclude certain noninterest-earning/bearing
components included in the spot balance sheet captions. These components are
included in "all other assets" and "all other liabilities" in the condensed
average balance sheets.
BANKERS TRUST 35
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
The Corporation's strategy has de-emphasized traditional lend and hold banking
in favor of fee-based origination, distribution and advisory services, as well
as dealing and trading in liquid, marked-to-market trading account assets. This
strategy has resulted in an improvement in the liquidity of the Corporation's
balance sheet.
The Corporation's average total assets amounted to $87.2 billion in the fourth
quarter of 1993, an increase of $12.7 billion, or 17 percent, from the fourth
quarter of 1992. Interest-earning assets increased by $8.9 billion, or 13
percent, although the proportion of interest-earning assets to total assets
decreased from 91 percent to 88 percent in 1993.
The average balance of total loans declined for the seventh consecutive year.
Loans represented 16 percent, 23 percent and 27 percent of average total assets
in 1993, 1992 and 1991, respectively. This declining loan trend reflects the
fact that the majority of the medium- and long-term loans that the Corporation
originates are sold or participated to other institutions. Conversely, the
percentage of interest-earning trading account assets to total assets rose from
28 percent in 1991 to 36 percent in 1992 and to 48 percent in 1993. Management
anticipates a continuation of the trend whereby the Corporation's loan portfolio
has decreased in absolute size and has been surpassed by liquid assets, led by
trading account assets, as a percentage of total assets.
The average balance of interest-bearing deposits with banks declined once
again, as these deposits comprised 2 percent, 4 percent and 6 percent of average
total assets in 1993, 1992 and 1991, respectively.
Combined securities purchased under resale agreements and securities borrowed
represented 13 percent of total assets in 1993, down from 19 percent in 1992,
which was up from 14 percent in 1991. The year-to-year fluctuations in these
assets resulted primarily from U.S. government and agency positions maintained
by BT Securities Corporation to facilitate its trading and financing activities.
Interest-earning trading account assets averaged $41.9 billion, or 48 percent
of total assets in the fourth quarter of 1993. These assets grew by 58 percent
over 1992, after increasing 45 percent from 1991, reflecting market
opportunities. Trading account activities are conducted globally and monitored
centrally. Management anticipates continued variability in trading account size
and composition as views of the economic cycle change and as the Corporation
expands the markets and instruments in which it trades.
Investment securities, which averaged $6.6 billion during the fourth quarter
of 1993, increased by 6 percent from 1992, while the 1992 amount had increased
by 4 percent from 1991. The size of the available-for-sale securities portfolio
is related to interest rate spread opportunities.
All other assets for 1993 increased $3.1 billion, or 42 percent, from 1992,
which had decreased $2.6 billion, or 27 percent from 1991. The increase in this
category during 1993 was due largely to a higher level of noninterest-earning
trading account assets.
Interest-bearing liabilities as a percentage of total funding sources was 80
percent in both 1993 and 1992, up from 79 percent in 1991. Interest-bearing
liabilities increased $10.3 billion from 1992, due primarily to a $3.5 billion,
or 32 percent, increase in other short-term borrowings, a $2.9 billion, or 15
percent, increase in securities sold under repurchase agreements, and a $1.7
billion, or 31 percent, increase in securities sold, not yet purchased. Total
short-term borrowings (securities sold under repurchase agreements and other
short-term borrowings) as a percentage of total interest-bearing liabilities was
52 percent in 1993 and 50 percent in 1992 and 1991. During 1993, the
Corporation's excess of interest-earning assets over interest-bearing
liabilities decreased from $7.8 billion to $6.4 billion, or from 12 percent to 8
percent of interest-earning assets.
The Corporation continues to develop and access a diverse base of liability
products and markets in order to minimize interest expense while balancing
liquidity objectives. Swaps, options, forward rate agreements, and other hedging
instruments are utilized to manage rate risk.
Combined total stockholders' equity and preferred stock of subsidiary for 1993
increased to $4.7 billion, or 12 percent over 1992, which increased 23 percent
over 1991. The 1993 increase was due primarily to the retention of $708 million
of earnings (which included a $75 million charge to earnings for the cumulative
effects of accounting changes), while the 1992 increase was due primarily to the
retention of $817 million of earnings (which included a $446 million credit to
earnings for the cumulative effect of an accounting change).
Off-Balance Sheet Analysis
The notional amounts associated with certain financial transactions are not
recorded as assets or liabilities on the balance sheet. Off-balance sheet
treatment is generally considered appropriate either where exchange of the
underlying asset or liability has not occurred nor is assured, or where notional
amounts are used solely to determine cash flows to be exchanged.
Off-balance sheet financial instruments consist of derivatives contracts,
when-issued securities, securities lending indemnifications and credit-related
arrangements. These financial instruments are subject to varying degrees of
market and credit risk. For a discussion of risks and procedures used to
monitor such risks, refer to the Risk Management section below. Additional
information about off-balance sheet financial instruments is provided in Notes
22, 23 and 24 of Notes to Financial Statements. The following discussion
pertains solely to the Corporation's use of derivatives contracts. A table
indicating the location of additional information applicable to derivatives is
presented at the conclusion of this discussion.
36 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Derivatives
The markets for derivatives contracts have expanded significantly during the
past decade. These instruments have provided highly effective tools that enable
users to adjust risk profiles, such as interest rate, currency, or other market
risks, as well as to take trading positions. Derivatives provide a cost-
effective alternative to assuming market risks associated with traditional on-
balance sheet financial instruments and commodities. Derivatives include swaps,
futures and forwards (including forward rate agreements), options contracts
(including caps, floors, collars and swap options), and other similar types of
contracts and commitments based on interest rates, foreign exchange rates and
the prices of equities or commodities (or related indices).
The Corporation is a preeminent dealer of derivatives contracts in markets
throughout the world. The growth in the Corporation's activities involving
derivatives is attributable to its dealer-related activities. Dealers of
derivatives contracts typically act as counterparty to end users or other
dealers rather than functioning purely as an agent or broker. As a result, the
Corporation may build up sizable positions in derivatives which may be managed
by taking risk-offsetting positions in other derivatives and/or cash
instruments. Counterparties to the Corporation's derivatives transactions are
primarily foreign and U.S. commercial banks, and also include corporations,
governments and their agencies, securities firms, finance companies, insurance
companies, investment companies and pension funds.
Although the notional amounts of derivatives are not recorded on the balance
sheet, dealer-related derivatives are carried at their market values. Gains and
losses related to these positions are included in trading revenue.
Substantially all of the Corporation's derivatives positions at December 31,
1993 were dealer-related and accounted for in this manner. These positions may
vary significantly in size, similar to the on-balance sheet positions in cash
instruments also carried in the Corporation's trading account.
In addition, the Corporation, as end user, enters into derivatives
transactions (principally interest rate swaps) in order to alter particular
interest rate and currency exposures. For example, derivatives may be used in
this manner to lower funding costs or diversify sources of funding. These
positions differ from trading positions in that they are not marked to market in
trading revenue and revenue or expense arising from these transactions is
recognized over the life of the contract as interest revenue or expense,
changing the effective interest revenue or expense of the hedged asset or
liability. The notional amount of derivatives accounted for in this manner
totaled $40 billion at December 31, 1993, which represented only 2 percent of
the total notional amount of the Corporation's derivatives positions. At
December 31, 1993, $16 billion of the notional amount of these transactions will
mature in 1994, $13 billion in 1995 through 1996, $5 billion in 1997 through
1998 and $6 billion in the years thereafter. Unrealized gains and unrealized
losses, net of amounts accrued in interest revenue and expense, that were
attributable to end-user contracts were $674 million and $564 million,
respectively, at December 31, 1993. Deferred gains and losses relating to
terminated derivatives contracts were minimal at December 31, 1993.
The notional amounts used to express the extent of the Corporation's
involvement in derivatives transactions do not represent a quantification of the
market or credit risk of the positions. The notional amounts presented in Note
22 of Notes to Financial Statements represent the amounts used to calculate
contractual cash flows to be exchanged and are generally not actually paid or
received, except for certain contracts such as currency swaps and foreign
exchange forwards. In addition, any measurement of risk is meaningful only
where all related factors are identified, such as risk-offsetting transactions,
master netting agreements, and the value of any related collateral. The
Corporation considers such factors in its RAROC system and in other internal
analyses.
The market risk of derivatives arises principally from the potential for
changes in interest rates, foreign exchange rates, and equity and commodity
prices. Unlike credit risk, the market risk of derivatives is generally similar
to that of the cash instrument underlying the contract. The market risk to the
Corporation is not measured by the price sensitivity of individual contracts,
but by the net price sensitivity of the relevant portfolio, including cash
instruments. The Corporation generally manages its exposures by taking risk-
offsetting positions. The market exposures arising from derivatives are
monitored in the Corporation's RAROC system. During 1993, the Corporation
managed significant derivatives positions in the following markets: U.S.
interest rates, European interest rates and currencies, Japanese interest rates
and equity derivatives.
In times of stress, sharp price movements or volatility shocks may reduce
liquidity in certain derivatives positions, as well as in cash instruments.
Liquidity risk, in the context of derivatives, is based on the liquidity of the
underlying cash instrument, which affects the ability of the Corporation to
alter the risk profile of its positions rapidly and at a reasonable cost. The
Corporation's mark-to-market practices for derivatives include adjustments in
consideration of these factors, when appropriate. These practices are
consistent with those applied to the Corporation's on-balance sheet financial
instruments.
The credit risk of derivatives arises from the potential for a counterparty to
default on its contractual obligations. The Corporation monitors and manages
credit risk associated with derivatives by applying uniform standards maintained
for all activities with credit risk. In addition, the Corporation enters into
master netting agreements (which incorporate the right of set-off to provide for
the net settlement of covered contracts with the same counterparty in the event
of default or other cancellation of the agreement) and obtains collateral where
appropriate. The credit risk of derivatives is included in the Corporation's
centralized credit management and RAROC systems.
BANKERS TRUST 37
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Credit risk exists at a particular point in time when a derivative has a
positive market value. Derivatives other than options may be in an unrealized
gain or unrealized loss position depending on market rates and the terms of the
contract. Purchased option contracts with positive market values have credit
risk. At December 31, 1993, the total credit risk amounts associated with
interest rate contracts, foreign exchange rate contracts, and equity and
commodity contracts were $13.1 billion, $10.1 billion and $1.5 billion,
respectively. These amounts did not reflect reductions for the effects of
master netting arrangements. At December 31, 1993, exposures to OECD country
banks and OECD country central governments represented approximately 60 percent
and 7 percent, respectively, of the total of these credit risk amounts.
Credit losses related to derivatives contracts have been minimal for the
Corporation. Nonperforming derivatives contracts included in other
nonperforming assets at December 31, 1993 totaled $16 million. The
Corporation's allowance for credit losses is generally available for credit
losses related to derivatives contracts. Derivatives are considered by the
Credit Audit Department when it reviews both general and specific credit risks
in the Corporation's portfolio.
The international bank regulatory standards for risk-based capital consider
the credit risk arising from derivatives in the assessment of capital adequacy.
These standards were issued under the Basle Accord of July 1988 and adopted in
1989 by the U.S. bank regulators, including the Federal Reserve Board. These
standards reflect the credit risk of derivatives on a conservative basis, since
the calculation includes a factor for future price changes but excludes any
benefit for the reduction of credit risk obtained from master netting
agreements. At December 31, 1993, the risk-weighted amounts that were
calculated based on these international standards for interest rate contracts,
foreign exchange rate contracts, and equity and commodity contracts were $3.2
billion, $4.9 billion, and $.7 billion, respectively.
Further information that is applicable to derivatives may be found in the
following sections:
<TABLE>
<CAPTION>
Relevant
Information Page Title
- ----------- ---- -----
<S> <C> <C>
Revenue by risk category 32 Trading Revenue
Risk-weighted amounts 39 Capital Resources
RAROC system 41 Risk Management
Accounting 54 Significant Accounting Policies
Net amount on balance sheet 56 Trading Account Assets; Securities
Sold, Not Yet Purchased
Notional and credit risk amounts 70 Financial Instruments With Off-
Balance Sheet Risk
Significant counterparties 72 Concentrations of Credit Risk
Effects of end-user contracts: 73 Fair Value of Financial
Instruments
84 Interest Rate Sensitivity
</TABLE>
Liquidity and Capital Resources
The Corporation believes that it has sufficient resources to meet the present
and foreseeable needs of its business operations. Liquidity and capital
resources are discussed separately below.
Liquidity
Liquidity is the ability to have the funds available at all times to meet the
commitments of the Corporation. The Corporation has a formal process for
monitoring liquidity and reviewing liquidity policy on a regular basis, for the
Firm as a whole as well as for its significant legal entities.
One of the most important aspects of liquidity management has been and
continues to be the flexibility with which the Corporation manages its cash
flow. Among the elements that the Corporation considers in evaluating its
liquidity are: 1) marketability of assets; 2) asset-to-liability
repayment/maturity characteristics; and 3) diversity of funding sources. In
recent years, the Corporation has improved its liquidity through the
liquification of its assets and by increasing asset turnover.
Most of the Corporation's assets are highly liquid and of high credit quality.
Liquid assets consist of cash and due from banks, interest-bearing deposits with
banks, federal funds sold, securities purchased under resale agreements,
securities borrowed, trading account assets, and securities available for sale.
Securities purchased under resale agreements and securities borrowed are
virtually all short-term in nature and are collateralized with U.S. government
or other marketable securities, or cash equivalents. Trading account assets are
marked to market daily and include U.S. government and agency securities, state
and municipal securities, foreign government obligations, and money market
instruments, which together constitute the majority of total trading account
assets. At December 31, 1993, the Corporation's liquid assets amounted to $71.6
billion, or 77 percent of gross total assets, up from 68 percent at December 31,
1992.
The Corporation has continued to expand and diversify its liabilities through
the globalization of its funding sources. One of the Corporation's principal
sources of day-to-day funding is provided by securities sold under repurchase
agreements, generally involving U.S. government and agency securities. Short-
term financing is also available to the Corporation under various commercial
paper programs. The remainder of the Corporation's short-term borrowings and
its deposits are provided by a broadly diversified investor/depositor base in
various markets throughout the world.
The Corporation maintains excess liquidity through its base of liquid assets,
as well as through its substantial borrowing capacity, which includes unused
committed credit lines. The Corporation had available $500 million of unused
bank facilities under such lines at December 31, 1993.
The Corporation's consolidated long-term debt at December 31, 1993 totaled
$5.6 billion, all of which was unsecured, and consisted of $2.6 billion in
senior borrowings and $3.0 billion of subordinated debt, issued principally by
the Parent Company and Bankers Trust Company ("BTCo."), the Corporation's
principal banking subsidiary. These borrowings mature between 1994 and
38 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
2033, as detailed in Note 9 of Notes to Financial Statements.
The following information should be read in conjunction with the consolidated
statement of cash flows, which appears on page 53.
Cash and due from banks increased $366 million for the year ended December 31,
1993, as the net cash provided by financing activities exceeded the net cash
used in operating and investing activities. The $13.0 billion of net cash
provided by financing activities resulted from net increases of $7.6 billion in
other short-term borrowings and $6.4 billion in securities sold under repurchase
agreements, partially offset by a $2.1 billion decrease in deposits. The $11.9
billion of net cash used in operating activities primarily resulted from a $14.6
billion increase in net trading assets, offset in part by $1.5 billion of
earnings adjusted for noncash charges and credits. Within the investing
activities category, cash outflows from purchases of investment securities ($8.1
billion) and from a net increase in securities purchased under resale agreements
($2.9 billion) were offset in part by cash inflows from sales, maturities and
other redemptions of investment securities ($7.6 billion) and a decrease in
interest-bearing deposits with banks ($1.4 billion).
For the year ended December 31, 1992, cash and due from banks decreased $363
million, as the sum of net cash used in operating and investing activities
exceeded the net cash provided by financing activities. The $4.4 billion of net
cash used in operating activities primarily resulted from a $5.9 billion
increase in net trading assets, offset in part by $1.1 billion of earnings
adjusted for noncash charges and credits. The $3.2 billion of net cash used in
investing activities was largely the result of cash outflows from purchases of
investment securities ($6.6 billion) as well as net changes in securities
purchased under resale agreements ($2.0 billion) and other loans ($1.1 billion).
These factors were partially offset by cash inflows from sales, maturities and
other redemptions of investment securities ($6.5 billion). Within the financing
activities category, cash inflows from the net changes in securities sold under
repurchase agreements ($4.9 billion) and deposits ($2.7 billion), as well as
from the issuance of long-term debt ($2.0 billion) were offset in part by cash
outflows from repayments of long-term debt ($1.2 billion) and the net change in
other short-term borrowings ($1.0 billion).
Capital Resources
The Corporation pursues capital management with the objective of enhancing its
ability to execute its global strategic business plans while retaining financial
flexibility. Management believes that a strong capital base is critical to
achieving these objectives.
The Corporation actively monitors compliance with bank regulatory capital
requirements, focusing primarily on the risk-based capital guidelines. At the
same time, management evaluates capital strength through the use of the
Corporation's RAROC system which quantifies and assigns capital to business
activities based upon their credit, interest rate, foreign currency, equity,
commodity, liquidity and operating risks.
Combined total stockholders' equity and preferred stock of subsidiary totaled
$4.784 billion on December 31, 1993, up $663 million, or 16 percent, from year
end 1992, which was up $709 million, or 21 percent, from year end 1991. The
increase in 1993 was primarily attributable to net income, partially offset by
$287 million of dividends declared. The increase in 1992 was due primarily to
net income, partially offset by $268 million of dividends declared and $119
million of foreign currency translation adjustments.
The Federal Reserve Board's risk-based capital guidelines addressing
the capital adequacy of bank holding companies and banks (collectively, "banking
organizations") include a definition of capital and a framework for calculating
risk-weighted assets by assigning assets and off-balance sheet items to broad
risk categories, as well as minimum ratios to be maintained by banking
organizations. A banking organization's risk-based capital ratios are
calculated by dividing its qualifying capital by its risk-weighted assets.
Under the risk-based capital guidelines, there are two categories of capital:
core capital ("Tier 1") and supplemental capital ("Tier 2"), collectively
referred to as Total Capital. Tier 1 Capital includes common stockholders'
equity, qualifying perpetual preferred stock and minority interest in equity
accounts of consolidated subsidiaries. Tier 2 capital includes perpetual
preferred stock (to the extent ineligible for Tier 1), hybrid capital
instruments (i.e. perpetual debt and mandatory convertible securities) and
limited amounts of subordinated debt, intermediate-term preferred stock and the
allowance for credit losses.
The Federal Reserve Board's leverage constraint guidelines establish a minimum
ratio of Tier 1 Capital to quarterly average total assets ("Leverage Ratio").
In accordance with Federal Reserve Board guidelines, the stockholder's equity
($453 million at December 31, 1993 and $425 million at December 31, 1992) and
risk assets of BT Securities Corporation are excluded from the calculation of
the regulatory capital ratios. In computing these ratios, 50 percent of the
securities subsidiary's stockholder's equity is deducted from the Corporation's
Tier 1 Capital, and 50 percent is deducted from Tier 2 Capital. Similar
treatment is accorded the stockholder's equity and risk assets of certain
foreign insurance subsidiaries of the Corporation.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
established five capital tiers for banks. Pursuant to that statute the federal
bank regulatory agencies have defined the five capital tiers for banks. Under
these regulations, a bank is defined to be well capitalized, the highest tier,
if it maintains a Tier 1 Capital ratio of at least 6 percent, a Total Capital
ratio of at least 10 percent and a Leverage Ratio of at least 5 percent.
Based on their respective regulatory capital ratios at December 31, 1993, both
BTCo. and Bankers Trust (Delaware) are well capitalized, based on the
definitions in the regulations issued by the Federal Reserve Board and the other
federal bank regulatory agencies setting forth the general capital requirements
mandated by FDICIA.
Table 5 indicates the regulatory capital ratios of the Corporation and BTCo.
at December 31, 1993 and 1992 and the minimum regulatory guidelines.
BANKERS TRUST 39
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Table 5 Regulatory Capital Ratios
<TABLE>
<CAPTION>
FRB
Minimum
December 31, December 31, Regulatory
1993 1992/(1)/ Guidelines
------------ ------------ ----------
<S> <C> <C> <C>
Corporation
- -----------
Risk-Based Capital Ratios
Tier 1 Capital 8.50% 7.75% 4.0%
Total Capital 14.46% 13.64% 8.0%
Leverage Ratio 6.28% 6.05% 3.0%
BTCo.
- -----
Risk-Based Capital Ratios
Tier 1 Capital 9.38% 7.99% 4.0%
Total Capital 12.96% 12.01% 8.0%
Leverage Ratio 6.01% 5.59% 3.0%
</TABLE>
(1) Regulatory capital balances and ratios at December 31, 1992 were not
restated in connection with the adoption, retroactive to January 1, 1992, of
SFAS 109.
The following were the essential components of the Corporation's risk-based
capital ratios at the end of the two most recent years:
<TABLE>
<CAPTION>
<S> <C> <C>
(in millions) December 31, 1993 1992
------- -------
Tier 1 Capital $ 4,072 $ 3,339
Tier 2 Capital 2,859 2,537
------- -------
Total Capital $ 6,931 $ 5,876
======= =======
Total risk-weighted assets $47,916 $43,088
======= =======
</TABLE>
Table 6 Risk-Weighted Assets
<TABLE>
<CAPTION>
(in billions) December 31, 1993 1992
------------------- -------------------
Balance Balance
sheet/ Risk- sheet/ Risk-
notional weighted notional weighted
amounts amounts amounts amounts
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Assets
Cash and due from banks and interest-bearing deposits with banks $ 3.4 $ .6 $ 4.5 $ .9
Federal funds sold and securities purchased under resale agreements 9.9 .8 7.2 1.2
Securities borrowed 2.9 - 3.2 -
Trading account assets 48.3 10.3 29.9 5.4
Securities available for sale 7.1 2.7 - -
Investment securities - - 6.2 2.0
Loans 15.2 12.7 17.3 14.4
Allowance for credit losses (1.3) - (1.6) -
All other assets 6.6 5.0 6.2 3.6
-------- ---- -------- ----
Total assets 92.1 32.1 72.9 27.5
Less: applicable assets of BT Securities Corporation /(1)/ 24.3 (.2) 16.6 .4
-------- ---- -------- ----
Assets $ 67.8 32.3 $ 56.3 27.1
-------- ---- -------- ----
Off-Balance Sheet Exposures
Derivatives
Interest rate contracts $1,290.5 3.2 $ 694.3 2.1
Foreign exchange rate contracts 571.3 4.9 440.8 5.1
Equity and commodity contracts 45.4 .7 31.1 .9
Credit-related arrangements 15.9 7.2 19.7 8.8
Securities lending indemnifications 16.6 .4 11.6 .3
When-issued securities 7.5 - 2.1 -
-------- ---- -------- ----
Total off-balance sheet exposures 1,947.2 16.4 1,199.6 17.2
Less: applicable off-balance sheet exposures of BT Securities Corporation /(1)/ 24.9 .1 4.8 .1
-------- ---- -------- ----
Off-Balance Sheet Exposures $1,922.3 16.3 $1,194.8 17.1
======== ========
Less: allowance for credit losses limitation adjustment .7 1.1
----- -----
Total Risk-Weighted Assets $47.9 $43.1
===== =====
</TABLE>
(1) As well as certain foreign insurance subsidiaries
40 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Each of the Corporation's three regulatory capital ratios improved during
1993. The Tier 1 Capital ratio increased by 75 basis points, the Total Capital
ratio improved by 82 basis points and the Leverage Ratio increased by 23 basis
points. All three increases resulted from higher capital, offset in part by
higher asset bases. A $733 million increase in Tier 1 Capital was primarily
attributable to the retention of earnings during 1993, although the effects of
accounting changes recorded in connection with the adoption of SFAS 109, SFAS
106 and SFAS 112 contributed a net total of $75 million of Tier 1 Capital. Tier
2 Capital increased by $322 million, primarily as the result of net issuances of
qualifying subordinated debt. The Corporation's total risk-weighted assets at
December 31, 1993 were $4.828 billion higher than at year end 1992.
Risk Management
Risk management is integral to the Corporation's business and culture. The
following highlights the Corporation's risk management philosophy, RAROC and
risk management processes.
Risk Management Philosophy
The Corporation's risk management philosophy is built on four key principles.
First, the firm-wide commitment to effective risk management starts at the
senior management level. The Corporation's senior management led the
development of its current risk management culture. They were principally
responsible for developing, in the late 1970's, RAROC, the internal risk capital
system used by the Corporation today. They are committed to understanding the
risks inherent in the Corporation's business activities and focusing on managing
the risk at the portfolio level. Senior management monitors the risks and
profitability of the portfolio. Second, the Corporation believes in having a
strong, centralized and independent control function in conjunction with
autonomous, decentralized business activities. The decentralized business
activities allow the Corporation to respond to client needs or market events
quickly and efficiently. The business activities are primarily accountable for
managing the risks they take at the transactional and business-activity level.
The centralized and independent control functions oversee the risk management
activities of these business activities and, in addition, manage risk at the
corporate-wide portfolio level. Third, the Corporation encourages
diversification of exposures as a means of limiting potential risks. Business
activities and risk exposures are diversified across geographic regions, markets
and products. Finally, the Corporation seeks to ensure that it has an adequate
return for the risks it assumes.
RAROC
RAROC is a proprietary management system designed to measure the economic risk,
or change in economic value due to changes in credit and in market prices, of
the Corporation's activities and the amount of capital required to support them.
It attributes capital by type of risk. These activities involve credit and
market (interest rate, currency, equity and commodity) risks as well as the risk
inherent in options on any of the foregoing. RAROC capital is defined as the
amount of capital required to cover the largest potential loss in market value
that could occur with a specified probability over a particular time period.
Actual historical market volatilities and correlations are used to quantify the
risks.
This measurement system is built on uniform and consistent parameters to
account for the economic risks, regardless of accounting designation. For
example, it is designed to measure the risk involved in both trading account
assets and loans, and on- and off-balance-sheet exposures. The Corporation uses
RAROC as a tool for capital adequacy, portfolio management, performance
measurement and resource allocation.
The Corporation was among the first financial institutions to implement a
risk-adjusted capital system. This system and process is part of the culture
and covers all areas of the Corporation. RAROC is continually refined to
reflect changes in the global financial environment, the development of new and
sophisticated instruments, and the changing business profile of the Corporation.
Risk Management Processes
The Corporation has made substantial investments in both information technology
and human capital to support its risk management processes. Proprietary systems
allow risk management professionals to track the Corporation's global portfolio
from any office worldwide. A large team of professionals dedicated to managing
the Corporation's risk are organized into several independent but complementary
functions, all reporting to senior management.
Market Risk Management
The Global Risk Management Group (GRM), the Corporation's central portfolio risk
management function, performs the daily portfolio management and RAROC process.
GRM is responsible for developing risk management policies at the portfolio
level and focuses on market risks. These market risks include interest rate
risk (which relates to both the duration mis-matching of assets and liabilities
and to trading risk exposures), as well as price risk of currencies, equities
and commodities. The GRM function also oversees the designation of limits and
individual trading authorizations. These limits are set after evaluating the
Corporation's capital position, the opportunities in the individual markets and
the business strategies. The corporate limits are allocated to individual
business activities.
Credit Risk Management
In conjunction with GRM, the Credit Policy Department, headed by the Chief
Credit Officer, is responsible for developing credit policies, as well as
monitoring and managing the overall credit portfolio. The department evaluates
the creditworthiness of each borrower/issuer/counterparty and assigns a rating
for each. Credit limits are established at the portfolio level by issuer,
borrower, counterparty and by other categories. One credit officer is
responsible for reviewing the entire credit risk portfolio of a
borrower/issuer/counterparty regardless of the nature of the exposure (e.g.
loans, securities, derivatives). Credit officers monitor the limit usage as
well as limits by type of transaction for each entity.
BANKERS TRUST 41
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Credit risk usages by entity are monitored versus the limits at the product and
business activity level. Credit Policy monitors country exposures regularly and
assigns country risk ratings. Credit Policy also monitors country, industry,
name/counterparty, product and regional risk concentrations in order to evaluate
the degree of diversification in the portfolio. The Corporation's senior risk
managers regularly review and actively manage the credit risks at the portfolio
level to ensure that the risk characteristics and degree of diversification are
in conformity with the Corporation's policies.
Through the risk management processes discussed above, senior management is
regularly informed of the risk profile through a combination of global risk
exposure, limit and capital reports, revenue reports and sensitivity analyses.
Through timely evaluation of risk exposures and capital used, as well as
dialogue about its risk profile among senior management, business lines and
staff, the Corporation reinforces a culture of risk awareness.
42 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Nonperforming Assets
Table 7 shows the Corporation's trend of cash basis loans, renegotiated loans,
other real estate and other nonperforming assets.
Table 7 Nonperforming Assets
<TABLE>
<CAPTION>
($ in millions) December 31, 1993 1992 1991 1990 1989
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Cash basis loans (nonrefinancing
country)
Domestic
Commercial and industrial $ 285 $ 481 $ 588 $ 550 $ 385
Secured by real estate 306 349 403 314 91
Financial institutions 30 2 3 4 8
Lease financing - 1 3 2 4
----- ------ ------ ------ ------
Total domestic 621 833 997 870 488
----- ------ ------ ------ ------
International
Commercial and industrial 84 167 288 261 130
Secured by real estate 149 148 172 87 13
Other 2 8 14 24 19
----- ------ ------ ------ ------
Total international 235 323 474 372 162
----- ------ ------ ------ ------
Total cash basis loans
(nonrefinancing country) 856 1,156 1,471 1,242 650
Cash basis loans (refinancing
country)
International 118 221 279 522 701
----- ------ ------ ------ ------
Total cash basis loans $ 974 $1,377 $1,750 $1,764 $1,351
===== ====== ====== ====== ======
Ratio of cash basis loans to
total loans 6.4% 8.0% 10.3% 8.2% 6.4%
===== ====== ====== ====== ======
Ratio of allowance for credit
losses to cash basis loans 136% 118% 103% 123% 202%
===== ====== ====== ====== ======
Renegotiated loans
Venezuelan government Par Bonds $ - $ - $ 249 $ 249 $ -
Mexican government Par Bonds
/(1)/ - 611 611 611 -
Other refinancing country - - - - 46
Highly leveraged 6 27 31 - -
Secured by real estate 14 20 - - -
Other nonrefinancing country 1 1 - - -
----- ------ ------ ------ ------
Total renegotiated loans $ 21 $ 659 $ 891 $ 860 $ 46
===== ====== ====== ====== ======
Other real estate $ 287 $ 315 $ 255 $ 92 $ 23
===== ====== ====== ====== ======
Other nonperforming assets
Assets acquired in credit
workouts $ 85 $ 73 $ 34 $ - $ -
Nonperforming derivative contracts 16 26 21 4 3
Other - 6 7 28 11
----- ------ ------ ------ ------
Total other nonperforming assets $ 101 $ 105 $ 62 $ 32 $ 14
===== ====== ====== ====== ======
Loans 90 days or more past due
and still accruing interest /(2)/
$ 40 $ 86 $ 15 $ - $ -
===== ====== ====== ====== ======
</TABLE>
(1) During 1991, the Corporation reclassified its Mexican outstandings to
nonrefinancing country status.
(2) Represents loans 90 days or more past due with respect to interest or
principal. These loans were well secured and in the process of collection.
The December 31, 1993 and 1992 balances included $15 million and $66
million of international loans, respectively.
Each quarter an extensive review is performed by the Credit Audit Department
and senior credit management of all cash basis loans and classified assets.
Each borrower/counterparty is examined to determine whether they represent a
potential loss. Whenever the probability of loss is believed to be greater than
50 percent, an immediate charge-off of the amount deemed uncollectible is
recorded. The remaining portion, if any, is immediately placed on a cash basis,
even if the borrower is still making required payments. If the probability of
loss is believed to be less than 50 percent, but collection or liquidation in
full is questionable if present trends continue, the asset is classified
doubtful. It is the Corporation's policy to place all assets classified
doubtful on a cash basis, even if the borrower is still making required
payments. In addition, it is generally the Corporation's policy that loans be
immediately placed on a cash basis when they become 90 days past due with
respect to interest or principal.
The Corporation's total cash basis loans amounted to $974 million at December
31, 1993, a decrease of $403 million, or 29 percent, from 1992, which had
decreased $373 million, or 21 percent, from 1991. The nonrefinancing country
component of total cash basis loans decreased by $300 million during 1993, while
the refinancing country component decreased by $103 million. Within total
nonrefinancing country cash basis loans were commercial and industrial loans to
highly leveraged borrowers of $193 million and $430 million at December 31, 1993
and 1992, respectively. The $237 million decrease in this category resulted
primarily from the combination of $94 million of loan sales and conversions of
$58 million of loans to equity interests (resulting in reclassifications from
cash basis loans to assets acquired in credit workouts). Also within
nonrefinancing country cash basis loans, loans secured by real estate decreased
$42 million, to $455 million and real estate related loans (mainly included
within the domestic commercial and
BANKERS TRUST 43
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
industrial category in Table 7) decreased by $25 million, to $58 million. The
decrease in refinancing country cash basis loans was mostly due to $35 million
of loan sales, $32 million of charge-offs and a $30 million transfer of
Brazilian sovereign bonds to securities available for sale in connection with
the adoption of SFAS 115. At December 31, 1993 and 1992, all of the
Corporation's refinancing country cash basis loans were to Brazilian borrowers.
An analysis of the changes in the Corporation's total cash basis loans
follows:
<TABLE>
<CAPTION>
(in millions)
Year Ended December 31, 1993 1992 1991 1990 1989
- ----------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $1,377 $1,750 $1,764 $1,351 $1,244
Net transfers from accrual status 230 312 849 1,119 729
Net paydowns (140) (112) (182) (210) (101)
Charge-offs (232) (322) (479) (406) (511)
Transfers to other real estate (10) (87) (159) (72) (23)
Transfers to other
nonperforming assets (58) (45) (4) - -
Loan sales (153) (50) (26) (37) (11)
Other (40) (69) (13) 19 24
------ ------ ------ ------ ------
Balance, end of year $ 974 $1,377 $1,750 $1,764 $1,351
====== ====== ====== ====== ======
</TABLE>
The $373 million decrease in total cash basis loans during 1992 reflected a
$315 million decrease in nonrefinancing country cash basis loans and a $58
million decrease in refinancing country cash basis loans. Within total
nonrefinancing country cash basis loans, loans secured by real estate decreased
$78 million, to $497 million, and real estate related loans (mainly included
within the domestic commercial and industrial category in Table 7) decreased by
$21 million, to $83 million, during 1992. Also included in nonrefinancing
country cash basis loans were loans to highly leveraged borrowers of $430
million and $559 million at December 31, 1992 and 1991, respectively. The
decrease in refinancing country cash basis loans included the sale or charge-off
of such loans to all refinancing countries other than Brazil. In addition,
other real estate of $315 million at December 31, 1992 increased $60 million
during that year.
The Corporation's renegotiated loans declined $638 million during 1993, due
almost entirely to the sale of $225 million of Mexican government Par Bonds and
the transfer of the balance of the bonds to securities available for sale upon
adoption of SFAS 115. Renegotiated loans declined by $232 million during 1992,
due primarily to sales of Venezuelan government Par Bonds.
Special Portfolio Segments
Real Estate Portfolio
The global real estate loan portfolio totaled $2.272 billion at December 31,
1993. This included domestic loans secured by real estate of $1.795 billion,
international loans secured by real estate of $263 million, and total real
estate related loans of $214 million. Real estate related loans consist of
loans made for any purpose to organizations or individuals, 80 percent of whose
revenue or assets are derived from or consist of real estate ventures or
holdings, that are not collateralized by cash or marketable securities and are
not secured by real estate. The Corporation was also obligated under $531
million of standby letters of credit and $218 million of unused commitments to
extend credit in connection with its commercial real estate financing activities
at December 31, 1993.
During 1993, both the U.S. and U.K. real estate markets continued to
experience adverse conditions. Market conditions are not expected to improve
significantly in 1994. Therefore no assurance can be given that the level of
cash basis real estate loans and other real estate will not increase in 1994.
Because of the diversity of the portfolio, the risks of real estate lending
reflect both general and local economic conditions. Management closely monitors
the portfolio, and formal reviews are conducted at least annually, with many
exposures reviewed quarterly. Table 8 details the global portfolio at December
31, 1993.
44 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Table 8 Real Estate Loans and Other Real Estate
<TABLE>
<CAPTION>
Outstanding Balance
------------------------------------------
Inter- Cash Basis
($ in millions) December 31, 1993 Domestic national Total Balance
- ---------------------------------- -------- -------- ------- ----------
<S> <C> <C> <C> <C>
Loans secured by real estate
Land under development $ 28 $ 2 $ 30 $ 24
Construction
Under construction 49 - 49 1
In lease-up (1) 168 - 168 22
Standing (2)
1-4 family residential 243 40 283 34
Multifamily residential 101 3 104 8
Commercial 1,206 218 1,424 366
----- ---- ------ ----
Total loans secured by
real estate 1,795 263 2,058/(3)/ 455
Real estate related loans 192 22 214 58
------ ---- ------ ----
Total real estate loans $1,987 $285 $2,272 $513
====== ==== ====== ====
Other real estate $ 263 $ 24 $ 287
====== ==== ======
</TABLE>
(1) In lease-up are completed properties that are less than 85 percent leased-
up.
(2) Standing properties have been built, developed and leased-up such that the
project is considered stabilized.
(3) The largest geographic concentration within this total was loans secured by
properties in the Mid-Atlantic region, at 41 percent, of which New York
City and its suburbs comprised 56 percent. The next largest geographic
concentrations were loans secured by properties in California, which
comprised 13 percent and the U.K., which comprised 11 percent of the total.
The largest product-type concentrations were loans secured by retail
properties, office buildings, mixed-use properties and 1-4 family
residential properties at 22 percent, 21 percent, 15 percent and 14
percent, respectively. All other concentrations within this total were
individually less than 10 percent of total loans secured by real estate.
Highly Leveraged Transactions
For purposes of monitoring the extent of its exposure to highly leveraged
transactions ("HLTs"), the Corporation utilizes the following definition. HLTs
are financing transactions the purpose of which involves a buyout, acquisition
or recapitalization and which (i) doubles the subject company's liabilities and
results in a leverage ratio higher than 50 percent or (ii) results in a leverage
ratio higher than 75 percent or (iii) is designated an HLT by a syndication
agent. Borrowers are delisted from HLT status when (1) cash flow tests,
relative to their industry or peer group, are met, or (2) they are no longer
highly leveraged upon emergence from Chapter 11 bankruptcy or similar
proceeding. In addition, certain loans which are fully collateralized by cash
or cash equivalent securities are excluded from HLT reporting.
Amounts included in the table and discussion which follow generally reflect
the above definition.
Table 9 Highly Leveraged Transactions
<TABLE>
<CAPTION>
(in millions) December 31, 1993 1992
- -------------------------- ------ ------
<S> <C> <C>
Loans
Senior debt $1,314 $1,917
Subordinated debt 126 233
------ ------
Total loans $1,440 $2,150
====== ======
Unfunded commitments
Commitments to lend $ 603 $ 708
Letters of credit 201 188
------ ------
Total unfunded commitments $ 804 $ 896
====== ======
Equity investments, carried at cost $ 477 $ 351
====== ======
Commitments to invest $ 127 $ 116
====== ======
</TABLE>
The Corporation's outstanding loans were to 105 separate borrowers in 35
separate industry groups at December 31, 1993, compared to 132 separate
borrowers in 41 separate industry groups at December 31, 1992. There were no
industry concentrations which exceeded 10 percent of total HLT loans outstanding
at December 31, 1993.
In addition to the amounts shown in Table 9, at December 31, 1993, the
Corporation had issued commitment letters which had been accepted, subject to
documentation and certain other conditions, of $853 million and had additional
highly leveraged transactions in various stages of discussion and negotiation.
During 1993, the Corporation originated $1.9 billion of HLT loans. It should
be noted that the Corporation's loans and commitments in connection with HLTs
fluctuate as new loans and commitments are made and as loans and commitments are
syndicated, participated or paid.
All loans and commitments to finance HLTs are reviewed and approved by senior
credit officers of the Corporation. In addition to a strict transactional and
credit approval process, the portfolio of leveraged loans and commitments is
actively monitored and managed to minimize risk through diversification among
borrowers and industries. As part of this strategy, sell and hold targets are
regularly updated in connection with market opportunities and the addition of
new HLTs. Retention by the Corporation after syndication and sales of loan
participations has typically been less than $50 million, and the average
outstanding for the portfolio at December 31, 1993 was less than $14 million.
However, at December 31, 1993, the Corporation had total exposure (loans
outstanding plus unfunded commitments) in excess of $50 million to 15 separate
highly leveraged borrowers.
At December 31, 1993, $193 million of the HLT loan portfolio was on a cash
basis and $6 million was classified as renegotiat-
BANKERS TRUST 45
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
ed. In addition, $38 million of the equity investments in HLT companies
represented assets acquired in settlement of indebtedness, which are reported as
other nonperforming assets. Net charge-offs of $15 million of HLT loans were
recorded in 1993. In addition, the Corporation recorded a net gain of $67
million in connection with its equity investments in highly leveraged companies
during 1993.
Generally, fees (typically 2 to 4 percent of the principal amount committed)
and interest charged (typically LIBOR plus 1.5 to 3 percent) on HLT loans are
higher than on other credits. The Corporation does not account for revenue or
expenses from HLTs separately from its other corporate lending activities.
However, it is estimated that transaction fees recognized for lending activities
relating to highly leveraged transactions were approximately $70 million during
1993 and that as of December 31, 1993, approximately $26 million of fees were
deferred and will be recognized as future revenue.
During 1993, the Corporation transferred approximately $160 million of
outstanding loans to highly leveraged borrowers from its loan portfolio to the
trading account. The transferred loans were ones for which dealer price
quotations were available, and they were carried at market value upon transfer
to the trading account. None of the loans was classified as a nonperforming
asset at the time of transfer. Accordingly, subsequent to transfer these loans
have been excluded from the Corporation's HLT outstandings as reported above.
No significant impact on earnings was recorded as a result of this transfer.
Cross-Border Outstandings
The Corporation's cross-border outstandings reflect certain economic and
political risks which differ from those associated with its domestic
outstandings. These risks include those arising from exchange rate fluctuations,
restrictions on the transfer of funds and balance-of-payments issues.
Set forth in Table 10 are the Corporation's cross-border outstandings at
December 31, 1993, 1992 and 1991, for each foreign country where such
outstandings exceeded one percent of total assets. The cross-border outstandings
were compiled based upon category and domicile of ultimate risk and are
comprised of balances with banks, securities, loans, accrued interest
receivable, acceptances outstanding and investments with foreign entities. The
amounts reported for each country exclude local currency outstandings to the
extent funded in local currency.
Table 10 Cross-Border Outstandings
<TABLE>
<CAPTION>
Governments Banks and
% of and Other Commercial
Total Total Official Financial and
($ in millions) Outstandings Assets Institutions Institutions Industrial Other
- --------------- ------------ ------ ------------ ------------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1993
Japan $3,986 4.33% $1,368 $1,920 $698 $ -
France 2,630 2.86 1,248 1,167 215 -
United Kingdom 2,585 2.81 32 2,396 153 4
Italy 2,178 2.37 1,807 299 72 -
Mexico /(1)/ 1,641 1.78 1,226 314 101 -
Germany 1,623 1.76 981 348 294 -
Spain 1,135 1.23 849 195 90 1
------ ---- ------ ----- ---- ---
At December 31, 1992
Japan $2,886 3.96% $ 236 $2,373 $277 $ -
France 2,105 2.89 686 1,189 230 -
Germany 1,647 2.26 998 597 52 -
Mexico 1,470 2.02 1,138 327 5 -
Switzerland 1,080 1.48 - 1,074 3 3
United Kingdom 903 1.24 45 660 193 5
Australia 892 1.22 279 571 42 -
Italy 843 1.16 340 476 27 -
------ ---- ------ ----- ---- ---
At December 31, 1991
Japan $4,728 7.39% $ 278 $4,137 $313 $ -
United Kingdom 2,185 3.42 85 1,734 361 5
Australia 1,136 1.78 271 765 100 -
Mexico 812 1.27 754 51 7 -
Spain 782 1.22 690 91 - 1
France 708 1.11 285 407 16 -
------ ---- ------ ----- ---- ---
</TABLE>
(1) At December 31, 1993, most of the Corporation's Mexico cross-border
outstandings, as well as virtually all of its Argentina cross-border
outstandings (the latter equal to .92 percent of total assets) consisted of
trading account assets carried at market value.
46 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Governments and official institutions are comprised of foreign governments and
their agencies; state, provincial and local governments and their agencies; and
central banks. Banks and other financial institutions are comprised of
commercial and savings banks and other similar institutions accepting short-term
deposits, including government-owned banks which do not function as central
banks, and nonbank credit and financial companies.
The following table details the cash basis loans and renegotiated loans
components of the outstandings included in Table 10.
<TABLE>
<CAPTION>
Cash Basis Renegotiated
(in millions) Loans Loans
---------- ------------
<S> <C> <C>
At December 31, 1993
United Kingdom $10 $ -
Other 10 -
--- ----
Total $20 $ -
=== ====
At December 31, 1992
Mexico (1) $ - $537
United Kingdom 18 -
Other 17 -
--- ----
Total $35 $537
=== ====
At December 31, 1991
United Kingdom $30 $ -
Mexico (1) 2 542
--- ----
Total $32 $542
=== ====
</TABLE>
(1) Renegotiated loans excluded $74 million and $69 million at December 31, 1992
and 1991, respectively, representing the market value of U.S. Treasury
securities collateralizing Mexican government Par Bonds. During 1993, $225
million of these Par Bonds were sold; the rest were transferred to
securities available for sale.
At December 31, 1993, total cross-border commitments to borrowers or
counterparties domiciled in the countries presented in Table 10 were: Japan,
$219 million; France, $101 million; United Kingdom, $379 million; Italy, $6
million; Mexico, $8 million; Germany, $169 million; and Spain, $112 million.
Argentina was the only country whose cross-border outstanding was between .75
percent and 1.00 percent of total assets at December 31, 1993. The aggregate
cross-border outstandings for this country amounted to $845 million, or .92
percent of total assets. There were no countries whose cross-border
outstandings were between .75 percent and 1.00 percent of total assets at
December 31, 1992. Germany and Italy were the only countries whose cross-border
outstandings were between .75 percent and 1.00 percent of total assets at
December 31, 1991. The aggregate cross-border outstandings for these countries
amounted to $1.054 billion, or 1.65 percent of total assets.
ACCOUNTING DEVELOPMENTS
The following is a summary of accounting pronouncements not yet adopted that
will impact the Corporation.
Offsetting of Amounts Related to Certain Contracts
In March 1992, the Financial Accounting Standards Board (the "FASB") issued
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts,"
which is effective for fiscal years beginning after December 15, 1993. The
Interpretation requires that unrealized gains and losses on swaps, forwards,
options and similar contracts be recognized as assets and liabilities; whereas
it is the Corporation's current policy to record such unrealized gains and
losses on a net basis on the balance sheet. The Interpretation does allow the
netting of such unrealized gains and losses with the same counterparty when they
are covered by a master netting arrangement with the counterparty and the
contracts are reported at market value.
The Corporation estimated that, under the terms of the Interpretation, at
December 31, 1993, total assets and liabilities each would have increased by
approximately $15 billion. Adoption of this Interpretation will result in
decreases in the Corporation's ratios of stockholders' equity to total assets
and the Leverage Ratio; however, net income and the risk-based capital ratios
will not be affected. The Corporation adopted the Interpretation effective
January 1, 1994.
Loan Impairment
In May 1993, the FASB issued SFAS 114, "Accounting by Creditors for Impairment
of a Loan". This statement is effective for fiscal years beginning after
December 15, 1994, with earlier adoption permissible. SFAS 114 requires the
creation of a valuation allowance for impaired loans based on either: the
present value of expected future cash flows discounted at the loan's effective
interest rate, the loan's observable market price or the fair value of the
collateral. Under SFAS 114, a loan is impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the loan's contractual terms.
The Corporation has not yet decided when it will adopt SFAS 114. However, the
Corporation believes that adoption of this standard at December 31, 1993 would
only have resulted in an allocation of a portion of its existing allowance for
credit losses to a specific valuation allowance for impaired loans, with no
resulting impact on that date on the Corporation's net income, stockholders'
equity or total assets.
BANKERS TRUST 47
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
FINANCIAL REPORTS SECTION
<TABLE>
<CAPTION>
Financial Statements
<S> <C>
Consolidated Statement of Income 50
Consolidated Balance Sheet 51
Consolidated Statement of Changes in Stockholders' Equity 52
Consolidated Statement of Cash Flows 53
Notes to Financial Statements 54
Management's Report on Responsibility for Financial Reporting 78
Report of Independent Auditors 79
<CAPTION>
Supplemental Financial Data
<S> <C>
Condensed Quarterly Consolidated Statement of Income 80
Stockholder Data 80
Volume/Rate Analysis of Changes in Net Interest Revenue 81
Average Balances, Interest and Average Rates 82
Interest Rate Sensitivity 84
Deposits 84
</TABLE>
10-K Report
This Annual Report includes the Corporation's SEC Report on
Form 10-K. However, portions of the Annual Report, such as
pages 2-25, are not required by the Form 10-K report and
are not part of the Corporation's Form 10-K. Only those
sections of the Annual Report referenced in the cross-
reference index on page 90 are incorporated in the
Form 10-K.
BANKERS TRUST 49
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statement of Income (in millions, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992 1991
- ---------------------- ------ ------ ------
<S> <C> <C> <C>
Net Interest Revenue
Interest revenue $4,436 $4,219 $4,322
Interest expense 3,122 3,072 3,585
------ ------ ------
Net Interest Revenue 1,314 1,147 737
Provision for credit losses 93 225 238
------ ------ ------
Net Interest Revenue After Provision
For Credit Losses 1,221 922 499
------ ------ ------
Noninterest Revenue
Trading 1,631 896 1,229
Fiduciary and funds management 703 648 567
Fees and commissions 710 588 511
Investment securities gains (losses) 13 (4) 46
Other 307 203 169
------ ------ ------
Total noninterest revenue 3,364 2,331 2,522
------ ------ ------
Noninterest Expenses
Salaries 687 630 606
Incentive compensation and employee
benefits 1,172 730 630
Occupancy, net 155 151 175
Furniture and equipment 144 132 128
Other 877 704 648
------ ------ ------
Total noninterest expenses 3,035 2,347 2,187
------ ------ ------
Income before income taxes and
cumulative effects of accounting
changes 1,550 906 834
Income taxes 480 267 167
------ ------ ------
Income Before Cumulative Effects of
Accounting Changes 1,070 639 667
Cumulative effects of accounting
changes (75) 446 -
------ ------ ------
Net Income $ 995 $1,085 $ 667
====== ====== ======
Net Income Applicable To Common Stock $ 972 $1,055 $ 633
====== ====== ======
Primary Earnings Per Common Share:
Income Before Cumulative Effects of
Accounting Changes $12.40 $ 7.23 $ 7.65
Cumulative effects of accounting
changes (.89) 5.30 -
------ ------ ------
Net Income $11.51 $12.53 $ 7.65
====== ====== ======
Fully Diluted Earnings Per Common Share
Income Before Cumulative Effects of
Accounting Changes $12.29 $ 7.22 $ 7.65
Cumulative effects of accounting
changes (.88) 5.29 -
------ ------ ------
Net Income $11.41 $12.51 $ 7.65
====== ====== ======
Cash dividends declared per common
share $3.240 $2.880 $2.605
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
50 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Balance Sheet (in millions, except par value)
<TABLE>
<CAPTION>
December 31, 1993 1992
- ----------- ------- --------
<S> <C> <C>
Assets
Cash and due from banks $ 1,750 $ 1,384
Interest-bearing deposits with banks 1,638 3,142
Federal funds sold 361 438
Securities purchased under resale agreements 9,567 6,745
Securities borrowed 2,937 3,166
Trading account assets 48,276 29,908
Securities available for sale 7,073 -
Investment securities
At market - 852
At lower of aggregate cost or market
(market value: 1992, $5,462) - 5,363
------- -------
Total investment securities - 6,215
Loans 15,200 17,318
Allowance for credit losses (1,324) (1,620)
Premises and equipment, net 719 660
Due from customers on acceptances 455 276
Accounts receivable and accrued interest 2,561 2,781
Other assets 2,869 2,473
------- -------
Total $92,082 $72,886
======= =======
Liabilities
Deposits
Noninterest-bearing
In domestic offices $ 3,185 $ 3,379
In foreign offices 707 827
Interest-bearing
In domestic offices 7,120 6,809
In foreign offices 11,764 14,056
------ -------
Total deposits 22,776 25,071
Securities sold, not yet purchased 9,349 5,127
Securities sold under repurchase agreements 23,834 17,451
Other short-term borrowings 18,992 11,779
Acceptances outstanding 455 276
Accounts payable and accrued expenses 3,771 3,056
Other liabilities 2,524 2,013
Long-term debt 5,597 3,992
------ -------
Total liabilities 87,298 68,765
------ -------
Commitments and contingent liabilities (Notes 7 and 22)
Preferred Stock of Subsidiary 250 -
------- -------
Stockholders' Equity
Preferred stock 250 500
Common stock, $1 par value
Authorized, 300,000,000 shares
Issued 83,678,973 shares 84 84
Capital surplus 1,321 1,306
Retained earnings 3,226 2,552
Common stock in treasury, at cost: 1993, 3,076,439 shares;
1992, 804,985 shares (233) (52)
Other (114) (269)
------ -------
Total stockholders' equity 4,534 4,121
------ -------
Total $92,082 $72,886
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
BANKERS TRUST 51
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statement of Changes in Stockholders' Equity (in millions)
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992 1991
- ----------------------- ------- ------- -------
<S> <C> <C> <C>
Preferred Stock
Balance, beginning of year $ 500 $ 500 $ 500
Redemption of Money Market
Cumulative Preferred Stock, Series
E, F, G and H (250) - -
------ ------ ------
Balance, end of year 250 500 500
------ ------ ------
Common Stock
Balance, beginning of year 84 83 82
Common stock issued under employee
benefit plans - 1 1
------ ------ ------
Balance, end of year 84 84 83
------ ------ ------
Capital Surplus
Balance, beginning of year 1,306 1,262 1,224
Preferred stock and other issuance
costs - (4) -
Common stock issued or distributed
under employee benefit plans 15 48 38
------ ------ ------
Balance, end of year 1,321 1,306 1,262
------ ------ ------
Retained Earnings
Balance, beginning of year 2,552 1,743 1,329
Net income 995 1,085 667
Cash dividends declared
Preferred stock (22) (30) (34)
Common stock (265) (238) (214)
Treasury stock distributed under
employee benefit plans (34) (8) (5)
------ ------ ------
Balance, end of year 3,226 2,552 1,743
------ ------ ------
Common Stock in Treasury, at cost
Balance, beginning of year (52) (20) (38)
Purchases of stock (313) (106) (35)
Restricted stock granted, net 16 29 14
Treasury stock distributed under
employee benefit plans 116 45 39
------ ------- ------
Balance, end of year (233) (52) (20)
------ ------- ------
Common Stock Issuable - Stock Awards
Balance, beginning of year 53 42 45
Deferred stock awards granted, net 100 27 18
Deferred stock distributed (10) (16) (21)
------ ------- ------
Balance, end of year 143 53 42
------ ------- ------
Deferred Compensation - Stock Awards
Balance, beginning of year (54) (46) (36)
Deferred stock awards granted, net (99) (26) (17)
Restricted stock granted, net (18) (34) (17)
Amortization of deferred
compensation, net 124 52 24
------ ------- ------
Balance, end of year (47) (54) (46)
------ ------- ------
Cumulative Translation Adjustments
Balance, beginning of year (288) (169) (92)
Translation adjustments (36) (93) (77)
Income taxes applicable to
translation adjustments 5 (26) -
------ ------ ------
Balance, end of year (319) (288) (169)
------ ------ ------
Securities Valuation Allowance
Balance, beginning of year 20 17 10
Change in unrealized net gains,
after applicable income
taxes and minority interest 1 3 7
Unrealized net gain, net of
applicable income taxes,
on securities available for sale
upon adoption of
SFAS 115 88 - -
------ ------- ------
Balance, end of year 109 20 17
------ ------- ------
Total stockholders' equity, end of
year 4,534 $4,121 $3,412
====== ======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
52 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statement of Cash Flows (in millions)
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992 1991
- ----------------------- -------- ------- -------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 995 $ 1,085 $ 667
Adjustments to reconcile net income to net cash used in operating activities:
Cumulative effects of accounting changes 75 (446) -
Provision for credit losses 93 225 238
Provision for policyholder benefits 140 120 129
Deferred income taxes (37) 67 18
Depreciation and amortization of premises and equipment 107 98 95
Other, net 111 (25) 23
-------- ------- -------
Earnings adjusted for noncash charges and credits 1,484 1,124 1,170
Net change in:
Trading account assets (18,904) (7,472) (6,034)
Securities sold, not yet purchased 4,342 1,588 (96)
Receivables and payables from securities transactions 1,096 (616) 373
Other operating assets and liabilities, net 100 933 1,599
Investment securities (gains) losses (13) 4 (46)
-------- ------- -------
Net cash used in operating activities (11,895) (4,439) (3,034)
-------- ------- -------
Cash Flows From Investing Activities
Net change in:
Interest-bearing deposits with banks 1,422 881 238
Federal funds sold 77 (419) 724
Securities purchased under resale agreements (2,909) (1,971) (3,604)
Securities borrowed 229 - -
Loans, other 1,117 (1,108) 3,048
Sales of refinancing country loans 74 192 222
Investment securities:
Purchases (8,128) (6,639) (6,851)
Maturities and other redemptions 6,462 5,256 4,686
Sales 1,134 1,195 2,426
Acquisitions of premises and equipment (179) (137) (104)
Other, net (65) (445) 375
-------- ------- -------
Net cash provided by (used in) investing activities (766) (3,195) 1,160
-------- ------- -------
Cash Flows From Financing Activities
Net change in:
Deposits (2,059) 2,655 (5,923)
Securities sold under repurchase agreements 6,416 4,907 4,608
Other short-term borrowings 7,555 (1,031) 345
Issuances of long-term debt 2,220 2,041 874
Repayments of long-term debt (711) (1,157) (462)
Issuance of preferred stock of subsidiary 247 - -
Redemption of preferred stock (250) - -
Issuances of common stock - 27 38
Purchases of treasury stock (313) (106) (35)
Cash dividends paid (281) (262) (243)
Other, net 200 213 288
-------- ------- -------
Net cash provided by (used in) financing activities 13,024 7,287 (510)
-------- ------- -------
Net effect of exchange rate changes on cash 3 (16) (18)
-------- ------- -------
Net Increase (Decrease) In Cash And Due From Banks 366 (363) (2,402)
Cash and due from banks, beginning of year 1,384 1,747 4,149
-------- ------- -------
Cash and due from banks, end of year $ 1,750 $ 1,384 $ 1,747
======== ======= =======
Interest paid $ 3,098 $ 3,079 $ 3,678
======== ======= =======
Income taxes paid, net $ 144 $ 142 $ 78
======== ======= =======
Noncash investing activities:
Conversions of loans to other real estate and assets acquired in credit workouts $ 68 $ 132 $ 163
Exchanges of Chilean government bonds for annuity contracts 89 48 24
Other - 24 21
-------- ------- -------
Total noncash investing activities $ 157 $ 204 $ 208
======== ======= =======
Noncash financing activity: exchange of series of preferred stock $ - $ 45 $ -
======== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
BANKERS TRUST 53
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 1 - Significant Accounting Policies
The following are the significant accounting policies of Bankers Trust New York
Corporation and its subsidiaries (the "Corporation"). These policies conform
with generally accepted accounting principles and prevailing industry practices,
as applicable to the Corporation.
Principles of Consolidation
The consolidated financial statements of the Corporation include Bankers Trust
New York Corporation (the "Parent Company"), Bankers Trust Company and its
subsidiaries ("BTCo.") and all other significant, majority-owned subsidiaries,
after elimination of material intercompany transactions and accounts. Other
companies in which there is at least 20 percent ownership are generally
accounted for in accordance with the equity method of accounting. These
investments are reported in other assets and the related equity income or loss,
as well as disposition gains and losses, is included in other noninterest
revenue.
Resale and Repurchase Agreements; Securities Borrowed
Resale and repurchase agreements are generally treated as collateralized
financing transactions and are carried at the amounts at which the securities
were initially acquired or sold. The Corporation generally takes possession of
securities purchased under resale agreements, which are primarily U.S.
government and federal agency securities, monitors their market value and
requests additional collateral when deemed appropriate.
Effective December 31, 1992, the Corporation began to report its securities
borrowed, which previously had been combined with resale agreements, as a
separate asset on the consolidated balance sheet. Prior periods' financial
statements were not similarly reclassified, as the amounts were not material.
Securities borrowed are recorded at the amount of cash collateral deposited
with the lender. The Corporation monitors its market exposure with respect to
securities borrowed transactions daily and requests the return of excess
collateral as required.
Trading Account Securities
Debt and equity securities, as well as money market instruments which are
classified as trading account assets and as securities sold, not yet purchased
are carried at their market values, with the resulting gains and losses included
in trading revenue. Market value is generally based on quoted market prices or
broker or dealer price quotations.
From January 1, 1991 through June 30, 1992, only the portion of the
Corporation's emerging markets trading account assets consisting of sovereign
bonds issued as part of Brady Plan restructurings were carried at current market
values; the balance of such assets were carried at the lower of aggregate cost
or market. Effective July 1, 1992, as the result of increased liquidity and
trading volumes in the markets for these assets, the Corporation modified its
accounting policy, to carry all emerging markets trading account assets at
current market values. This accounting policy modification resulted in an
immaterial effect on net income in the year of adoption.
Derivatives
Swaps, futures contracts, forward commitments, options and other similar types
of contracts and commitments based on either interest rates or foreign exchange
rates, as well as equity and commodity derivatives are traded by the Corporation
and are carried at their market values. Market values for derivatives are based
on pricing models which take into account current market and contractual prices
of the underlying instruments, as well as time value and yield curve or
volatility factors underlying the positions. Gains and losses resulting from
these positions are included in trading revenue. Unrealized gains and losses
related to such contracts and commitments, as well as option premiums paid and
received, are reported on a net basis on the balance sheet, as trading account
assets or, in the case of foreign exchange contracts, as other assets.
In addition to its trading activities, the Corporation, as an end user,
utilizes various types of derivative products (principally interest rate and
currency swaps) to manage the interest, currency and other market risks arising
from a number of categories of its assets and liabilities. Revenue or expense
pertaining to management of interest rate exposure is recognized over the life
of the contract as an adjustment to interest revenue or expense. In addition,
derivatives which are used to manage the risks associated with securities
available for sale are carried at fair value with the unrealized gains and
losses reported in securities valuation allowance in stockholders' equity. The
discount or premium on foreign exchange forward contracts and the interest on
swaps used as hedges of net investments in foreign entities, as well as the net
unrealized gains and losses from revaluing these contracts to the spot exchange
rates, are reported as cumulative translation adjustments in stockholders'
equity.
Securities Available for Sale; Investment Securities
The Corporation generally designates securities as either trading account assets
or available for sale (classified as investment securities until December 31,
1993) at the date of acquisition.
Until the end of the second quarter of 1992, debt investment securities were
carried at cost, adjusted for amortization of premiums and accretion of
discounts, because the Corporation had the ability to hold such securities to
maturity and the intent to hold them for the foreseeable future.
During 1992, the Corporation evaluated the conditions under which it might
sell such securities and decided that its debt investment securities would be
potentially available for sale in certain circumstances. Therefore, while these
securities were not held with the specific intention of future sale, they were
held for indefinite periods of time. Accordingly, from June 30, 1992 until
December 31, 1993, the Corporation's debt investment securities, with the
exception of those held by its insurance subsidiaries, were carried at the lower
of aggre-
54 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
gate amortized cost or market. This modification in accounting policy resulted
in no change in the carrying value of the affected investment securities.
For the insurance subsidiaries, beginning June 30, 1992, debt securities are
valued on the same basis that the insurance subsidiaries' equity securities have
been valued: at quoted market prices, with the resulting net unrealized gains or
losses recorded in the securities valuation allowance, a component of
stockholders' equity.
Effective December 31, 1993, the Corporation adopted Statement of Financial
Accounting Standards "SFAS" 115, "Accounting for Certain Investments in Debt and
Equity Securities," by classifying its debt and marketable equity securities,
including the previously reported investment securities, in a new balance sheet
caption, securities available for sale. These securities, including applicable
hedges, are valued at fair value, with the resulting net unrealized gains or
losses recorded in stockholders' equity as securities valuation allowance. Fair
value is generally based on quoted market prices or broker or dealer price
quotations.
The specific identification method is used to determine the cost of securities
sold.
Cash Basis Loans, Renegotiated Loans, Other Real Estate and Other Nonperforming
Assets
Generally, when a loan is in default as to payment of principal or interest for
90 days or when, in the judgment of management, the accrual of interest should
be ceased before 90 days, it is the Corporation's policy to place such a loan on
a "cash basis." In addition, all loans classified doubtful by senior management
and all partially charged-off loans are placed on a cash basis, even if the
borrower is still making required payments. Any accrued but unpaid interest
previously recorded on cash basis loans is reversed against current period
interest revenue. Cash receipts of interest on cash basis loans are recorded as
either revenue or a reduction of principal, according to management's judgment
as to the collectibility of principal.
Renegotiated loans are those which have been renegotiated to an effective
interest rate lower than the then-current market rate because of a deterioration
in the financial position of the borrower. Interest on such loans is accrued at
the renegotiated rate.
Other real estate and other assets acquired in credit workouts, either
formally or through in-substance foreclosure, are recorded at the lower of fair
value or the recorded investment in the related loan and are classified as other
assets. Any excess of the recorded investment in the loan over the fair value
of the asset acquired is accounted for as a charge to the allowance for credit
losses.
Allowance For Credit Losses
The allowance for credit losses is available for credit losses, which include
credit charge-offs and losses on sales and swaps of refinancing country loans
held in the loan portfolio. Credit losses arise from the Corporation's
portfolio, which is comprised of loans, credit-related commitments, derivatives
and other financial instruments. Whenever the Credit Audit Department and
senior credit management determine that the probability of loss is greater than
50 percent, an immediate charge-off of the amount deemed uncollectible is
recorded.
A multitude of complex and changing factors are collectively weighed by
management in determining the adequacy of the allowance. These factors include
management's review of the extent of existing risks in the portfolio and of
prevailing economic conditions; regular examinations and evaluations of the
quality of the portfolio by the Credit Audit Department and by the bank
regulatory authorities; the actual loss experience and the level of the
allowance. In the opinion of management, the allowance, when taken as a whole,
is adequate to absorb reasonably estimated credit losses inherent in the
Corporation's portfolio.
Premises and Equipment
Premises and equipment owned are stated at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Leasehold improvements are amortized
on a straight-line basis over the terms of the leases or the estimated useful
lives of the improvements, whichever are shorter. Maintenance and repairs are
charged to expense and improvements are capitalized. Gains and losses on
dispositions are generally reflected in earnings.
Leased properties meeting certain criteria are capitalized and amortized using
the straight-line method over the terms of the leases.
Insurance Revenue and Expense
For the Corporation's life insurance subsidiary, premiums are recognized as
revenue over the premium paying period of the related disability, annuity and
other life insurance policies and are included in other noninterest revenue.
Liabilities for future insurance benefits and the related provision for
policyholder benefits reflect the present value of actuarially determined
obligations net of future premiums. The liabilities for future benefits are
included in other liabilities and the provision for benefits is included in
other noninterest expenses.
Income Taxes
The Corporation's income taxes for 1991 were computed in accordance with SFAS
96. SFAS 96 restricted the recognition of deferred tax assets and required that
deferred tax balances be measured by using currently enacted rates.
Effective January 1, 1992, the Corporation adopted SFAS 109, the new
accounting standard for income taxes. This statement changed the manner in
which income tax expense is determined, since it provides significantly less
restrictive criteria for the recognition of deferred tax assets.
Deferred Stock Awards
The Corporation records its obligations under outstanding deferred stock awards
as a component of stockholders' equity, common stock issuable-stock awards. The
related deferred
BANKERS TRUST 55
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
compensation is also included in stockholders' equity. These
classifications are based upon the Corporation's intent to settle these awards
with its common stock.
Statement of Cash Flows
For purposes of the consolidated statement of cash flows, the Corporation's cash
and cash equivalents are cash and due from banks. Net cash flows from
instruments such as futures, forwards, options and swaps used to hedge assets or
liabilities are classified as cash flows from operating activities.
Effective with the June 30, 1992 modification of its accounting policy with
respect to the valuation of its investment securities, the Corporation had
prospectively classified the cash flows from such securities as operating
activities. In conjunction with the adoption of SFAS 115 at December 31, 1993,
the consolidated statement of cash flows for 1992 has been restated to treat
cash flows from investment securities as investing activities.
The Corporation reports the cash flows from loans made to customers and
principal collected on loans, as well as from interest-bearing deposits accepted
and repaid by its bank subsidiaries, on a net basis. Since the gross cash flows
from the Corporation's nonbank subsidiaries' loans and interest-bearing deposits
are not significant to the consolidated statement, such cash flows are also
reported on a net basis.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current
presentation.
Note 2 - Changes in Accounting Principles
Income Taxes
Effective January 1, 1992, the Corporation adopted SFAS 109, "Accounting for
Income Taxes". The adoption of SFAS 109 resulted in a $324 million upward
restatement of consolidated net income for 1992. This amount consisted of a
$446 million credit recorded as the cumulative effect of the accounting change
and a $122 million increase in income taxes.
Postretirement and Postemployment Benefits
On January 1, 1993, the Corporation adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". The Corporation now uses
actuarial-basis accrual accounting for its postretirement health care and life
insurance plans. The Corporation recognized its entire net transition
obligation with respect to these plans.
The Corporation also adopted SFAS 112, "Employers' Accounting for
Postemployment Benefits" on January 1, 1993. The Corporation recognized on an
accrual basis the probable and reasonably estimable costs of its employer-
provided benefits which cover former or inactive employees after employment but
before retirement. These included severance, short- and long-term disability,
workers' compensation and the continuation of health care and life insurance
coverage.
As a result of adopting SFAS 106 and SFAS 112 on January 1, 1993, the
Corporation recorded charges of $100 million and $7 million, respectively, (or
$70 million and $5 million, respectively, net of income taxes) as the cumulative
effects of these changes in accounting principles. Aside from the cumulative
effect charge, during 1993, the Corporation recorded $11 million of
postretirement benefits expense.
Securities Available for Sale
Effective December 31, 1993, the Corporation adopted SFAS 115. This new
accounting standard mandates that affected securities which are neither trading
securities nor held to maturity be designated as available for sale and reported
at fair value, with unrealized gains and losses recorded directly to a separate
component of stockholders' equity.
The Corporation, in addition to the securities which had been classified as
investment securities (and carried at either the lower of aggregate cost or
market, or at market), identified and transferred at market value to a new asset
category, securities available for sale, Mexican government Par Bonds,
industrial development bonds and Brazilian sovereign bonds previously carried in
the loan portfolio, as well as marketable equity securities previously
classified as other assets (and carried at cost).
Also at December 31, 1993, the Corporation recorded a credit of $145 million
($88 million on an after-tax basis) in the securities valuation allowance
component of stockholders' equity, representing the net unrealized gains on
securities available for sale. The adoption of SFAS 115 had no effect on net
income.
Note 3 - Trading Account Assets and Securities Sold,
Not Yet Purchased
The components of these accounts, which are carried at market value, were as
follows:
<TABLE>
<CAPTION>
(in millions) December 31, 1993 1992
------- -------
<S> <C> <C>
Trading account assets
U.S. government and agency
securities $19,648 $14,359
Obligations of U.S. states and political
subdivisions 494 627
Foreign government securities 13,229 5,447
Corporate debt securities 5,565 2,749
Equity securities 3,804 1,114
Bankers acceptances and certificates
of deposit 2,178 2,682
Swaps, options and other derivative
contracts, net 732 1,287
Other 2,626 1,643
------- -------
Total trading account assets $48,276 $29,908
======= =======
Securities Sold, Not Yet Purchased
U.S. government and agency securities $ 4,023 $ 3,887
Foreign government securities 3,099 188
Equity securities 1,644 712
Other 583 340
------- -------
Total securities sold, not yet purchased $ 9,349 $ 5,127
======= =======
</TABLE>
56 BANKERS TRUST
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Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Note 4 - Securities Available for Sale;
Investment Securities
The fair value, amortized cost, and gross unrealized holding gains and losses
for the Corporation's securities available for sale follow:
<TABLE>
<CAPTION>
(in millions) December 31, 1993
Gross
Unrealized Holding
Fair ------------------ Amortized
Value Gains (Losses) Cost
------ ----- ----- ------
<S> <C> <C> <C> <C>
Debt securities
U.S. government and agencies $1,091 $ 33 $ (36) $1,094
States of the U.S. and
political subdivisions 1,561 125 (59) 1,495
Asset-backed 1,105 3 - 1,102
Foreign governments 1,305 17 - 1,288
Other 1,667 32 (30) 1,665
Equity securities 344 98 (8) 254
------ ---- ----- ------
Total securities available for sale $7,073 $308 $(133) $6,898
====== ==== ===== ======
</TABLE>
Except for U.S. government and agencies, there were no securities of any
individual issuer included in securities available for sale that exceeded 10
percent of the Corporation's total stockholders' equity at December 31, 1993.
The components of investment securities gains (losses) as reported in the
consolidated statement of income for each of the last three years are summarized
as follows:
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Debt securities - gross realized gains $ 7 $ 8 $ 40
Debt securities - gross realized losses (5) (28) (20)
Equity securities - net realized gains 11 16 26
----- ----- -----
Total investment securities gains (losses) $ 13 $ (4) $ 46
===== ===== =====
</TABLE>
The Corporation's investment securities' book value and market value (or
estimated market value for certain investment securities where no market
quotations were available), including gross unrealized gains and losses follow:
<TABLE>
<CAPTION>
(in millions) December 31, 1992 1991
--------------------------------- ---------------------------------
Gross Unrealized Gross Unrealized
Book ---------------- Market Book ----------------- Market
Value Gains (Losses) Value Value Gains (Losses) Value
------ ----- -------- ------ ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 569 $ 5 $ - $ 574 $ 561 $ 6 $ - $ 567
- portion carried at market 44 - - 44 - - - -
U.S. government agencies and corporations 883 20 (1) 902 883 47 - 930
- portion carried at market 65 - - 65 - - - -
States of the U.S. and political subdivisions 1,312 77 (1) 1,388 1,384 122 (5) 1,501
Other bonds, notes, debentures and
redeemable preferred stock 2,526 8 (9) 2,525 3,541 46 (16) 3,571
- portion carried at market 639 - - 639 - - - -
Federal Reserve Bank and other
corporate stock 73 1 (1) 73 67 - - 67
- portion carried at market 104 - - 104 80 - - 80
------ ----- ---- ------ ------ ---- -------- ------
Total investment securities $6,215 $ 111 $(12) $6,314 $6,516 $221 $(21) $6,716
====== ===== ==== ====== ====== ==== ======== ======
</TABLE>
The following table shows the fair value, remaining maturities, approximate
weighted average yields (not on a fully taxable basis) and total amortized cost
by maturity distribution of the debt components of the Corporation's securities
available for sale at December 31, 1993.
<TABLE>
<CAPTION>
Maturity Distribution
---------------------------------------------------------------------------------------------------
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years Total
---------------- ---------------- ---------------- ---------------- ---------------
($ in millions) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government and
agencies $ 338 4.27% $ 452 7.63% $ 57 8.77% $ 244 9.79% $ 1,091 7.13%
States of the U.S. and
political
subdivisions 49 7.12 842 8.42 223 5.28 447 6.37 1,561 7.34
Asset-backed securities 6 8.77 506 4.07 550 3.63 43 3.67 1,105 3.86
Foreign government
securities 307 7.30 284 7.14 333 9.30 381 7.29 1,305 7.77
Other 465 4.07 956 5.74 215 9.28 31 9.33 1,667 5.80
------- ------ ------- ------- ------- ------- ------- ------- ------- -------
Total fair value $ 1,165 $ 3,040 $ 1,378 $ 1,146 $ 6,729
======= ======= ======= ======= =======
Total amortized cost $ 1,159 $ 3,022 $ 1,364 $ 1,099 $ 6,644
======= ======= ======= ======= =======
</TABLE>
BANKERS TRUST 57
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- --------------------------------------------------------------------------------
Note 5 - Loans
The following table summarizes the composition of loans at the end of each of
the last five years:
<TABLE>
<CAPTION>
($ in millions) December 31, 1993 1992 1991 1990 1989
---------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic
Commercial and industrial $ 2,794 18% $ 3,727 21% $ 4,074 24% $ 5,111 24% $ 5,767 27%
Financial institutions 3,210 21 4,544 26 3,020 18 3,701 17 1,415 7
Real estate
Construction 245 2 261 2 405 2 484 2 748 4
Mortgage 1,550 10 1,625 9 1,499 9 1,677 8 1,569 7
Other 1,780 12 1,312 8 1,247 7 1,715 8 2,151 10
------- ------ ------- ------- ------- ------- ------- ------- ------- -------
Total domestic 9,579 63 11,469 66 10,245 60 12,688 59 11,650 55
------- ------ ------- ------- ------- ------- ------- ------- ------- -------
International
Governments and official
institutions 456 3 1,316 8 1,709 10 2,297 11 2,249 10
Banks and other financial
institutions 1,935 12 1,076 6 973 5 1,752 8 2,237 10
Commercial and industrial 1,721 11 1,930 11 2,409 14 3,097 14 3,773 18
Real estate
Construction 2 - 18 - 161 1 209 1 165 1
Mortgage 261 2 394 2 465 3 430 2 187 1
Other 1,346 9 1,212 7 1,175 7 1,107 5 998 5
------- ------ ------- ------- ------- ------- ------- ------- ------- -------
Total international 5,721 37 5,946 34 6,892 40 8,892 41 9,609 45
------- ------ ------- ------- ------- ------- ------- ------- ------- -------
Gross loans 15,300 100% 17,415 100% 17,137 100% 21,580 100% 21,259 100%
------ ------- ------- ------- -------
Less, unearned income 100 97 90 106 106
------- ------- ------- ------- -------
Total loans $15,200 $17,318 $17,047 $21,474 $21,153
------- ------- ------- ------- -------
</TABLE>
On a global basis, the commercial and industrial category and the "other"
category included no single industry group with aggregate borrowings from the
Corporation in excess of 10 percent of the total loan portfolio at December 31,
1993.
The following table shows certain maturity information for the Corporation's
loans at December 31, 1993, excluding 1-4 family mortgages, installment loans
and lease financing:
<TABLE>
<CAPTION>
Remaining Maturity
----------------------------------------------------------------
Within After one After
one but within five
(in millions) year five years years Total
--------- ---------- ------ -------
<S> <C> <C> <C> <C>
Domestic
Commercial and industrial $ 1,281 $1,136 $ 377 $ 2,794
Financial institutions 3,098 103 9 3,210
Real estate
Construction 57 188 - 245
Mortgage 610 495 202 1,307
Other 1,400 62 26 1,488
------- ------ ------ -------
Total domestic 6,446 1,984 614 9,044
International 4,313 517 721 5,551
------- ------ ------ -------
Total $10,759 $2,501 $1,335 $14,595
======= ====== ====== =======
Loans due after one year
With predetermined
interest rates $ 332 $ 664
====== ======
With floating or adjustable
interest rates $2,169 $ 671
====== ======
</TABLE>
Cash Basis Loans and Renegotiated Loans
The Corporation's cash basis loans and renegotiated loans are summarized as
follows:
<TABLE>
<CAPTION>
(in millions) December 31, 1993 1992
------- ------
<S> <C> <C>
Cash basis loans
Domestic $ 621 $ 833
International 353 544
------- ------
Total cash basis loans $ 974 $1,377
======= ======
Renegotiated loans
Domestic $ 21 $ 48
International - 611
------- ------
Total renegotiated loans $ 21 $ 659
======= ======
</TABLE>
58 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
At December 31, 1993 and 1992, the Corporation had commitments to make
additional loans to borrowers on a cash basis or renegotiated status of $29
million and $75 million, respectively.
The following table sets forth the approximate effect on interest revenue of
cash basis loans and renegotiated loans. This disclosure reflects the interest
on loans which were carried on the balance sheet and classified as either cash
basis or renegotiated at December 31 of each year. The rates used in
determining the gross amount of interest which would have been recorded at the
original rate were not necessarily representative of current market rates.
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1993 1992 1991
- ------------------------------------- ----- ------ -----
<S> <C> <C> <C>
Domestic loans
Gross amount of interest that would have
been recorded at original rate $ 56 $ 82 $ 111
Less, interest, net of reversals, recognized
in interest revenue 8 18 30
----- ------ -----
Reduction of interest revenue 48 64 81
----- ------ -----
International loans
Gross amount of interest that would have
been recorded at original rate 29 95 173
Less, interest, net of reversals, recognized
in interest revenue 22 108 93
----- ------ -----
Reduction of (Increase in) interest revenue 7 (13) 80
----- ------ -----
Total reduction of interest revenue $ 55 $ 51 $ 161
===== ====== =====
</TABLE>
In May 1993, the FASB issued SFAS 114, "Accounting by Creditors for Impairment
of a Loan". This statement is effective for fiscal years beginning after
December 15, 1994, with earlier adoption permissible. SFAS 114 requires the
creation of a valuation allowance for impaired loans based on either: the
present value of expected future cash flows discounted at the loan's effective
interest rate, the loan's observable market price or the fair value of the
collateral. Under SFAS 114, a loan is impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the loan's contractual terms.
The Corporation has not yet decided when it will adopt SFAS 114. However, the
Corporation believes that adoption of this standard at December 31, 1993 would
only have resulted in an allocation of a portion of its existing allowance for
credit losses to a specific valuation allowance for impaired loans, with no
resulting impact on that date on the Corporation's net income, stockholders'
equity or total assets.
Note 6 - Allowance for Credit Losses
An analysis of the changes in the Corporation's allowance for credit losses
follows:
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1993 1992 1991
- ------------------------------------- ------- ------ ------
<S> <C> <C> <C>
Balance, beginning of year $ 1,620 $1,806 $2,169
------- ------ ------
Net charge-offs
Charge-offs 460 343 487
Recoveries 71 49 49
------- ------ ------
Total net charge-offs 389 294 438
Losses on sales and swaps of
refinancing country loans - 117 163
------- ------ ------
Total net charges to the allowance 389 411 601
Provision for credit losses 93 225 238
------- ------ ------
Balance, end of year $ 1,324 $1,620 $1,806
======= ====== ======
</TABLE>
Note 7 - Premises and Equipment; Leases
An analysis of premises and equipment follows:
<TABLE>
<CAPTION>
(in millions) December 31, 1993 1992
- -------------------------- ------ ------
<S> <C> <C>
Land $ 70 $ 65
Buildings 211 213
Leasehold improvements 263 255
Furniture and equipment 737 625
Property leased under capital leases
Land and buildings 76 76
Equipment 2 2
Construction-in-progress 19 16
------ ------
Total 1,378 1,252
Less, accumulated depreciation and amortization 659 592
------ ------
Net book value $ 719 $ 660
====== ======
</TABLE>
Included in accumulated depreciation and amortization was accumulated
amortization related to capitalized leases of $25 million and $23 million at
December 31, 1993 and 1992, respectively.
The Corporation is a lessee under lease agreements covering real property and
equipment. Certain leases contain purchase or bargain renewal options. The
future minimum lease payments required under the Corporation's capital leases
and the present value of such payments at the end of 1993 were as
follows:
<TABLE>
<CAPTION>
(in millions) December 31, 1993
- -------------------------- -----
<S> <C>
1994 $ 7
1995 7
1996 7
1997 7
1998 7
1999 and later 99
-----
Total minimum lease payments 134*
Less, amount representing interest 64
-----
Total present value of minimum lease payments 70
LESS, LOANS TO LESSORS OF CERTAIN LEASED PREMISES 64
-----
Obligations under capital leases, net $ 6
=====
</TABLE>
* Net minimum lease payments were $106 million after deducting minimum
noncancelable sublease rentals of $28 million.
BANKERS TRUST 59
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
The future minimum lease payments required under the Corporation's
noncancelable operating leases at the end of 1993 were as follows:
<TABLE>
<CAPTION>
(in millions) December 31, 1993
-----
<S> <C>
1994 $ 69
1995 50
1996 37
1997 31
1998 33
1999 and later 191
-----
Total minimum lease payments $ 411*
=====
</TABLE>
* Net minimum lease payments were $393 million after deducting minimum
noncancelable sublease rentals of $18 million.
The following shows the net rental expense for all operating
leases:
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Gross rental expense $ 87 $ 95 $ 104
Less, sublease rental income 9 14 18
----- ----- -----
Net rental expense $ 78 $ 81 $ 86
===== ===== =====
</TABLE>
Note 8 -- Securities Sold Under Repurchase
Agreements and Other Short-Term Borrowings
Short-term borrowings are borrowed funds generally with an original maturity of
one year or less. Debt instruments which contain a provision for early
redemption, exercisable at the option of the security holder, are classified on
the basis of the earliest possible redemption date.
Securities sold under repurchase agreements and federal funds purchased
generally mature in one day; commercial paper generally matures within 90 days.
The details of these borrowings for the years 1993, 1992 and 1991 are
presented below:
<TABLE>
<CAPTION>
($ in millions) 1993 1992 1991
------ ------- -------
<S> <C> <C> <C>
Securities sold under repurchase agreements
Balance at year end $23,834 $17,451 $12,343
Average amount outstanding 23,772 20,241 10,005
Maximum amount outstanding at
any month end 28,575 26,540 13,169
Average interest rate for the year 3.64% 4.03% 6.37%
Average interest rate on year-end balance 3.59% 3.27% 4.84%
Federal funds purchased
Balance at year end $ 5,242 $ 2,926 $ 5,211
Average amount outstanding 2,674 2,686 4,516
Maximum amount outstanding at
any month end 5,719 5,254 7,993
Average interest rate for the year 2.49% 3.12% 5.55%
Average interest rate on year-end balance 2.50% 1.83% 3.59%
Commercial paper
Balance at year end $ 7,156 $ 5,001 $ 4,636
Average amount outstanding 5,415 4,494 3,798
Maximum amount outstanding at
any month end 7,156 5,367 4,725
Average interest rate for the year 3.65% 5.01% 6.92%
Average interest rate on year-end balance 3.47% 4.07% 5.79%
Other
Balance at year end $ 6,594 $ 3,852 $ 3,205
Average amount outstanding 4,628 3,851 3,684
Maximum amount outstanding at
any month end 6,594 4,281 4,557
Average interest rate for the year 7.39% 8.20% 10.86%
Average interest rate on year-end balance 5.76% 7.05% 8.04%
</TABLE>
The Parent Company had standby lines of credit amounting to $500 million at
December 31, 1993 with banks other than its subsidiaries to support its
commercial paper outstanding. It has never been necessary for the Parent
Company to activate these lines of credit.
60 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Note 9 - Long-Term Debt
Long-term debt is summarized as follows, based on the contractual terms of each
issue:
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
Fixed Rate Floating Rate 1993 1992
(in millions) Senior Subordinated Senior Subordinated Total Total
-------------- ------------ ------ ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Parent Company
Due in 1993 $ - $ - $ - $ - $ - $ -
Due in 1994 150 - - - 150 150
Due in 1995 299 - 120 - 419 299
Due in 1996 598 150 13 - 761 447
Due in 1997 - 201 - - 201 200
Due in 1998 100 - 30 - 130 10
Due in 1999-2003 13 1,210 - 548 1,771 1,672
Thereafter - 399 - 100 499 8
----- ----- --- --- ----- -----
Total 1,160 1,960 163 648 3,931 2,786
===== ===== === === ===== =====
BTCo.
Due in 1993 - - - - - 6
Due in 1994 221 - 377 - 598 438
Due in 1995 2 100 239 - 341 155
Due in 1996 1 - 39 - 40 1
Due in 1997 1 21 64 - 86 23
Due in 1998 1 24 110 - 135 25
Due in 1999-2003 18 25 132 - 175 256
Thereafter - 11 7 - 18 17
----- ----- --- --- ----- -----
Total 244 181 968 - 1,393 921
===== ===== === === ===== =====
BT Securities Corporation
Variable Rate Subordinated Notes due Sept. 1997
($53 at fixed rate at Dec. 1993) 162 162
Bankers Trust (Delaware)
Zero Coupon Bank Notes due
June 1994 to Dec. 1996 87 82
Other Subsidiaries 24 41
------ ------
Total long-term debt $5,597 $3,992
====== ======
</TABLE>
Based solely on the contractual terms of the debt issues, at December 31, 1993
the Corporation's total fixed rate long-term debt had a weighted average
interest rate of 7.50 percent.
The Corporation has entered into interest rate and currency swap agreements
for many of its long-term debt issues, in order to manage its interest rate and
currency risks.
The interest rates for the floating rate debt issues and the fixed rate debt
issues effectively converted to floating, are generally based on LIBOR, although
in certain instances they are subject to minimum interest rates as specified in
the agreements governing the respective issues.
The weighted average effective interest rates for total long-term debt,
including the effects of the related swap agreements, were 3.58 percent and 4.82
percent at December 31, 1993 and 1992, respectively.
Certain debt securities include covenants requiring the Parent Company, from
time to time or at maturity, as appropriate, to issue common stock or other
securities in an amount equal to the principal amount of the debt securities, in
order to comply with bank regulations governing capital adequacy. In this
regard, at December 31, 1993 and 1992, the Parent Company had dedicated $473
million and $280 million, respectively, of net proceeds from such issuances.
At December 31, 1993, the Parent Company had outstanding two issues of
Convertible Capital Securities due 2033 and totaling $250 million. These are
subordinated debt securities which under certain circumstances can be converted
into Parent Company preferred stock. See Note 11 for additional information.
The payment of principal and interest on a BTCo. $100 million issue of
Subordinated Notes due March 1995 is unconditionally guaranteed on a
subordinated basis by the Parent Company. The notes were issued during 1992 as
part of an offering of Preferred Purchase Units. See Note 11 for additional
information.
Note 10 - Preferred Stock of Subsidiary
On January 22, 1993, BT Overseas Finance N. V. ("BTOF"), an indirect, wholly-
owned subsidiary of the Parent Company authorized to issue 10,000 preferred
shares, $.01 par value, issued $250 million, or 2,500 shares, of Auction Rate
Cumulative Preferred Stock in four series of 625 shares each-Series A-D ("BTOF
Preferred"). The BTOF Preferred has contingent voting rights and a liquidation
preference of $100,000 per share, plus accrued and unpaid dividends. Each of
the four series is identical, except that dividend rates and dividend payment
dates vary and separate auctions on different auction dates are held for each
series.
The shares of each series of BTOF Preferred are redeemable, in whole but not
in part, except under certain circumstances, at the option of BTOF at a
redemption price of $100,000 per share, plus accrued and unpaid dividends to the
date of redemption.
Dividends on each series of BTOF Preferred are cumulative and payable
generally every 28 days at a rate per annum determined by auction. The rate for
any dividend period is subject to a minimum rate, in certain circumstances,
based upon the "AA" Corporate Commercial Paper Rate and a maximum rate based
upon selected short- and long-term U.S. Treasury securities as determined at the
particular auction date. For the year ended December 31, 1993, the composite
average dividend rate on the four series of BTOF Preferred was 3.20 percent. At
December 31, 1993, the composite average dividend rate was 3.41 percent.
In addition, BTOF and the Parent Company entered into an agreement pursuant to
which the Parent Company agreed to sell to BTOF, upon BTOF's exercise of its
right to purchase, 2,500 shares (in four series of 625 shares) of the Parent
Company's Auction Rate Cumulative Preferred Stock, Series K-N ("Exchange
Preferred"). BTOF and the Parent Company also agreed that BTOF will purchase and
exchange the Exchange Preferred for BTOF Preferred, upon the Parent Company's
exercise of its right to cause such for one or more series, or upon the
occurrence of certain other events in whole but not in part. The purchase price
of the Exchange Preferred in either case is $100,000 per share. The Exchange
Preferred Stock has terms identical to the BTOF Preferred, except that the
Parent Company can redeem the Exchange Preferred in whole or in part, the
dividend periods are generally 49 days and the maximum rate for any dividend
period under no circumstances will exceed 24 percent per annum.
BANKERS TRUST 61
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Note 11 - Preferred Stock
Series Preferred Stock
The Parent Company is authorized to issue 10 million shares of Series Preferred
Stock, without par value. All shares of Series Preferred Stock constitute one
and the same class and have equal rank and priority over common stockholders as
to dividends and in the event of liquidation. Each series of Series Preferred
Stock has a liquidation preference per share (as indicated below), plus accrued
and unpaid dividends, as well as contingent voting rights. The Series Preferred
Stock outstandings were as follows:
<TABLE>
<CAPTION>
($ in millions) December 31, 1993 1992
----- -----
<S> <C> <C>
Fixed/Adjustable Rate Cumulative Preferred Stock
Series D, Outstanding: 4,105,550 shares $ 205 $ 205
Series J, Outstanding: 447,225 shares 45 45
Money Market Cumulative Preferred Stock
Series E, F, G and H, Outstanding: 625 shares per Series - 250
----- -----
Total preferred stock $ 250 $ 500
===== =====
</TABLE>
Series C Junior Participating Preferred Stock
The Parent Company has designated 1 million shares of the Series Preferred Stock
as Series C Junior Participating Preferred Stock ("Series C"), which are
issuable on the exercise of Preferred Share Purchase Rights pursuant to a Rights
Agreement adopted by the Corporation in February 1988. See Note 12 for a more
detailed discussion of this agreement. No Series C shares have ever been
issued.
Fixed/Adjustable Rate Cumulative Preferred Stock,
Series D and J
On August 31, 1989, the Parent Company issued $250 million, or 5 million shares,
of Fixed/Adjustable Rate Cumulative Preferred Stock, Series D (Liquidation
Preference-$50 per share) ("Series D"). On October 28, 1992, the Parent Company
exchanged 447,225 shares of Fixed/Adjustable Rate Cumulative Preferred Stock,
Series J (Liquidation Preference-$100 per share) ("Series J") for 894,450 shares
of its Series D amounting to $44,722,500 liquidation value. After the exchange,
there remained outstanding 4,105,550 shares, or $205,277,500 liquidation value,
of the Series D.
At the option of the Parent Company, the Series D (Series J) may be redeemed,
in whole or in part, on or after September 1, 1992 (Series J, December 1, 1995)
and prior to September 1, 1994 (Series J, December 1, 1997) at $51.50 (Series J,
$103.00) per share and thereafter at $50.00 (Series J, $100.00) per share, plus,
in each case, accrued and unpaid dividends to the redemption date. However,
these shares may be redeemed in whole earlier if the dividend rate is adjusted
upwards as a result of an amendment to effect a change in the dividends
exclusion percentage provisions of the Internal Revenue Code. Any optional
redemption shall be with the approval of the Federal Reserve Board unless at
that time that body should determine that its approval is not required.
Dividends on the Series D and Series J are cumulative and payable quarterly on
March 1, June 1, September 1 and December 1 of each year. The Series D (Series
J) dividend rate is fixed at 8.72 (Series J, 7.375) percent per annum prior to
September 1, 1994 (Series J, December 1, 1997). Thereafter, the dividend rate
for both series is determined by a formula that considers the interest rates of
selected short- and long-term U.S. Treasury securities at the time the rate is
set plus an incremental increase based on a relationship of the Parent Company's
then current quarterly cash dividend declared on common stock and the last
quarterly cash dividend paid on common stock prior to June 1, 1994 (Series J,
September 1, 1997). The Series D (Series J) adjustable rate in no event will be
less than 8 percent (Series J, 7 percent) per annum or greater than 17 percent
(Series J, 17 percent) per annum. Both the fixed and adjustable rates may be
subject to adjustment in the event of enactment of an amendment to effect a
change in the dividends exclusion percentage provisions of the Internal Revenue
Code.
Money Market Cumulative Preferred Stock,
Series E, F, G and H
On June 14, 1990, the Parent Company issued $250 million, or 2,500 shares, of
Money Market Cumulative Preferred Stock in four series of 625 shares each-Series
E, Series F, Series G and Series H (Liquidation Preference-$100,000 per share).
During the first half of 1993, the Parent Company redeemed at par ($100,000 per
share) its Money Market Cumulative Preferred Stock.
Each of the four series were identical except that the dividend rates and
dividend payment dates varied and separate auctions on different auction dates
were held for each series, generally every 49 days. For the years 1993 and
1992, the composite average dividend rates were 2.72 percent and 3.16 percent,
respectively. At December 31, 1992, the composite average dividend rate on the
four series of Money Market Cumulative Preferred Stock was 3.19 percent.
8.55% Cumulative Preferred Stock, Series I
On March 23, 1992, Bankers Trust Company issued $100 million of 6.90%
Subordinated Notes due March 1995 (the "Notes"). The Notes, which are
guaranteed on a subordinated basis by the Parent Company, were issued as part of
four million Preferred Purchase Units ("Units"). Each Unit consists of a Note
with a $25 principal amount, a subordinated guaranty by the Parent Company of
such Note, and a preferred stock purchase contract (the "Purchase Contract")
issued by the Parent Company. Holders of the Units are entitled to receive 8.55
percent per annum with respect to each Unit, payable quarterly, which consists
of the interest on the Notes and a contract fee in respect of the Purchase
Contracts. On March 1, 1995, the Notes will mature. On that same date, the
Purchase Contracts, unless terminated, will require the purchase, at a price of
$25 per share, of four million depositary shares, each representing a one-fourth
interest in a share of the Parent Company's 8.55% Cumulative Preferred Stock,
Series I (Liquidation Preference-
62 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
$100 per share) ("Series I").
Dividends on the Series I, when and if issued, will be cumulative and payable
quarterly, commencing on June 1, 1995, at a fixed rate of 8.55 percent of the
liquidation preference per annum. Shares of the Series I, when and if issued,
will not be redeemable prior to March 1, 1997, when they will become redeemable
at the Parent Company's option at $100 per share, plus an amount equal to
accrued and unpaid dividends.
Auction Rate Cumulative Preferred Stock, Series K, L, M and N
The Parent Company, as part of an agreement with BTOF, holds in treasury Auction
Rate Cumulative Preferred Stock in four series of 625 shares each-Series K,
Series L, Series M and Series N (Liquidation Preference-$100,000 per share).
See Note 10 for a more detailed discussion of this agreement.
7 5/8% Cumulative Preferred Stock, Series O
On June 2, 1993, the Parent Company issued $150 million of
7 5/8% Convertible Capital Securities due June 2033. These debt securities are
subordinated and can only be redeemed in whole but not in part, on or after June
1, 1998 at par, plus accrued and unpaid interest to the redemption date. The
Parent Company, at its option, may reset at any time the interest rate on the 7
5/8% Convertible Capital Securities to a rate of 6 1/8 percent. Upon the Parent
Company's election to reset the interest rate, holders of this issue will have
the right, at any time prior to redemption or maturity, to convert the debt
securities into depositary shares, at $25 per share, each representing a one-
tenth interest in a share of the Parent Company's 7 5/8% Cumulative Preferred
Stock, Series O (Liquidation Preference--$250 per share) ("Series O").
Dividends on the Series O, when and if issued, will be cumulative and payable
quarterly on each March 1, June 1, September 1 and December 1, commencing with
the date succeeding original issuance. Shares of Series O, when and if issued,
will be redeemable at the Parent Company's option, in whole or in part, at $300
per share on or before June 1, 1998 and thereafter at $250 per share, plus, in
each case, accrued and unpaid dividends to the redemption date.
7.50% Cumulative Preferred Stock, Series P
On August 19, 1993, the Parent Company issued $100 million of 7.50% Convertible
Capital Securities due August 2033. These debt securities are subordinated and
can only be redeemed, in whole but not in part, on or after August 15, 1998 at
par, plus accrued and unpaid interest to the redemption date. The Parent
Company, at its option, may reset at any time the interest rate on the 7.50%
Convertible Capital Securities to a rate of 6.00 percent. Upon the Parent
Company's election to reset the interest rate, holders of this issue have the
right, at any time prior to redemption or maturity, to convert the debt
securities into depositary shares, at $25 per share, each representing a one-
fortieth interest in a share of the Parent Company's 7.50% Cumulative Preferred
Stock, Series P (Liquidation Preference--$1,000 per share) ("Series P").
Dividends on the Series P, when and if issued, will be cumulative and payable
quarterly on February 15, May 15, August 15 and November 15, commencing with the
date succeeding original issuance. Shares of Series P, when and if issued, will
be redeemable at the Parent Company's option, in whole or in part, at $1,200 per
share on or before August 15, 1998 and thereafter at $1,000 per share, plus, in
each case, accrued and unpaid dividends to the redemption date.
Serial Preferred Stock
In 1990, stockholders voted in favor of an amendment to the Restated Certificate
of Incorporation of Bankers Trust New York Corporation to increase the number of
shares of authorized preferred stock from 10 million to 20 million and created a
new class of preferred stock called Serial Preferred Stock which would have
equal rank as the Series Preferred Stock as well as priority over common
stockholders as to dividends and in the event of liquidation. The Parent
Company has decided to defer action on implementing this approved amendment at
this time.
Note 12 -- Preferred Share Purchase Rights
On February 16, 1988, the Board of Directors of the Parent Company declared a
dividend distribution of one Preferred Share Purchase Right ("Right") for each
share of common stock held, payable February 26, 1988 to stockholders of record
on that date. Rights also automatically attach to each share of common stock
issued after February 26, 1988.
Each Right entitles the record holder to purchase from the Parent Company a
1/100th interest in a share of the Parent Company's Series C Junior
Participating Preferred Stock at an exercise price of $140, subject to certain
adjustments. The Rights will not be exercisable or transferable apart from the
common stock until the 10th day after either a public announcement that a person
or group (an "Acquiring Person") has acquired beneficial ownership of 20 percent
or more of the common stock, or the announcement or commencement of a tender
offer for 20 percent or more of the common stock. If the Corporation is
acquired or 50 percent or more of its consolidated assets or earning power are
sold, each holder of a Right will have the right to receive, upon the exercise
at the then current exercise price of the Right, that number of shares of common
stock of the acquiring company which have a market value of two times the
exercise price of the Right. If any person becomes an Acquiring Person (unless
such person first acquires 20 percent or more of the outstanding common shares
by a purchase pursuant to a tender offer for all of the common shares for cash,
which purchase increases such person's beneficial ownership to 80 percent or
more of the outstanding common shares), each holder of a Right other than Rights
beneficially owned by the Acquiring Person (which will be void), will have the
right to receive upon exercise that number of common shares having a market
value of two times the exercise price of the Right. The Rights will expire on
February 26, 1998, but may be redeemed at any time prior to a person or group
acquiring the beneficial ownership of 20 percent or more of the common stock.
Until a Right is exercised, the holder will have no rights as a stockholder of
the Parent Company.
BANKERS TRUST 63
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
After the acquisition by a person or group of beneficial ownership of 20
percent or more of the outstanding common shares and prior to the acquisition by
such person or group of 50 percent or more of the outstanding common shares, the
Board of Directors of the Parent Company may exchange the Rights (other than
Rights owned by such person or group), in whole or in part, at an exchange ratio
of one common share, or a 1/100th interest in a share of Series C Junior
Participating Preferred Stock (or a share of a class or series of the Parent
Company's preferred stock having equivalent rights, preferences and privileges),
per Right (subject to adjustment).
If issued, each share of Series C Junior Participating Preferred Stock will be
entitled, subject to adjustment, to (i) a quarterly dividend of the greater of
$1 per share or 100 times the quarterly dividend declared on each share of
common stock, (ii) in the event of liquidation, dissolution or winding up, a
preferential liquidation payment of the greater of $100 per share or 100 times
the liquidation payment made per share of common stock, and (iii) 100 votes per
share voting together with the holders of the Parent Company's common stock on
all matters.
Under certain conditions, the Rights will also be redeemed in connection with
an acquisition of all of the Parent Company's common stock for cash in a
transaction approved by the Parent Company's stockholders. Subject to certain
specified conditions, a special meeting of the Parent Company's stockholders to
vote on such a transaction will be called upon the request of a potential
acquiror.
These statements are qualified in their entirety by reference to the Rights
Agreement, a copy of which was filed with the Securities and Exchange
Commission.
Note 13 - Common Stock
The purposes and number of shares of common stock issued, distributed from
treasury and purchased for treasury during 1993, 1992 and 1991 were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992 1991
- ----------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Common shares outstanding,
beginning of year 82,873,988 82,418,670 80,923,830
---------- ---------- ----------
Shares issued or distributed under
Employee Benefit Plans:
1976 Stock Option Plan 9,376 37,787 70,135
1985 Stock Option and
Stock Award Plan
Stock options 869,966 977,504 1,205,519
Restricted stock
awards, net (25,664) (45,258) 153,619
Deferred stock awards 204,827 392,917 647,183
1991 Stock Option and
Stock Award Plan
Stock options 591,776 191,772 -
Restricted stock
awards, net 231,671 564,966 171,500
---------- ---------- ----------
Total shares issued or
distributed 1,881,952 2,119,688 2,247,956
Shares purchased for
treasury (4,153,406) (1,664,370) (753,116)
---------- ---------- ----------
Common shares outstanding,
end of year 80,602,534 82,873,988 82,418,670
========== ========== ==========
</TABLE>
At December 31, 1993, common stock was reserved for issuance or distribution as
follows:
<TABLE>
<S> <C>
Dividend Reinvestment and
Common Stock Purchase Plan 2,512,549
Employee Benefit Plans
PartnerShare (including
ESOP shares) 2,274,330
1991 Stock Option and
Stock Award Plan 7,248,315
1985 Stock Option and
Stock Award Plan 2,652,550
1976 Stock Option Plan 914,312
----------
Total 15,602,056
==========
</TABLE>
At the Annual Meeting of Stockholders on April 16, 1991, the stockholders
approved the 1991 Stock Option and Stock Award Plan (the "1991 Plan") which made
available for grant, until April 19, 1994, 9 million common shares. The 1991
Plan permits the granting of nonqualified and incentive stock options, stock
appreciation rights ("SARs"), restricted stock, deferred stock and other common
stock-based awards (collectively, the "Awards"). Awards are still outstanding
under the 1985 Stock Option and Stock Award Plan (the "1985 Plan") and the 1976
Stock Option Plan. No further Awards will be granted under either the 1985
Plan, as of April 16, 1991, or the 1976 Stock Option Plan. These plans are
administered by a Committee of the Board of Directors (the "Committee"), none of
whom is eligible to participate therein. The Committee determines whether, to
what extent and under what circumstances the Awards may be settled in cash.
Awards granted under these plans may be satisfied through the use of the Parent
Company's authorized but unissued shares or shares held in the Parent Company's
treasury. At the Annual Meeting of Stockholders scheduled for April 19, 1994,
stockholders will vote on a proposed replacement for the 1991 Plan which, if
adopted, would be called the 1994 Stock Option and Stock Award Plan. The
provisions of this proposed plan are generally similar to the 1991 Plan and
would make available 15 million shares for distribution. The Corporation
currently intends to satisfy the awards to be granted under the 1991 Plan and
the 1994 Stock Option and Stock Award Plan with treasury shares acquired through
open market
64 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
purchases and expects to purchase approximately 3-4 million shares
during 1994 for this purpose.
Stock options are granted to purchase stock at a price not less than the fair
market value on the date of grant and may be outstanding for any period up to 10
years and one day from the date of grant. Generally, no stock option may be
exercised until the employee has remained in the continuous employ of the
Corporation for one year after the option is granted. SARs may be granted in
conjunction with all or part of any new or previously granted stock options and
entitle their holders, at the discretion of the Committee, to receive cash or
stock equal to the excess of the fair market value on the date of exercise over
the related option price. The exercise of SARs reduces the stock options
otherwise exercisable; similarly, the exercise of stock options cancels the
corresponding SARs. The Committee may permit delivery of the Parent Company's
common shares already owned by the optionee in payment for the exercise of a
stock option.
The following is a summary of stock option and SAR transactions which occurred
during 1991, 1992 and 1993:
<TABLE>
<CAPTION>
Option Price
Options SARs Per Share
---------- --------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1990 4,789,725 615,432 $14.28125- $ 54.125
Granted 1,650,500 - 43.625- 60.9375
Exercised (1,275,654) (58,915) 14.28125- 54.125
Cancelled* (205,068) (539,590)
---------- --------
December 31, 1991 4,959,503 16,927 19.75- 60.9375
Granted 1,806,000 - 56.75- 64.2813
Exercised (1,207,063) (8,397) 19.75- 54.125
Cancelled (87,397) (2,166)
---------- --------
December 31, 1992 5,471,043 6,364 19.75- 64.2813
Granted 2,132,000 - 70.4375- 80.75
Exercised (1,471,118) (2,491) 19.75- 56.75
Cancelled (39,991) (3,873)
---------- --------
December 31, 1993 6,091,934 - 19.75- 80.75
========== ========
Exercisable at:
December 31, 1992 3,678,543 6,364
========== ========
December 31, 1993 3,969,934 -
========== ========
</TABLE>
* Included 503,389 SARs surrendered by employees, however the related options
remained outstanding.
For options outstanding at December 31, 1993 and 1992, the average option
price per share was $58.77 and $51.58, respectively, and the range of expiration
dates was 1994 through 2003 and 1993 through 2002, respectively.
Recipients of restricted stock have all the rights of a stockholder of the
Corporation, except for limitations on sale or use of shares during the
restriction period, generally three years. The restriction period was generally
five years, prior to October 15, 1991. At that time all previously issued
restricted stock grants were given vesting dates of their original date or
October 15, 1994, whichever is earlier. Restricted stock must be issued from
treasury shares. The Committee determines all conditions of the awards,
including whether to permit or require cash dividends to be deferred or
reinvested.
Deferred stock awards are the right to receive stock, the amount of which is
determined by a formula based on the Corporation's financial performance during
a specific year. Beginning in 1992, awards vest immediately at the end of the
performance year but are not distributed until after a specified deferral
period, generally five years after the performance year. Also, during the
deferral period, the 1993 and 1992 awards earn the equivalent of earnings per
common share ("EPS"). Of these earnings, the portion equal to the current per
share dividend is paid out currently in cash and the balance (EPS less cash
dividends) is reinvested into additional deferred stock, but will not vest until
the end of such deferral period. Prior to 1992, deferred stock awards,
including the reinvestment of dividend equivalents, generally did not vest or
become distributable until after four years from the date of award. At December
31, 1993 and 1992, there were deferred stock awards outstanding of 1,944,977
shares and 884,867 shares, respectively. These amounts represent the common
stock issuable included in the calculations of the Corporation's book value per
common share at those dates.
After providing for stock options granted, restricted stock awards and
deferred stock awards, there were 942,276 and 4,528,172 shares available for
future grant under the 1991 Plan at December 31, 1993 and 1992, respectively.
Note 14 -- Asset and Dividend Restrictions
The Federal Reserve Act, as amended by the Monetary Control Act of 1980,
requires that reserve balances on certain deposits of depository institutions be
maintained at the Federal Reserve Bank. The reserve balances of the
Corporation's subsidiary banks were $180 million and $59 million at December 31,
1993 and 1992, respectively. For the years 1993 and 1992, the average required
reserve balances of these banks amounted to $214 million and $207 million,
respectively.
Assets, principally securities available for sale, of approximately $4.047
billion at December 31, 1993 were pledged as collateral for borrowings, to
secure public and trust deposits, and for other purposes.
Federal law also requires that "covered transactions," as defined, engaged in
by insured banks and their subsidiaries with certain affiliates, including the
Parent Company, be at arm's length and limited to 20 percent of capital and
surplus, as defined, and "covered transactions" with any one such affiliate be
limited to 10 percent of capital and surplus. Covered transactions are defined
to include, among other things, loans and other extensions of credit to such an
affiliate and guarantees, acceptances and letters of credit issued on behalf of
such an affiliate. Such loans, other extensions of credit, guarantees,
acceptances and letters of credit must be secured. Other restrictions also
apply to inter-affiliate transactions.
Limitations exist on the availability of BTCo.'s undistributed earnings for
the payment of dividends to the Parent Company without prior approval of the
bank regulatory authorities. In this regard, BTCo. can declare dividends in
1994 without approval of the regulatory authorities of $1.413 billion of its
retained earnings at December 31, 1993, plus an additional amount equal to net
profits, as defined, for 1994 up to the date of any such dividend declaration.
The Federal Reserve Board may prohibit the payment of dividends if it determines
that circumstances relating to the financial condition of a bank are such that
the payment of dividends would be an unsafe and unsound practice.
BANKERS TRUST 65
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Certain other subsidiaries are subject to various regulatory and other
restrictions which may limit cash dividends and advances to the Parent Company.
Note 15 - Interest Revenue and Interest Expense
The following are the components of interest revenue and
interest expense:
<TABLE>
<CAPTION>
(in millions) Year Ended
December 31, 1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Interest revenue
Trading account assets $2,413 $1,686 $1,462
Loans 884 1,076 1,520
Interest-bearing deposits
with banks 214 287 356
Federal funds sold 22 27 36
Securities purchased under
resale agreements 381 624 430
Securities borrowed 127 - -
Investment securities
Taxable 329 465 482
Exempt from federal
income taxes 66 54 36
------ ------ ------
Total interest revenue 4,436 4,219 4,322
------ ------ ------
Interest expense
Deposits
In domestic offices 218 281 380
In foreign offices 795 838 1,209
Securities sold, not yet
purchased 424 301 250
Securities sold under
repurchase agreements 865 816 637
Other short-term borrowings 606 625 914
Long-term debt 214 211 195
------ ------ ------
Total interest expense 3,122 3,072 3,585
------ ------ ------
Net interest revenue $1,314 $1,147 $ 737
====== ====== ======
</TABLE>
Note 16 - Trading Revenue; Fees and Commissions;
Other Noninterest Revenue
The following are the components of trading revenue, fees and commissions and
other noninterest revenue:
<TABLE>
<CAPTION>
(in millions) Year Ended
December 31, 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Trading revenue
Trading account $1,440 $ 565 $ 957
Foreign exchange trading 191 331 272
------ ------ ------
Total trading revenue $1,631 $ 896 $1,229
====== ====== ======
Fees and commissions
Corporate finance fees $ 407 $ 326 $ 249
Service charges on deposit
accounts 90 81 73
Acceptances and letters of
credit commissions 50 52 54
Other 163 129 135
------ ------ ------
Total fees and commissions $ 710 $ 588 $ 511
====== ====== ======
Other noninterest revenue
Insurance premiums $ 124 $ 110 $ 114
Net revenue from equity
investment
transactions, including
write-offs 126 13 25
Other 57 80 30
------ ------ ------
Total other noninterest
revenue $ 307 $ 203 $ 169
====== ====== ======
</TABLE>
Note 17 - Other Noninterest Expenses
The following are the components of other noninterest
expenses:
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1993 1992 1991
----- ------ ------
<S> <C> <C> <C>
Fees for professional services $ 149 $ 121 $ 110
Provision for policyholder benefits 140 120 129
Telecommunications 91 80 77
Agency personnel fees 88 63 41
Travel and entertainment 85 70 55
Other 324 250 236
----- ----- -----
Total other noninterest expenses $ 877 $ 704 $ 648
===== ===== =====
</TABLE>
Note 18 - Pension and Other Employee Benefit Plans
Pension Plans
The Corporation has a trusteed, noncontributory, defined benefit pension plan
covering substantially all domestic employees. The pension plan benefit formula
is based upon years of service and average compensation over the final years of
service. For this principal domestic pension plan, the Corporation's policy is
to fund amounts which are actuarially determined in accordance with the
applicable provisions of the Employee Retirement Income Security Act of 1974
("ERISA"). Pension plan assets for this plan primarily consist of equity and
debt securities managed by BTCo.
The Corporation also has a domestic, unfunded defined contribution plan, as
well as both defined benefit and defined contribution retirement and similar
plans covering the majority of its foreign employees.
During 1991, as the result of a decrease in the number of domestic employees,
the Corporation recognized a $6 million gain in other noninterest revenue from
the partial curtailment of the principal domestic defined benefit plan.
Effective March 31, 1992, a foreign defined benefit plan was changed for most
employees to a defined contribution plan, on a prospective basis. As a result
of this change, the Corporation recognized a $15 million partial pension
curtailment gain in other noninterest revenue.
Pension expense for 1993, 1992 and 1991 included the following components:
<TABLE>
<CAPTION>
(millions) 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Principal defined benefit plans
(domestic and foreign)
Service cost-benefits earned $ 20 $ 20 $ 25
Interest cost on projected benefit obligations 33 34 31
Actual return on plan assets (89) (39) (120)
Net amortization and deferral 23 (29) 65
----- ----- -----
Total (13) (14) 1
Defined contribution plans 12 12 9
Other plans 4 2 3
----- ----- -----
Pension expense $ 3 $ - $ 13
===== ===== =====
</TABLE>
66 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
The actuarial assumptions used for the principal domestic defined benefit plan
were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Discount rate in determining expense 8.00% 8.00% 8.75%
Discount rate in determining benefit obligations
at year end 7.25% 8.00% 8.00%
Rate of increase in future compensation levels
for determining expense 5.00% 6.00% 6.00%
Rate of increase in future compensation levels
for determining benefit obligations at year end 5.00% 5.00% 6.00%
Expected long-term rate of return on assets 9.00% 9.00% 9.00%
</TABLE>
At year end 1993, the effect of changing the discount rate from 8.00% to 7.25%
was to increase the projected benefit obligation, accumulated benefit obligation
and vested benefit obligation by $44 million, $26 million and $23 million,
respectively.
At year end 1992, the combined effect of changing the rate of increase in
future compensation levels from 6.00% to 5.00% and changing the CPI growth rate
from 5.00% to 4.00% was to decrease the projected benefit obligation by $14
million, with an immaterial effect on the vested and accumulated benefit
obligations.
The assumptions used for the other domestic and the principal foreign defined
benefit plans were substantially similar to those used for the principal
domestic plan, given local economic conditions in the cases of the principal
foreign plans.
The following table sets forth the funded status and amounts recognized in the
Corporation's balance sheet for its principal domestic and foreign defined
benefit pension plans:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
----------------- -----------------
<S> <C> <C> <C> <C>
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
(in millions) Benefits Assets Benefits Assets
----------- ----------- ----------- -----------
Actuarial present value of
benefit obligations:
Vested benefit obligations $(350) $(21) $(287) $(19)
===== ==== ===== ====
Accumulated benefit
obligations $(377) $(22) $(309) $(20)
===== ==== ===== ====
Projected benefit obligations $(471) $(25) $(381) $(22)
Plan assets at fair value 717 3 644 3
----- ---- ----- ----
Funded status 246 (22) 263 (19)
Unrecognized net (assets)
obligations (40) 2 (45) 2
Unrecognized prior service cost 10 - 5 (1)
Unrecognized net (gain) loss (88) 5 (103) 3
Additional minimum liability - (4) - (2)
----- ---- ----- ----
Prepaid (accrued) pension cost $ 128 $(19) $ 120 $(17)
===== ==== ===== ====
</TABLE>
Postretirement Benefits
The Corporation provides health care benefits to employees (retirees) who met
specific age and/or service requirements on January 1, 1990 provided that they
retire (retired) under the principal domestic pension plan with at least ten
years of service. This plan is contributory for participating retirees and also
requires them to absorb deductibles and coinsurance. The Corporation funds the
cost of postretirement health care as benefits are paid. The Corporation also
provides noncontributory life insurance benefits for substantially all domestic
retirees with at least ten years of service. The Corporation's policy with
respect to this plan is to make contributions up to the limits specified by
Section 419 of the U.S. Internal Revenue Code.
On January 1, 1993, the Corporation adopted SFAS 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" and immediately recognized its
entire net transition obligation, by recording a charge of $100 million ($70
million on an after-tax basis) as the cumulative effect of this change in
accounting principle. SFAS 106 requires the use of actuarial-basis accrual
accounting for all employer-provided postretirement benefits other than
pensions.
The Corporation's postretirement benefits expense for the year ended December
31, 1993 was $11 million. This consisted of $9 million of interest cost on
accumulated postretirement benefit obligations and $2 million of service cost
attributable to service during the year. Prior to adoption of SFAS 106, the
Corporation's practice was to recognize the cost, net of retiree contributions,
of both of these benefit plans each year as incurred. Expenses related to these
plans were $7 million for each of the years 1992 and 1991.
The actuarial assumptions used for the Corporation's postretirement benefit
plans at December 31, 1993, were as follows:
<TABLE>
<CAPTION>
Retiree Retiree
Health Life
($ in millions) Care Insurance
------- ---------
<S> <C> <C>
Health care cost trend rate:
First year 13.00% N/A
===== ===
Ultimate rate after 8 years (based on
roughly equal annual decreases) 5.50% N/A
===== ===
Discount rate in determining expense 8.00% 8.00%
===== ====
Discount rate in determining benefit
obligations at year end 7.25% 7.25%
===== ====
Rate of increase in future compensation
levels for determining benefit obligation
at both beginning and end of the year N/A 5.00%
===== ====
Expected long-term rate of return on
plan assets N/A 9.00%
===== ====
Effect of a one-percentage-point increase
in the health care cost trend rates on the
accumulated postretirement benefit
obligation as of December 31, 1993 $9 N/A
===== ===
Effect of a one-percentage-point increase
in the assumed health care cost trend rates
on the aggregate of the service and interest
cost components of net periodic postretirement
expense for the year ended December 31, 1993 $1 N/A
===== ===
</TABLE>
BANKERS TRUST 67
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Bankers Trust New York Corporation and Subsidiaries
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At year end 1993, the effect of changing the discount rate from 8.00% to
7.25% was to increase the accumulated postretirement benefit obligation for the
retiree health care plan by $5 million. The effect of the discount rate change
on the retiree life insurance plan was immaterial.
The following table sets forth the funded status and amounts recognized in the
Corporation's balance sheet at December 31, 1993:
<TABLE>
<CAPTION>
Retiree Retiree
Health Life
(in millions) Care Insurance
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(63) $(4)
Fully eligible plan participants (14) (2)
Other active plan participants (34) (3)
---- ---
(111) (9)
Plan assets at fair value - 5
---- ---
Funded status (111) (4)
Unrecognized transition (asset) obligation - -
Unrecognized prior service cost - -
Unrecognized net (gain) loss 5 1
----- ---
Accrued postretirement benefit cost $(106) $(3)
===== ===
</TABLE>
Profit Sharing Plans
The Corporation maintains a noncontributory profit sharing plan, called
PartnerShare, covering substantially all domestic employees. The Corporation's
contribution consists of a fixed contribution equal to six percent of eligible
domestic employees' annual salary (the "Fixed Contribution") as well as an
additional contribution of from zero to nine percent of eligible employees'
annual salary, which percentage is calculated using a formula based on the
Corporation's consolidated income before income taxes (the "Profit-Driven
Contribution"). At the time PartnerShare was established, the Corporation
committed to making a Profit-Driven Contribution of at least six percent for the
year 1991. The Profit-Driven Contribution was 9.00 percent, 4.98 percent and
6.00 percent for 1993, 1992 and 1991, respectively. The sum of the Fixed
Contribution and the Profit-Driven Contribution amounted to $53 million, $41
million and $42 million for the years 1993, 1992 and 1991, respectively.
Effective January 1, 1992, the Corporation changed a previously informal
service-based plan covering its employees in the United Kingdom to a profit
sharing plan (called the "Share and Discretionary Cash Scheme"). The
Corporation's contributions to this plan ranges from 0 percent to 14 percent of
eligible employees' annual salary, which percentage is calculated using a
formula based on the Corporation's consolidated income before income taxes. The
Corporation committed to a minimum contribution of 10 percent for the years 1992
and 1993. The amount of expense recognized for the Share and Discretionary Cash
Scheme was $5 million and $6 million in 1993 and 1992, respectively.
Postemployment Benefits
On January 1, 1993, the Corporation adopted SFAS 112, "Employers' Accounting
for Postemployment Benefits" by recording a charge of $7 million ($5 million on
an after-tax basis) as the cumulative effect of this change in accounting
principle. SFAS 112 establishes accounting standards for employer-provided
benefits which cover former or inactive employees after employment but before
retirement ("postemployment benefits"). Postemployment benefits include
severance benefits, short- and long-term disability benefits, workers'
compensation and the continuation of health care and life insurance coverage.
SFAS 112 requires employers to recognize on an accrual basis the probable and
reasonably estimable costs of postemployment benefits.
Note 19 - Income Taxes
The Corporation files consolidated income tax returns which include all
significant domestic subsidiaries.
The domestic and foreign components of consolidated income before income taxes
and cumulative effects of accounting changes follow:
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Domestic $ (101) $ (58) $ 7
Foreign 1,651 964 827
------ ----- -----
Total $1,550 $ 906 $ 834
====== ===== =====
</TABLE>
For purposes of determining the above amounts, foreign income is defined as
income recorded by operations located outside of the U.S.
Undistributed earnings of certain foreign subsidiaries amounted to
approximately $1.0 billion at December 31, 1993. Federal taxes which would have
approximated $200 million, assuming utilization of foreign tax credits, have not
been provided on these earnings, as they are permanently reinvested outside the
U.S.
Deferred income taxes result from differences in the timing of revenue and
expense recognition for income tax and financial reporting purposes.
An analysis of consolidated income taxes, excluding the cumulative effects of
accounting changes, follows:
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Income taxes applicable to:
Income before income taxes* $ 480 $ 267 $ 167
Capital surplus (16) (15) -
Cumulative translation adjustments (5) 26 -
Securities Valuation Allowance 56 2 2
----- ----- -----
Total $ 515 $ 280 $ 169
===== ===== =====
</TABLE>
* Included income tax expense related to investment securities transactions of
$5 million, $3 million and $4 million in 1993, 1992 and 1991, respectively.
68 BANKERS TRUST
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Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
The components of consolidated income taxes, excluding the cumulative effects
of accounting changes, follow:
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Current
Federal $ 5 $ 4 $ 9
Foreign 524 189 131
State and local 23 20 11
----- ----- -----
Total 552 213 151
----- ----- -----
Deferred
Federal 70 48 (38)
Foreign (114) 32 62
State and local 7 (13) (6)
----- ----- -----
Total (37) 67 18
----- ----- -----
Total $ 515 $ 280 $ 169
===== ===== =====
</TABLE>
The following is an analysis of the difference between the U.S. federal
statutory income tax rate and the effective tax rate on consolidated income
before income taxes and cumulative effects of accounting changes:
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory income tax rate 35% 34% 34%
State and local income taxes 1 - -
Tax-exempt income (2) (2) (2)
Foreign subsidiary earnings (1) - (2)
Change in unrecognized tax benefits - - (9)
Other items, net (2) (3) (1)
--- --- ---
Effective income tax rate 31% 29% 20%
=== === ===
The following is an analysis of the Corporation's net deferred tax assets:
(in millions) At December 31, 1993 1992
---- ----
Deferred tax assets $1,072 $1,014
Valuation allowance 227 227
------ ------
Deferred tax assets net of valuation allowance 845 787
Deferred tax liabilities 777 756
------ ------
Net deferred tax assets $ 68 $ 31
====== ======
</TABLE>
At December 31, 1993, the Corporation's deferred tax assets were primarily
related to credit losses ($684 million) and deferred tax liabilities were
primarily related to certain trading activities ($266 million) and lease
financing activities ($283 million). At December 31, 1992, the Corporation's
deferred tax assets were primarily related to credit losses ($756 million) and
deferred tax liabilities were primarily related to certain trading activities
($329 million) and lease financing activities ($285 million).
Note 20 - Earnings Per Common Share
Effective with its December 31, 1993 financial statements, the Corporation
changed its reporting of earnings per common share. The Corporation now reports
primary and fully diluted earnings per share. Previously, the Corporation's
reported earnings per common share were based solely on the number of average
common shares outstanding, due to the fact that the difference between that
figure and primary earnings per share was not significant. Primary and fully
diluted earnings per share are now reported for all prior periods presented.
Primary and fully diluted earnings per common share amounts were computed by
subtracting from the applicable earnings the dividend requirements on preferred
stock to arrive at earnings applicable to common stock and dividing those
amounts by the average number of common and common equivalent shares outstanding
during the year.
For both primary and fully diluted earnings per share, the average number of
common and common equivalent shares outstanding was the sum of the average
number of shares of common stock outstanding and the incremental number of
shares issuable under outstanding stock options and deferred stock awards that
had a dilutive effect as computed under the treasury stock method. Under this
method, the number of incremental shares is determined by assuming the issuance
of the outstanding stock options and deferred stock awards reduced by the number
of shares assumed to be repurchased from the issuance proceeds, using the market
price of the Parent Company's common stock. For primary earnings per share,
this market price is the average market price for the period, while for fully
diluted earnings per share, it is the period-end market price, if it is higher
than the average price. At no time during the three-year period ended December
31, 1993 did the Corporation have outstanding any securities which were
convertible to the Parent Company's common stock.
The earnings applicable to common stock and the number of shares used for
primary and fully diluted earnings per share were as follows:
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Earnings applicable to common stock:
Income before cumulative effects
of accounting changes $ 1,047 $ 609 $ 633
Cumulative effects of accounting changes (75) 446 -
------- ------- -------
Net income $ 972 $ 1,055 $ 633
======= ======= =======
Average number of common shares
outstanding 82.249 82.898 81.688
Primary earnings per share
Average number of common and common
equivalent shares outstanding 84.456 84.201 82.723
Fully diluted earnings per share
Average number of common and common
equivalent shares outstanding-assuming
full dilution 85.183 84.336 82.769
</TABLE>
BANKERS TRUST 69
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Note 21 - International Operations
In order to comply with the financial reporting regulations of the Securities
and Exchange Commission, the Corporation is required to report international
operations on the basis of the domicile of the customer. Pursuant to these
regulations, any business transacted with a customer who is domiciled outside
the U.S. is reported as international operations. Due to the complex nature of
the Corporation's businesses and because its revenue from customers domiciled
outside the U.S. is recorded in both domestic and foreign offices, it is
impossible to segregate with precision the respective contributions to income
from the domestic and international operations. As these operations are highly
integrated, estimates and subjective assumptions have been made to apportion
revenue and expenses between domestic and international operations. These
estimates and assumptions include: interest revenue and interest expense are
apportioned to geographic areas based upon the geographic distribution of
average assets, which reflects the domicile of the customer; charges for funds
transferred from domestic to international locations are based upon the cost of
short-term funds; allocation of the provision for credit losses is based upon
total net charges to the allowance for credit losses and adjusted to reflect
management's assessment of the risks associated with the domestic and
international portfolios; noninterest revenue is generally distributed based on
the location of the office recording the revenue; noninterest expenses are
generally apportioned to the geographic area where the revenue is attributed;
and adjustments are made for the difference between foreign and U.S. tax rates.
Subject to the above limitations, estimates and assumptions, the following
tables present information attributable to international operations:
<TABLE>
<CAPTION>
Income
Total Total Total before Net
($ in millions) assets revenue expenses taxes/(1)/ income
-------- -------- --------- ---------- ------
<S> <C> <C> <C> <C> <C>
1993
- ----
International operations
Asia $ 6,942 $ 678 $ 454 $ 224 $151
Australia/New Zealand 5,730 637 428 209 141
Western Hemisphere 7,683 562 462 100 68
Europe 12,351 686 639 47 32
United Kingdom 14,791 2,266 1,570 696 471
Middle East/Africa 307 29 26 3 2
-------- -------- --------- ---------- ------
Total international 47,804 4,858 3,579 1,279 865
Domestic operations 56,634 3,715 3,444 271 130
Intersegment eliminations (12,356) (773) (773) - -
-------- ------ ------ ------ ----
Total $ 92,082 $7,800 $6,250 $1,550 $995
======== ====== ====== ====== ====
International percentage of
total (before intersegment
eliminations) 46% 57% 51% 83% 87%
======== ====== ====== ====== ====
</TABLE>
<TABLE>
<CAPTION>
Income
Total Total Total before Net
($ in millions) assets revenue expenses taxes/(1)/ income
------ ------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
1992
International operations
Asia $ 6,866 $ 567 $ 420 $147 $ 122
Australia/New Zealand 5,052 756 518 238 165
Western Hemisphere 6,963 595 487 108 469
Europe 8,803 671 600 71 75
United Kingdom 8,696 1,221 1,069 152 83
Middle East/Africa 605 57 35 22 50
-------- ------ ------ ---- ------
Total international 36,985 3,867 3,129 738 964
Domestic operations 48,794 3,383 3,215 168 121
Intersegment eliminations (12,893) (700) (700) - -
-------- ------ ------ ---- ------
Total $ 72,886 $6,550 $5,644 $906 $1,085
======== ====== ====== ==== ======
International percentage of
total (before intersegment
eliminations) 43% 53% 49% 81% 89%
======== ====== ====== ====== ====
</TABLE>
<TABLE>
<CAPTION>
Income Net
Total Total Total before Income
($ in millions) assets revenue expenses taxes (loss)
-------- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
1991
- ----
International operations
Asia $ 7,445 $ 549 $ 470 $ 79 $ 81
Australia/New Zealand 6,426 935 722 213 147
Western Hemisphere 7,997 809 769 40 94
Europe 8,286 680 600 80 63
United Kingdom 9,778 1,306 1,298 8 (21)
Middle East/Africa 503 77 35 42 38
-------- ------ ------ ---- ------
Total international 40,435 4,356 3,894 462 402
Domestic operations 40,457 3,450 3,078 372 265
Intersegment eliminations (16,933) (962) (962) - -
-------- ------ ------ ---- ------
TOTAL $ 63,959 $6,844 $6,010 $834 $ 667
======== ====== ====== ====== =====
International percentage of
total (before intersegment
eliminations) 50% 56% 56% 55% 60%
======== ====== ====== ====== =====
</TABLE>
(1) Excludes cumulative effects of accounting changes.
Note 22 - Financial Instruments With Off-Balance
Sheet Risk
In the normal course of business, the Corporation is a party to a variety of
off-balance sheet financial instruments to meet the needs of its customers, to
manage its exposure to interest rate and other market risks and in its dealer-
related activities. These financial instruments, which consist of derivatives
contracts, credit-related arrangements, securities lending indemnifications and
when-issued securities, involve to varying degrees elements of credit and market
risk in excess of the amount recorded on the balance sheet in accordance with
generally accepted accounting principles.
Credit risk, as defined by SFAS 105, represents the maximum potential
accounting loss due to possible non-performance by obligors and counterparties
under the terms of their contracts. Market risk represents the potential loss
due to the decrease in the value of an off-balance sheet financial instrument
caused primarily by changes in interest rates or foreign exchange rates, or the
prices of equities or commodities (or related indices).
The Corporation manages the credit risk of its off-balance sheet portfolio by
limiting the total amount of arrangements out-
70 BANKERS TRUST
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Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
standing, both by individual counterparty and in the aggregate; by monitoring
the size and maturity structure of the portfolio; by obtaining collateral based
on management's credit assessment of the counterparty; and by applying uniform
credit standards maintained for all activities with credit risk. Collateral held
generally includes cash and U.S. government and federal agency securities. In
addition, the Corporation enters into master netting agreements which
incorporate the right of set-off to provide for the net settlement of covered
contracts with the same counterparty in the event of default or other
cancellation of the agreement. Management evaluates this portfolio periodically
to determine whether the allowance for credit losses is adequate to absorb
potential losses in such portfolio. The Corporation may manage the market risk
resulting from a position in a particular off-balance sheet financial instrument
by offsetting it with on- or off-balance sheet transactions.
For a further discussion of off-balance sheet financial instruments, the
related risks, and controls used to monitor such risks, which is not included as
part of these audited financial statements, see "Derivatives" on page 37, "Risk
Management" on page 41, and "Summary of Credit Loss Experience" on page 29. For
the risk-based capital equivalent amounts of the Corporation's off-balance sheet
exposures, which also are not included as part of these audited financial
statements, see "Liquidity and Capital Resources" on page 38.
A summary of the contract/notional amounts and the related credit risk amounts
of off-balance sheet financial instruments at December 31, 1993 and 1992 is
included in the table below.
Contract/Notional Amounts
Contract/notional amounts, which are not included in the consolidated balance
sheet, represent the extent of the Corporation's involvement in particular
classes of financial instruments and generally exceed the future cash
requirements relating to the instruments. For derivatives, the notional amounts
do not represent a quantification of the market or credit risk of the positions.
The notional amounts of derivatives are used to calculate contractual cash flows
to be exchanged and are generally not actually paid or received, except for
certain contracts such as currency swaps and foreign exchange forwards. In
addition, any measurement of risk is meaningful only where all related factors
are identified such as risk-offsetting transactions, master netting agreements,
participations to other entities and the value of related collateral.
Credit Risk Amounts
As required by SFAS 105, the credit risk amounts are determined without
consideration of the value of any related collateral and reflect the total
potential loss on undrawn commitments, standby letters of credit and similar
arrangements, and securities lending indemnifications. For interest rate,
foreign exchange rate and equity and commodity contracts, the credit risk
amounts represent the estimated cost of replacement for all contracts in a gain
position, and are presented below without giving effect to any possible
reduction due to master netting agreements (including cross-product netting
agreements) by counterparty. Additionally, as required by SFAS 105, for forward
contracts to purchase debt securities, certain written put option contracts on
debt securities, and commitments to purchase when-issued debt securities, credit
risk is also represented by the contract amount, since the underlying instrument
that the Corporation was obligated to buy is subject to credit risk. The
underlying debt securities were primarily obligations of the U.S. government and
its agencies and foreign governments.
<TABLE>
<CAPTION>
(in millions) December 31, 1993 December 31, 1992
--------------------- ---------------------
Contract/ Credit Contract/ Credit
Notional Risk Notional Risk
Amount Amount Amount Amount
---------- ------ --------- -------
<S> <C> <C> <C> <C>
Derivatives Contracts (1)
Interest rate contracts
Swaps $ 349,669 $ 9,566 $255,723 $ 6,025
Futures and forwards 466,770 1,198 243,828 447
Options written 326,609 1,684 138,996 541
Options purchased 147,488 691 55,799 476
--------- ------ ------- -----
Total interest rate contracts 1,290,536 13,139 694,346 7,489
--------- ------ ------- -----
Foreign exchange rate contracts
Spot, forwards and futures 447,427 5,323 281,096 6,561
Swaps 50,664 3,689 60,156 3,503
Options written 37,846 - 51,272 -
Options purchased 35,385 1,112 48,323 1,660
--------- ------ ------- ------
Total foreign exchange rate
contracts 571,322 10,124 440,847 11,724
Equity and commodity contracts --------- ------ ------- ------
Swaps, futures and
forwards 20,691 286 6,567 97
Options written 13,188 - 12,035 -
Options purchased 11,493 1,172 12,533 2,399
--------- ------ ------- -----
Total equity and commodity contracts 45,372 1,458 31,135 2,496
--------- ------ ------- -----
Total derivatives contracts 24,721 21,709
--------- ------ ------- -----
Credit-related arrangements
Commitments to extend credit (2) 10,835 10,835 14,219 14,219
Standby letters of credit and
similar arrangements (3) 5,093 5,093 5,499 5,499
--------- ------ ------- -----
Total credit-related arrangements 15,928 15,928 19,718 19,718
--------- ------ ------- -----
Securities lending indemnifications (4) 16,590 16,590 11,628 11,628
When-issued securities
Commitments to sell 2,964 3 1,067 1
Commitments to purchase 4,540 4,561 1,047 873
------- -------
Total credit risk amount $61,803 $53,929
======= =======
</TABLE>
(1) Notional amounts included $40 billion and $33 billion at December 31, 1993
and 1992, respectively, of derivatives contracts (principally interest rate
swaps) used by the Corporation as end user to manage its interest rate,
currency and other market risks. Credit risk amounts associated with these
contracts are reflected in the consolidated balance sheet. For the fair
value amounts related to these contracts, see Note 24.
(2) Included participations to other entities of approximately $3 billion at
both December 31, 1993 and 1992. Of the non-participated amount,
approximately $4 billion and $5 billion were scheduled to expire in one
year or less at December 31, 1993 and 1992, respectively. Both the
contract/notional amount and the credit risk amount included commitments to
enter into resale agreements of $.5 billion at December 31, 1993 and $2.0
billion at December 31, 1992.
(3) Included participations to other entities of approximately $2 billion at
both December 31, 1993 and 1992..
(4) These amounts were collateralized in excess of the contract amounts.
Interest rate swap contracts generally represent the contractual exchange of
fixed and floating rate payments of a single currency, based on a notional
amount and an interest reference rate. Cross-currency interest rate swap
contracts generally involve the exchange of payments which are based on the
interest reference rates available at the inception of the contract on two
different currency principal balances that are exchanged. The principal
balances are re-exchanged at an agreed upon rate
BANKERS TRUST 71
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Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
at a specified future date. Credit and market risk exist with respect to these
instruments. The Corporation minimizes its credit risk by entering into master
swap agreements which, in the event of default or other cancellation of the
agreement, provide for the net settlement of all swap transactions with the
counterparty to the agreement.
Futures and forward contracts represent commitments to purchase or sell
securities, money market instruments, foreign currencies or commodities at a
future date and at a specified price. Included in this category of contracts
are spot foreign currency contracts, cash-settled index contracts, and forward
rate agreements (agreements to exchange dollar amounts at a specified future
date for interest rate differentials between an agreed interest rate and a
reference rate, computed on a notional amount). Both credit and market risks
exist with respect to these instruments. For futures contracts, the Corporation
intends to close out most open positions prior to settlement, thus limiting the
cash receipt or payment to the change in value of the underlying instrument.
Also, since futures contracts entail daily cash settlement, the credit risk
amount represents a one-day receivable.
Option contracts are either deliverable or cash-settled. Deliverable contracts
convey to the purchaser (holder) the right to buy (call) or sell (put)
securities, money market instruments, foreign currencies or commodities within a
specified time period for a contracted price from the seller (writer) of the
contract. Cash-settled contracts convey to the purchaser the right to the
monetary equivalent of the increase (call) or decrease (put), or a percentage
thereof, in a specified reference rate or index, computed on a notional amount,
from the writer. The price of an option contract is equal to the premium paid by
the purchaser and is significantly less than the contract or notional amount.
Included in these contracts are (i) interest rate caps, floors and collars,
which are agreements to make periodic payments for interest rate differentials
between an agreed upon interest rate and a reference rate and (ii) purchased
options to enter into future (or cancel existing) interest rate swap contracts
("swap options").
While the Corporation is subject to credit risk as a purchaser of an option
contract, it is not subject to market risk (except to the extent of the purchase
price of the option), since it is not obligated to make payments in order to
meet the terms of the contract. Conversely, the Corporation is subject to
market risk on its written option contracts, but not to credit risk, except as
noted below, since the counterparty has already performed according to the terms
of the contract by paying a cash premium up front. However, credit risk arises
to the extent that the underlying instrument that the Corporation is obligated
to buy is subject to credit risk.
Commitments to extend credit represent contractual commitments to make loans
and revolving credits. Commitments generally have fixed expiration dates or
other termination clauses and require the payment of a fee. Since commitments
may expire without being drawn upon, the total contract amounts do not
necessarily represent future cash requirements.
Standby letters of credit and similar arrangements ("standbys"), issued
primarily to support corporate obligations, commit the Corporation to make
payments on behalf of customers contingent upon the failure of the Corporation's
customer to perform under the terms of the contract. Standbys outstanding
related to customer obligations, such as commercial paper, medium- and long-term
notes and debentures (including industrial revenue obligations), as well as
other financial and performance related obligations. At December 31, 1993,
$3.373 billion will expire within one year, $1.502 billion from one to four
years and $218 million after four years. Fees received are generally recognized
as revenue over the life of the commitment.
Securities lending indemnifications represent the market value of customers'
securities lent to third parties. The Corporation indemnifies customers against
any losses as a result of third-party defaults. The market value of collateral,
primarily cash, received for custodian securities lent was approximately $17
billion at December 31, 1993 and $12 billion at December 31, 1992.
For standbys, commitments to extend credit and securities lending
indemnifications, the credit risk amount represents the contractual amount.
Standbys and commitments to extend credit would have market risk if issued or
extended at a fixed rate of interest. However, these contracts are primarily
made at a floating rate.
Securities sold, not yet purchased are recorded as liabilities on the balance
sheet and have market risk to the extent that the Corporation, in satisfying
this obligation, may have to purchase securities at a higher market price than
that recorded on the balance sheet.
Offsetting of Amounts Related to Certain Contracts
In March 1992, the FASB issued Interpretation No. 39, "Offsetting of Amounts
Related to Certain Contracts," which is effective for fiscal years beginning
after December 15, 1993. The Interpretation requires that unrealized gains and
losses on swaps, forwards, options and similar contracts be recognized as assets
and liabilities; whereas it is the Corporation's current policy to record such
unrealized gains and losses on a net basis on the balance sheet. The
Interpretation does allow the netting of such unrealized gains and losses with
the same counterparty when they are covered by a master netting arrangement with
the counterparty and the contracts are reported at market value.
The Corporation estimated that, under the terms of the Interpretation, at
December 31, 1993, total assets and liabilities each would have increased by
approximately $15 billion. Adoption of this Interpretation will result in
decreases in the Corporation's ratios of stockholders' equity to total assets
and the Leverage Ratio; however, net income and the risk-based capital ratios
will not be affected. The Corporation adopted the Interpretation effective
January 1, 1994.
Note 23 - Concentrations of Credit Risk
The Corporation, as required by SFAS 105, has identified two significant
concentrations of credit risk: OECD country banks and OECD country central
governments, their agencies and central banks. Together they represented 48
percent and 46
72 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
percent of total credit risk at December 31, 1993 and 1992, respectively. The
OECD (Organization for Economic Cooperation and Development) consists of 24
industrialized nations, primarily the countries of Western Europe, the U.S.,
Canada, Japan, Australia and New Zealand. For risk-based capital purposes,
domestic and foreign bank regulators assign OECD country central governments,
their agencies and their central banks a credit risk weighting of zero percent,
which means that no capital is required to support their financial instruments.
OECD country banks are assigned the next lowest credit risk weighting (20
percent) by these regulators. Approximately 69 percent of the combined total of
these two categories at December 31, 1993 related to 4 countries: the U.S.,
Japan, the U.K. and Australia, in order of magnitude. The largest counterparty
concentration was the U.S. government and its related entities, which comprised
approximately 66 percent of the OECD country governments category.
The following table reflects the aggregate credit risk by groups of
counterparties, as defined by SFAS 105, relating to on- and off-balance sheet
financial instruments at December 31, 1993 and 1992.
<TABLE>
<CAPTION>
Credit Risk
----------------------------------
On-Balance Off-Balance
(in millions) Sheet Sheet Total
---------- ----------- -----
<S> <C> <C> <C>
1993
- ----
Significant concentrations
OECD country banks (1) $10,640 $18,843 $ 29,483
OECD country governments 34,343 6,368 40,711
------- ------- --------
Total significant concentrations 44,983 25,211 70,194
All other (2)(3) 39,391 36,592 75,983
------- ------- --------
Total $84,374 $61,803 $146,177
======= ======= ========
1992
- ----
Significant concentrations
OECD country banks (1) $14,909 $19,306 $ 34,215
OECD country governments 20,813 1,520 22,333
------- ------- --------
Total significant concentrations 35,722 20,826 56,548
All other (2)(3) 32,603 33,103 65,706
------- ------- --------
Total $68,325 $53,929 $122,254
======= ======= ========
</TABLE>
(1) Included in the on-balance sheet component of this category was
approximately $3 billion and $4 billion at December 31, 1993 and 1992,
respectively, that was collateralized by U.S. government securities.
(2) The "all other" category of credit risk is diversified with respect to type
of obligor and counterparty. Included in the on-balance sheet component of
this category was approximately $6 billion and $5 billion at December 31,
1993 and 1992, respectively, that was collateralized by U.S. government
securities. Included in the off-balance sheet component of this category at
December 31, 1993 was approximately $16 billion that was collateralized by
cash and U.S. government securities and approximately $8 billion of unused
commitments to extend credit, approximately $4 billion of which expire in
one year or less. The corresponding amounts for December 31, 1992 were $12
billion, $11 billion and $4 billion, respectively.
<TABLE>
<CAPTION>
(3) Includes:
Credit Risk
----------------------------------
On-Balance Off-Balance
(in millions) Sheet Sheet Total
---------- ----------- -----
<S> <C> <C> <C>
1993
- ----
Real estate $2,272 $749 $3,021
Highly leveraged 1,440 804 2,244
------ ---- ------
1992
- ----
Real estate $2,660 $639 $3,299
Highly leveraged 2,150 896 3,046
Refinancing country 625 119 744
</TABLE>
Information regarding the Corporation's credit risk with respect to real
estate financing activities and highly leveraged transactions, which is not
included as part of the audited financial statements, appears on pages 44 and
45, respectively.
Note 24 - Fair Value of Financial Instruments
SFAS107, "Disclosures about Fair Value of Financial Instruments", requires the
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. Quoted market prices, when available, are used as the measure of fair
value. In cases where quoted market prices are not available, fair values are
based on present value estimates or other valuation techniques. These derived
fair values are significantly affected by assumptions used, principally the
timing of future cash flows and the discount rate. Because assumptions are
inherently subjective in nature, the estimated fair values cannot be
substantiated by comparison to independent market quotes and, in many cases, the
estimated fair values could not necessarily be realized in an immediate sale or
settlement of the instrument. The disclosure requirements of SFAS 107 exclude
certain financial instruments and all nonfinancial instruments (e.g. franchise
value of businesses). Accordingly, the aggregate fair value amounts presented
most certainly do not represent management's estimation of the underlying value
of the Corporation.
The following are the estimated fair values of the Corporation's financial
instruments followed by a general description of the methods and assumptions
used to estimate such fair values.
BANKERS TRUST 73
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Fair Value of Financial Instruments
<TABLE>
<CAPTION>
Fair Value
Book Fair Over (Under)
(in millions) December 31, 1993 Value Value Book Value
----- ----- ------------
<S> <C> <C> <C>
Financial Assets, Including Hedges
Cash and due from banks $ 1,750 $ 1,750 $ -
Interest-bearing deposits with banks 1,638 1,638 -
Federal funds sold 361 361 -
Securities purchased under resale
agreements 9,567 9,564 (3)
Securities borrowed 2,937 2,937 -
Trading account assets 48,276 48,276 -
Securities available for sale 7,073 7,073 -
Loans (excluding leases), commitments
to extend credit and standby
letters of credit 14,861 14,523 (338)
Allowance for credit losses (1,324) - 1,324
Due from customers on acceptances 455 455 -
Accounts receivable and accrued interest 2,561 2,561 -
Other financial assets 1,651 1,802 151
Financial Liabilities, Including Hedges
Noninterest-bearing Deposits 3,892 3,892 -
Interest-bearing deposits 18,884 18,945 61
Securities sold, not yet purchased 9,349 9,349 -
Securities sold under repurchase
agreements 23,834 23,834 -
Other short-term borrowings 18,992 18,989 (3)
Acceptances outstanding 455 455 -
Other financial liabilities 5,086 5,086 -
Long-term debt 5,597 5,671 74
Fair Value
Book Fair Over(Under)
(in millions) December 31, 1992 Value Value Book Value
----- ----- ------------
Financial Assets, Including Hedges
Cash and due from banks $ 1,384 $ 1,384 $ -
Interest-bearing deposits with banks 3,142 3,142 -
Federal funds sold 438 438 -
Securities purchased under resale
agreements 6,745 6,745 -
Securities borrowed 3,166 3,166 -
Trading account assets 29,908 29,908 -
Investment securities 6,215 6,314 99
Loans (excluding leases),
commitments to extend credit
and standby letters of credit 16,966 15,824 (1,142)
Allowance for credit losses (1,620) - 1,620
Due from customers on acceptances 276 276 -
Accounts receivable and accrued interest 2,781 2,781 -
Other financial assets 1,193 1,382 189
Financial Liabilities, Including Hedges
Noninterest-bearing deposits 4,206 4,206 -
Interest-bearing deposits 20,865 20,881 16
Securities sold, not yet purchased 5,127 5,127 -
Securities sold under repurchase
agreements 17,451 17,451 -
Other short-term borrowings 11,779 11,784 5
Acceptances outstanding 276 276 -
Other financial liabilities 3,449 3,449 -
Long-term debt 3,992 4,065 73
</TABLE>
End-User Derivatives
The Corporation, as an end user, utilizes various types of derivative products
(principally interest rate swaps) to manage the interest rate, currency and
other market risks associated with liabilities and assets such as interest-
bearing deposits, short-term borrowings and long-term debt as well as securities
available for sale, investments in non-marketable equity instruments and net
investments in foreign entities. End-user derivative products are accounted for
on an accrual basis, that is, revenue or expense pertaining to management of
interest rate exposure is recognized over the life of the contract as an
adjustment to interest revenue or expense.
The unrecognized fair values of end-user derivatives accounted for on an
accrual basis, included in the fair value totals for the applicable hedged asset
or liability category in the table above were as follows:
<TABLE>
<CAPTION>
Unrealized Unrealized
(in millions) December 31, 1993 Gains Losses Net
---------- ---------- ---
<S> <C> <C> <C>
Other financial assets $ 10 $ (52) $(42)
Interest-bearing deposits 252 (235) 17
Other short-term borrowings 100 (22) 78
Long-term debt 309 (147) 162
------ ----- ----
$ 671 $ (456) $ 215
====== ===== ====
</TABLE>
In addition, derivatives which are used to manage the risks associated with
securities available for sale are carried at fair value. (See Notes 1, 2 and 4).
The unrealized gains and unrealized losses on derivatives included in securities
available for sale, with the corresponding offset to securities valuation
allowance in stockholders' equity, amounted to $3 million and $108 million,
respectively.
The unrealized gains and losses on these hedges were determined on the basis
of valuation pricing models which take into account current market and
contractual prices of the underlying instruments, as well as time value and
yield curve or volatility factors underlying the positions.
The remaining maturities of the notional amounts of end-user derivatives at
December 31, 1993 were as follows: (in millions)
<TABLE>
<CAPTION>
Notional Amount Maturing in: Notional Amount
- ------------------------------ ---------------
<S> <C>
1994 $16,441
1995-1996 12,441
1997-1998 4,720
1999 and thereafter 6,294
-------
Total $39,896
=======
</TABLE>
For interest rate swaps entered into as end user, the weighted average receive
rate and weighted average pay rate by maturity and corresponding notional
amounts at December 31, 1993 were as follows: ($ in millions)
<TABLE>
<CAPTION>
Notional Amount Receive Pay
Maturing In: Notional Amount Rate Rate
- --------------- --------------- ------- ----
<S> <C> <C> <C>
1994 $14,616 7.23% 3.98%
1995-1996 12,081 4.35% 4.06%
1997-1998 4,527 4.62% 3.96%
1999 and thereafter 5,995 5.34% 4.48%
------- ---- ----
Total $37,219
=======
</TABLE>
74 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
The effect of these end-user derivatives was to increase net interest revenue
by $192 million for the year ended December 31, 1993.
The Corporation has reviewed its other categories of off-balance sheet
financial instruments (i.e. forward dated assets and liabilities, securities
lending indemnifications and securities borrowed) accounted for at cost and has
determined that, in the case of each such category, the unrealized gain or loss
on such instruments at both December 31, 1993 and December 31, 1992 was not
material.
Methods and Assumptions
For short-term financial instruments, defined as those with remaining maturities
of 90 days or less, the carrying amount was considered to be a reasonable
estimate of fair value. The following instruments were predominantly short-
term:
ASSETS LIABILITIES
- ------ -----------
Cash and due from banks Interest-bearing deposits
Interest-bearing deposits Securities sold under
with banks repurchase agreements
Federal funds sold Other short-term borrowings
Securities purchased under Acceptances outstanding
resale agreements Other financial liabilities
Securities borrowed
Due from customers on
acceptances
Accounts receivable and
accrued interest
For those components of the above-listed financial instruments with remaining
maturities greater than 90 days, fair value was determined by discounting
contractual cash flows using rates which could be earned for assets with similar
remaining maturities and, in the case of liabilities, rates at which the
liabilities with similar remaining maturities could be issued as of the balance
sheet date.
As indicated in Note 1, trading positions (including derivatives), securities
sold, not yet purchased and securities available for sale are carried at their
market values.
The estimated fair values of investment securities at December 31, 1992 were
generally based on quoted market prices, broker quotes or dealer quotes.
For short-term loans and variable rate loans which reprice within 90 days, the
carrying value was considered to be a reasonable estimate of fair value. For
those loans for which quoted market prices were available, fair value was based
on such prices. For other types of loans, fair value was estimated by
discounting future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. In addition, for loans secured by real estate, appraisal
values for the collateral were considered in the fair value determination. The
fair value estimate of commitments to extend credit and standby letters of
credit represented the unrealized gains and losses on those off-balance sheet
positions and was generally determined in the same manner as loans.
Other financial assets consisted primarily of investments in equity
instruments (excluding, in accordance with SFAS 107, investments accounted for
under the equity method), cash and cash margins with brokers and net unrealized
gains on foreign exchange positions. At December 31, 1993 unrestricted
marketable equity securities were reclassified from other financial assets to
securities available for sale, reflecting the Corporation's adoption of SFAS 115
as of that date. The fair value of non-marketable equity instruments was
determined by matrix pricing utilizing market prices for comparable publicly
traded instruments, adjusted for liquidity and contractual arrangements.
Noninterest-bearing deposits do not have defined maturities. In accordance
with SFAS 107, fair value represented the amount payable on demand as of the
balance sheet date.
Other financial liabilities consisted primarily of accounts payable and
accrued expenses.
The fair value of long-term debt was estimated by using market quotes as well
as discounting the remaining contractual cash flows using a rate at which the
Corporation could issue debt with a similar remaining maturity as of the balance
sheet date.
Significant Changes in Fair Value
The significant changes in the difference between fair value and book value
between December 31, 1992 and December 31, 1993 were from (1) loans (excluding
leases), commitments to extend credit and standby letters of credit, and (2)
investment securities. The unrealized loss in loans (excluding leases),
commitments to extend credit and standby letters of credit declined by $804
million to $338 million at December 31, 1993. This was primarily due to charge-
offs and improvement in prices, particularly in Latin American loans, as well as
sales and repayments.
The elimination of the investment securities fair value premium was due to the
Corporation's adoption of SFAS 115 at December 31, 1993.
BANKERS TRUST 75
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Note 25 - Condensed Parent Company Financial Statements
Condensed Statement of Income
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Revenue
Dividends
BTCo. $ 70 $ 130 $ 235
Other bank and nonbank subsidiaries
and affiliates 113 163 83
Interest from subsidiaries 191 214 300
Other interest 119 95 68
Trading 4 (1) 17
Other 38 (12) (2)
------- ------- -------
Total revenue 535 589 701
------- ------- -------
Expenses
Interest to subsidiaries 23 27 25
Other interest 310 325 393
Other 36 68 38
------- ------- -------
Total expenses 369 420 456
------- ------- -------
Income before income taxes and
equity in undistributed income of
subsidiaries and affiliates 166 169 245
Income taxes (13) (46) (29)
------- ------- -------
Income before equity in undistributed
income of subsidiaries and affiliates 179 215 274
Equity in undistributed income of
subsidiaries and affiliates before
cumulative effects of accounting changes 891 424 393
------- ------- -------
Income Before Cumulative Effects
of Accounting Changes 1,070 639 667
Equity in cumulative effects of
accounting changes of subsidiary (75) 446 -
------- ------- -------
Net Income $ 995 $ 1,085 $ 667
======= ======= =======
Condensed Balance Sheet
(in millions) December 31, 1993 1992
---- ----
Assets
Cash and due from BTCo. $ 10 $ 2
Interest-bearing deposits with bank subsidiaries 662 522
Securities purchased under resale agreements
with nonbank subsidiary 321 1,209
Trading account assets 1,920 530
Securities available for sale 652 -
Investment securities
At lower of aggregate cost or market
(market value: 1992, $789) - 765
Investments in subsidiaries and affiliates
Banks 4,210 3,588
Nonbanks 1,088 859
Receivables from subsidiaries and affiliates
Banks 1,381 1,534
Nonbanks 4,937 2,162
Other assets 863 816
------- -------
Total assets $16,044 $11,987
======= =======
Liabilities and Stockholders' Equity
Securities sold, not yet purchased $ 170 $ 2
Commercial paper 5,664 3,623
Other short-term borrowings 579 547
Payables to subsidiaries
Banks 64 94
Nonbanks 755 569
Other liabilities 347 245
Long-term debt 3,931 2,786
------- -------
Total liabilities 11,510 7,866
------- -------
Total stockholders' equity 4,534 4,121
------- -------
Total liabilities and stockholders' equity $16,044 $11,987
======= =======
Condensed Statement of Cash Flows
(in millions) Year Ended December 31, 1993 1992 1991
---- ---- ----
Cash Flows From Operating Activities
Net income $ 995 $ 1,085 $ 667
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Equity in undistributed income of
subsidiaries and affiliates, before
cumulative effects of accounting
changes (891) (424) (393)
Equity in cumulative effects of accounting
changes of subsidiary 75 (446) -
Deferred income taxes 42 (7) (1)
Net change in trading account assets (1,390) (52) (496)
Net change in securities sold, not yet
purchased 168 (79) 81
Other, net 113 (32) 43
------- ----- -----
Net cash provided by (used in) operating
activities (888) 45 (99)
------- ----- -----
Cash Flows From Investing Activities
Net change in:
Interest-bearing deposits with bank
subsidiaries (140) 983 (732)
Securities purchased under resale
agreements with nonbank subsidiary 888 (863) 185
Short-term notes receivable from
subsidiaries and affiliates (361) 705 (897)
Investment securities:
Purchases (3,309) (1,753) (592)
Maturities and other redemptions 3,427 1,631 317
Sales 47 132 345
Increases in long-term notes receivable from
subsidiaries (2,322) (1,002) (111)
Decreases in long-term notes receivable
from subsidiaries 89 344 120
Capital contributed to subsidiaries and affiliates (7) (317) -
Return of capital from subsidiaries - 201 1
Other, net (8) (158) (7)
------- ------ ------
Net cash used in investing activities (1,696) (97) (1,371)
------- ------ ------
Cash Flows From Financing Activities
Net change in:
Commercial paper and other
short-term borrowings 2,073 (192) 1,173
Short-term notes payable to subsidiaries 156 94 56
Issuance of long-term debt 1,338 978 522
Repayments of long-term debt (205) (523) (336)
Redemption of preferred stock (250) - -
Issuance to subsidiary of preferred stock 247 - -
Redemption from subsidiary of preferred stock (247) - -
Issuances of common stock - 27 38
Purchases of treasury stock (313) (106) (35)
Cash dividends paid (281) (262) (243)
Other, net 74 38 12
------- ------ ------
Net cash provided by financing activities 2,592 54 1,187
------- ------ ------
Net Increase (Decrease) in Cash and
Due From BTCo. 8 2 (283)
------- ------ ------
Cash And Due From BTCo., beginning of year 2 - 283
------- ------- -------
Cash and Due From BTCo., end of year $ 10 $ 2 $ -
======= ======= =======
Interest paid $ 326 $ 337 $ 411
======= ======= =======
Income taxes paid $ - $ - $ -
======= ======= =======
Noncash financing activity: exchange of
series of preferred stock $ - $ 45 $ -
======= ======= =======
</TABLE>
76 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Note 26 - Bankers Trust Company Consolidated Summarized Financial Information
<TABLE>
<CAPTION>
Consolidated Statement of Income
(in millions) Year Ended December 31, 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Net Interest Revenue
Interest revenue $2,812 $2,787 $3,309
Interest expense 2,072 1,996 2,752
------ ------ ------
Net Interest Revenue 740 791 557
Provision for credit losses 96 165 177
------ ------ ------
Net Interest Revenue After Provision For
Credit Losses 644 626 380
------ ------ ------
Noninterest Revenue
Trading 1,875 1,009 1,094
Fiduciary and funds management 661 622 546
Fees and commissions 477 426 399
Investment securities gains (losses) 4 (20) 27
Other 107 112 59
------ ------ ------
Total noninterest revenue 3,124 2,149 2,125
------ ------ ------
Noninterest Expenses
Salaries 570 529 567
Incentive compensation and employee benefits 943 590 507
Occupancy, net 142 141 165
Furniture and equipment 131 123 120
Other 911 686 513
------ ------ ------
Total noninterest expenses 2,697 2,069 1,872
------ ------ ------
Income before income taxes and cumulative
effects of accounting changes 1,071 706 633
Income taxes 327 196 98
------ ------ ------
Income Before Cumulative Effects of
Accounting Changes 744 510 535
Cumulative effects of accounting changes (75) 446 -
------ ------ ------
Net Income $ 669 $ 956 $ 535
====== ====== ======
</TABLE>
In the normal course of business, BTCo. enters into various transactions with
the Parent Company and the Parent Company's other subsidiaries. Included in the
above financial statements were the following transactions and balances with
such affiliates.
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Interest revenue $ 45 $ 26 $ 36
Interest expense 143 164 211
Noninterest revenue 43 41 41
Noninterest expenses 326 254 105
(in millions) December 31, 1993 1992
---- ----
Interest-earning assets $1,387 $ 486
Noninterest-earning assets 357 233
Interest-bearing liabilities 3,507 3,387
Noninterest-bearing liabilities 304 245
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet
($ in millions, except par values) December 31, 1993 1992
---- ----
<S> <C> <C>
Assets
Cash and due from banks $ 1,795 $ 1,372
Interest-bearing deposits with banks 2,182 3,208
Federal funds sold 439 451
Securities purchased under resale agreements 6,930 2,384
Trading account assets 23,992 17,392
Securities available for sale 5,072 -
Investment securities
At lower of aggregate cost or market
(market value: 1992, $4,368) - 4,301
Loans 13,563 15,957
Allowance for credit losses (1,249) (1,547)
Premises and equipment, net 687 637
Due from customers on acceptances 455 276
Accounts receivable and accrued interest 1,737 2,363
Other assets 2,329 1,864
------- -------
Total assets $57,932 $48,658
======= =======
Liabilities
Deposits
Noninterest-bearing
In domestic offices $ 3,250 $ 3,365
In foreign offices 738 839
Interest-bearing
In domestic offices 6,147 6,140
In foreign offices 12,749 14,850
------- -------
Total deposits 22,884 25,194
Securities sold, not yet purchased 7,763 2,516
Securities sold under repurchase agreements 4,194 4,712
Other short-term borrowings 12,251 7,831
Acceptances outstanding 455 276
Accounts payable and accrued expenses 1,944 1,352
Other liabilities 1,921 1,328
Long-term debt 2,590 2,118
------- -------
Total liabilities 54,002 45,327
------- -------
Stockholder's Equity
Floating rate non-cumulative preferred stock-
Series A, $1 million par value
Authorized, issued and outstanding: 250 shares 250 250
Common stock, $10 par value
Authorized, issued and outstanding: 70,166,667 shares 702 702
Capital surplus 498 498
Retained earnings 2,756 2,160
Cumulative translation adjustments (321) (279)
Securities valuation allowance 45 -
------- -------
Total stockholder's equity 3,930 3,331
------- -------
Total liabilities and stockholder's equity $57,932 $48,658
======= =======
</TABLE>
See Note 9 for details of BTCo.'s long-term debt issued to nonaffiliates.
Note 2 discusses the effects of the Corporation's adoption of SFAS 115 effective
December 31, 1993, SFAS 106 and SFAS 112 effective January 1, 1993 and SFAS 109
effective January 1, 1992. The statement of income effects of adoption
presented there were recorded by BTCo.
BANKERS TRUST 77
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Bankers Trust New York Corporation and its subsidiaries (the
"Corporation") is responsible for preparing the accompanying financial
statements. The financial statements were prepared in accordance with generally
accepted accounting principles and prevailing industry practices, as applicable
to the Corporation. The financial statements included amounts that are based on
management's best estimates and judgments. Management also prepared the other
information in the Annual Report and is responsible for its accuracy and
consistency with the financial statements.
The management of the Corporation has established and maintains an internal
control structure and monitors that structure for compliance with established
policies and procedures. The objectives of an internal control structure are to
provide reasonable, but not absolute, assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition, and that transactions are executed in
accordance with management's authorization. The Corporation maintains an
Internal Audit Department that independently monitors and assesses the
effectiveness of the internal controls and recommends possible improvements
thereto. The Corporation also maintains a Credit Policy Department which
develops and administers procedures to measure, monitor and control credit risks
across all businesses and recommends to management specific measures for
portfolio restructuring designed to reduce the risk of loss. In addition,
management recognizes its responsibility to foster a strong ethical environment
within the Corporation to ensure that its business affairs are conducted with
integrity and in accordance with high standards of personal and corporate
conduct. This responsibility is characterized and reflected in the
Corporation's Rules for Business Conduct, which are distributed to all employees
of the Corporation. As part of the monitoring system, the Corporation maintains
a Corporate Compliance Department having oversight responsibilities for
administering and coordinating the application of these standards of conduct.
The Corporation's Board of Directors appoints an Audit Committee composed
solely of outside directors. The function of the Audit Committee is to oversee
the accounting, reporting, audit and internal control policies and procedures
established by the Corporation's management. The Committee meets regularly with
management and the internal, credit and independent auditors. The auditors have
free access to the Audit Committee without the presence of management. The
Committee reports regularly to the Board of Directors on its activities, and
such other matters as it deems necessary.
The Corporation's annual financial statements have been audited by Ernst &
Young, independent auditors, whose appointment by the Board of Directors was
approved by the stockholders. Management has made available to Ernst & Young
all the Corporation's financial records and related data, as well as the minutes
of stockholders' and directors' meetings. Furthermore, management believes that
all its representations to Ernst & Young are valid and appropriate. In
addition, Ernst & Young, in determining the nature and extent of their auditing
procedures, evaluated the Corporation's accounting procedures and policies and
the effectiveness of the related internal control structure.
Management believes that, as of December 31, 1993, the Corporation's internal
control structure was adequate to accomplish the objectives discussed herein.
Charles S. Sanford, Jr.
Chairman of the Board and
Chief Executive Officer
Timothy T. Yates
Executive Vice President,
Chief Financial Officer and
Controller
March 10, 1994
78 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Bankers Trust New York Corporation
We have audited the accompanying consolidated balance sheet of Bankers Trust New
York Corporation and Subsidiaries (the "Corporation") at December 31, 1993 and
1992, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bankers Trust New
York Corporation and Subsidiaries at December 31, 1993 and 1992, and the
consolidated results of operations and cash flows for each of the three years in
the period ended December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the financial statements, in 1993 the Corporation
adopted, as of December 31, 1993, Statement of Financial Accounting Standards
("SFAS") 115, "Accounting for Certain Investments in Debt and Equity
Securities," and as of January 1, 1993, SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and SFAS 112, "Employers'
Accounting for Postemployment Benefits." Also, effective January 1, 1992, the
Corporation adopted SFAS 109, "Accounting for Income Taxes."
ERNST & YOUNG
New York, New York
January 26, 1994
BANKERS TRUST 79
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Supplemental Financial Data
The statistical data on pages 80 through 84 should be read in conjunction with
the Financial Review and the financial statements included elsewhere in this
Annual Report.
In the opinion of management, all material adjustments necessary for a fair
presentation of the results of operations for the interim periods have been
made. All such adjustments were of a normal recurring nature, except for the
cumulative effects of accounting changes for postretirement and postemployment
benefits (recorded in the first quarter of 1993) and income taxes (recorded in
the first quarter of 1992).
Condensed Quarterly Consolidated Statement of Income
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1992
---- ----
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
(in millions, except per share data) ------ ------- ------- ------- ------- ------- ------- -------
Interest revenue $1,171 $1,177 $1,067 $1,021 $1,095 $1,072 $1,049 $1,003
Interest expense 798 835 768 721 699 776 808 789
------ ------ ------ ------ ------ ------ ------ ------
Net interest revenue 373 342 299 300 396 296 241 214
Provision for credit losses 23 17 23 30 50 45 75 55
------ ------ ------ ------ ------ ------ ------ ------
Net interest revenue after provision
for credit losses 350 325 276 270 346 251 166 159
Total noninterest revenue 869 929 832 734 464 590 689 588
Total noninterest expenses 816 789 749 681 623 600 589 535
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes and
cumulative effects of accounting
changes 403 465 359 323 187 241 266 212
Income taxes 124 155 108 93 54 75 80 58
------ ------ ------ ------ ------ ------ ------ ------
Income before cumulative effects of
accounting changes 279 310 251 230 133 166 186 154
Cumulative effects of accounting changes - - - (75) - - - 446
------ ------ ------ ------ ------ ------ ------ ------
Net income $ 279 $ 310 $ 251 $ 155 $ 133 $ 166 $ 186 $ 600
====== ====== ====== ====== ====== ====== ====== ======
Net income applicable to common stock $ 273 $ 305 $ 246 $ 148 $ 126 $ 158 $ 179 $ 592
====== ====== ====== ====== ====== ====== ====== ======
Primary Earnings Per Common Share:
Income before cumulative effects of
accounting changes $ 3.26 $ 3.60 $ 2.90 $ 2.64 $ 1.49 $ 1.87 $ 2.13 $ 1.74
Cumulative effects of accounting
changes - - - (.89) - - - 5.31
------ ------ ------ ------ ------ ------ ------ ------
Net income $ 3.26 $ 3.60 $ 2.90 $ 1.75 $ 1.49 $ 1.87 $ 2.13 $ 7.05
====== ====== ====== ====== ====== ====== ====== ======
Fully Diluted Earnings Per Common Share:
Income before cumulative effects of
accounting changes $ 3.25 $ 3.60 $ 2.90 $ 2.63 $ 1.49 $ 1.86 $ 2.13 $ 1.74
Cumulative effects of accounting
changes - - - (.88) - - - 5.31
------ ------ ------ ------ ------ ------ ------ ------
Net income $ 3.25 $ 3.60 $ 2.90 $ 1.75 $ 1.49 $ 1.86 $ 2.13 $ 7.05
====== ====== ====== ====== ====== ====== ====== ======
Cash dividends declared per common
share $ .90 $ .78 $ .78 $ .78 $ .78 $ .70 $ .70 $ .70
====== ====== ====== ====== ====== ====== ====== ======
Stockholder Data
Market price/(1)/
High $83 $83 1/2 $78 $74 1/4 $70 1/8 $64 3/4 $61 1/2 $66 1/2
Low 74 73 3/4 67 1/2 65 3/4 62 58 1/8 50 54 1/2
End of quarter 79 1/8 80 74 1/8 71 1/2 68 1/2 63 3/4 58 3/4 55
</TABLE>
(1) Based on the Composite Tape. Market prices at January 31, 1994 for common
stock were as follows: High, $84 1/4; Low, $82 3/4; Close, $83 7/8.
Dividends
Cash dividends on common stock were paid quarterly in 1993 on the 25th of
January, April, July and October.
Number of Security Holders
At January 31, 1994, the approximate number of holders of record of common stock
was 23,561.
Stock Listings
The principal markets on which the common stock is traded are the New York Stock
Exchange (Symbol: BT) and the London Stock Exchange.
80 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Volume/Rate Analysis of Changes in Net Interest Revenue
The following table attributes changes in fully taxable net interest revenue to
changes in either average daily balances or average rates for both interest-
earning assets and interest-bearing sources of funds. Because of the numerous
simultaneous balance and rate changes during any period, it is not possible to
precisely allocate such changes between balances and rates. For purposes of
this table, changes which are not due solely to balance or rate changes are
allocated to such categories based on the respective percentage changes in
average daily balances and average rates.
<TABLE>
<CAPTION>
1993/92 1992/91
------------------------------ -----------------------------
Increase (decrease) Increase (decrease)
due to change in: due to change in:
------------------------------ -----------------------------
Average Average Average Average
(in millions) Balance Rate Total Balance Rate Total
------- --------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Consolidated
INTEREST REVENUE
Interest-bearing deposits with banks $ (43) $ (30) $ (73) $ (110) $ 41 $ (69)
Federal funds sold - (5) (5) 8 (17) (9)
Securities purchased under resale agreements (196) (47) (243) 362 (168) 194
Securities borrowed 63 64 127 - - -
Trading account assets 869 (121) 748 623 (389) 234
Investment securities 13 (126) (113) 84 (70) 14
Loans (88) (106) (194) (172) (275) (447)
----- ----- --------- ------ -------- ------
Total interest revenue 618 (371) 247 795 (878) (83)
------ ------ --------- ------ -------- ------
INTEREST EXPENSE
Interest-bearing deposits 130 (236) (106) (61) (409) (470)
Securities sold, not yet purchased 85 38 123 148 (97) 51
Securities sold under repurchase agreements 133 (84) 49 476 (297) 179
Other short-term borrowings 86 (105) (19) (69) (220) (289)
Long-term debt 54 (51) 3 65 (49) 16
------ ------ --------- ------ -------- ------
Total interest expense 488 (438) 50 559 (1,072) (513)
------ ------ --------- ------ -------- ------
Net change in net interest revenue $ 130 $ 67 $ 197 $ 236 $ 194 $ 430
====== ====== ========= ====== ======== ======
Domestic Offices
INTEREST REVENUE
Interest-bearing deposits with banks $ (3) $ 14 $ 11 $ (4) $ (3) $ (7)
Federal funds sold - (5) (5) 8 (17) (9)
Securities purchased under resale agreements (198) (92) (290) 308 (180) 128
Securities borrowed 63 64 127 - - -
Trading account assets 527 (14) 513 474 (41) 433
Investment securities 39 (58) (19) 49 (36) 13
Loans (25) (55) (80) (67) (188) (255)
------ ------ --------- ------ -------- ------
Total interest revenue 403 (146) 257 768 (465) 303
------ ------ --------- ------ -------- ------
INTEREST EXPENSE
Interest-bearing deposits 44 (107) (63) 26 (125) (99)
Securities sold, not yet purchased 9 38 47 113 (44) 69
Securities sold under repurchase agreements 121 (130) (9) 409 (228) 181
Other short-term borrowings 50 (59) (9) (75) (138) (213)
Long-term debt 42 (47) (5) 73 (44) 29
Funds provided to foreign offices 54 51 105 40 193 233
Funds provided by foreign offices (15) (9) (24) (8) (89) (97)
------ ------ --------- ------ -------- ------
Total interest expense 305 (263) 42 578 (475) 103
------ ------ --------- ------ -------- ------
Net change in net interest revenue $ 98 $ 117 $ 215 $ 190 $ 10 $ 200
====== ====== ========= ====== ======== ======
Foreign Offices
INTEREST REVENUE
Interest-bearing deposits with banks $ (40) $ (44) $ (84) $ (106) $ 44 $ (62)
Securities purchased under resale agreements 56 (9) 47 65 1 66
Trading account assets 339 (104) 235 118 (317) (199)
Investment securities (37) (57) (94) 32 (31) 1
Loans (74) (40) (114) (111) (81) (192)
------ ------ --------- ------ -------- ------
Total interest revenue 244 (254) (10) (2) (384) (386)
------ ------ --------- ------ -------- ------
INTEREST EXPENSE
Interest-bearing deposits 78 (121) (43) (106) (265) (371)
Securities sold, not yet purchased 82 (6) 76 24 (42) (18)
Securities sold under repurchase agreements (1) 59 58 50 (52) (2)
Other short-term borrowings 36 (46) (10) 32 (108) (76)
Long-term debt 14 (6) 8 (16) 3 (13)
Funds provided by domestic offices (54) (51) (105) (40) (193) (233)
Funds provided to domestic offices 15 9 24 8 89 97
------ ------ --------- ------ -------- ------
Total interest expense 170 (162) 8 (48) (568) (616)
------ ------ --------- ------ -------- ------
Net change in net interest revenue $ 74 $ (92) $ (18) $ 46 $ 184 $ 230
====== ====== ========= ====== ======== ======
</TABLE>
BANKERS TRUST 81
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
AVERAGE BALANCE, INTEREST AND AVERAGE RATES
The following table shows the major consolidated assets and liabilities,
together with their respective interest amounts and rates earned or paid by the
Corporation. Cash basis and renegotiated loans are included in the averages to
determine an effective yield on all loans. The average balances are principally
daily averages.
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
Average Average Average Average Average Average
($ in millions) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- --------------- ------- -------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits with banks
(primarily in foreign offices) $ 2,698 $ 214 7.93% $ 3,211 $ 287 8.94% $ 4,485 $ 356 7.94%
Federal funds sold
(in domestic offices) 708 22 3.11% 714 27 3.78% 568 36 6.34%
Securities purchased under resale
agreements (primarily in domestic
offices) 9,969 381 3.82% 15,020 624 4.15% 7,099 430 6.06%
Securities borrowed (in domestic
offices) 4,216 127 3.01% - - - - - -
Trading account assets
In domestic offices/(1)/ 20,810 1,414 6.79% 13,060 901 6.90% 6,226 468 7.52%
In foreign offices 16,490 1,033 6.26% 11,115 798 7.18% 9,835 997 10.14%
------- ------ ------- ----- ------- ------
Total trading account assets/(1)/ 37,300 2,447 6.56% 24,175 1,699 7.03% 16,061 1,465 9.12%
Investment securities
In domestic offices
Taxable 2,644 129 4.88% 2,236 167 7.47% 1,984 186 9.38%
Exempt from federal income taxes/(1)/ 598 59 9.87% 418 40 9.57% 81 8 9.88%
In foreign offices
Taxable 2,959 200 6.76% 3,381 298 8.81% 2,970 296 9.97%
Exempt from federal income taxes/(1)/ 396 50 12.63% 412 46 11.17% 485 47 9.69%
------- ------ ------- ----- ------- ------
Total investment securities/(1)/ 6,597 438 6.64% 6,447 551 8.55% 5,520 537 9.73%
Loans
In domestic offices
Commercial and industrial 3,065 157 5.12% 3,739 224 5.99% 4,722 384 8.13%
Financial institutions 1,635 81 4.95% 2,743 122 4.45% 2,500 149 5.96%
Secured by real estate 1,787 89 4.98% 1,913 98 5.12% 2,016 131 6.50%
Other(1) 2,986 121 4.05% 1,555 84 5.40% 1,710 117 6.84%
------- ------ ------- ----- ------- ------
Total in domestic offices/(1)/ 9,473 448 4.73% 9,950 528 5.31% 10,948 781 7.13%
In foreign offices 5,837 430 7.37% 6,812 540 7.93% 8,127 730 8.98%
------- ------ ------- ----- ------- ------
Total loans, excluding fees/(1)/ 15,310 878 5.73% 16,762 1,068 6.37% 19,075 1,511 7.92%
Loan fees 11 15 19
------- ------ ------- ----- ------- ------
Total loans, including fees/(1)/ 15,310 889 5.81% 16,762 1,083 6.46% 19,075 1,530 8.02%
------- ------ ------- ----- ------- ------
Total Interest-Earning Assets/(1)/ 76,798 $4,518 5.88% 66,329 $4,271 6.44% 52,808 $4,354 8.24%
------ ------ ------
Cash and due from banks 1,767 1,508 1,677
Due from customers on acceptances 372 218 436
All other assets 8,221 8,364 8,335
Allowance for credit losses (1,535) (1,725) (2,001)
------- ------- -------
Total Assets $85,623 $74,694 $61,255
======= ======= =======
% of assets attributable to foreign
offices 45% 43% 53%
</TABLE>
The average balance sheets are presented on a different basis than the spot
balance sheets, in that the various categories of interest-earning assets and
interest-bearing liabilities exclude certain noninterest-earning/bearing
components included in the spot balance sheet captions. These components are
included in "all other assets" and "all other liabilities" in the average
balance sheet.
(1) Interest and average rates are presented on a fully taxable basis. The
applicable combined federal, state and local incremental tax rates used to
determine the amounts of the tax equivalent adjustments to interest revenue
(which recognize the income tax savings on tax-exempt assets) were 42
percent for 1993 and 41 percent for 1992 and 1991.
82 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
Average Average Average Average Average Average
($ in millions) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- --------------- ------- -------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities and Stockholders' Equity
Interest-bearing deposits
In domestic offices
Time deposits $ 2,425 $ 115 4.74% $ 2,952 $ 174 5.89% $ 4,083 $ 297 7.27%
Other 5,835 103 1.77% 4,060 107 2.64% 2,451 83 3.39%
------- ------ ------- ------ ------- ------
Total in domestic offices 8,260 218 2.64% 7,012 281 4.01% 6,534 380 5.82%
In foreign offices
Deposits from banks in
foreign countries 5,937 398 6.70% 4,772 356 7.46% 4,779 436 9.12%
Other time and savings
deposits 6,259 319 5.10% 6,277 386 6.15% 7,602 667 8.77%
Other 1,405 78 5.55% 1,333 96 7.20% 1,289 106 8.22%
------- ------ ------- ------ ------- ------
Total in foreign offices 13,601 795 5.85% 12,382 838 6.77% 13,670 1,209 8.84%
------- ------ ------- ------ ------- ------
Total interest-bearing
deposits 21,861 1,013 4.63% 19,394 1,119 5.77% 20,204 1,589 7.86%
Securities sold, not yet
purchased
In domestic offices 3,947 250 6.33% 3,789 203 5.36% 1,825 134 7.34%
In foreign offices 2,522 174 6.90% 1,335 98 7.34% 1,077 116 10.77%
------- ------ ------- ------ ------- ------
Total securities sold, not
yet purchased 6,469 424 6.55% 5,124 301 5.87% 2,902 250 8.61%
Securities sold under repurchase
agreements
In domestic offices 21,748 675 3.10% 18,200 684 3.76% 8,605 503 5.85%
In foreign offices 2,024 190 9.39% 2,041 132 6.47% 1,400 134 9.57%
------- ------ ------- ------ ------- ------
Total securities sold under
repurchase agreements 23,772 865 3.64% 20,241 816 4.03% 10,005 637 6.37%
Other short-term borrowings
In domestic offices 8,506 330 3.88% 7,323 339 4.63% 8,612 552 6.41%
In foreign offices 4,211 276 6.55% 3,708 286 7.71% 3,386 362 10.69%
------- ------ ------- ------ ------- ------
Total other short-term borrowings 12,717 606 4.77% 11,031 625 5.67% 11,998 914 7.62%
Long-term debt
In domestic offices 4,425 185 4.18% 3,536 190 5.37% 2,298 161 7.01%
In foreign offices 432 29 6.71% 237 21 8.86% 427 34 7.96%
------- ------ ------- ------ ------- ------
Total long-term debt 4,857 214 4.41% 3,773 211 5.59% 2,725 195 7.16%
------- ------ ------- ------ ------- ------
Total Interest-Bearing
Liabilities 69,676 $3,122 4.48% 59,563 $3,072 5.16% 47,834 $3,585 7.49%
------ ------ ------
Noninterest-bearing deposits
In domestic offices 3,315 3,402 3,118
In foreign offices 539 618 580
------- ------- -------
Total noninterest-bearing deposits 3,854 4,020 3,698
Acceptances outstanding 387 226 447
All other liabilities 7,267 6,819 6,036
Preferred stock of subsidiary 236 - -
Stockholders' Equity
Preferred stock 302 500 500
Common stockholders' equity 3,901 3,566 2,740
------- ------- -------
Total Liabilities and Stockholders'
Equity $85,623 $74,694 $61,255
======= ======= =======
% of liabilities attributable
to foreign offices 38% 42% 53%
Rate spread 1.40% 1.28% .75%
Net interest margin (net interest revenue
to total interest-earning assets)
In domestic offices $46,227 $ 862 1.86% $40,133 $ 695 1.73% $26,654 $ 495 1.86%
In foreign offices 30,571 534 1.75% 26,196 504 1.92% 26,154 274 1.05%
------- ------ ------- ------ ------- ------
Total $76,798 $1,396 1.82% $66,329 $1,199 1.81% $52,808 $ 769 1.46%
======= ====== ======= ====== ======= ======
</TABLE>
BANKERS TRUST 83
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
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Interest Rate Sensitivity
Interest rate sensitivity data for the Corporation at December 31, 1993 is
presented in the table below. For purposes of this presentation, the interest-
earning/bearing components of trading account assets and securities sold, not
yet purchased are assumed to reprice within three months.
The interest rate gaps reported in the table arise when assets are funded with
liabilities having different repricing intervals, after considering the effect
of off-balance sheet hedging instruments. Since these gaps are actively managed
and change daily as adjustments are made in interest rate views and market
outlook, positions at the end of any period may not be reflective of the
Corporation's interest rate view in subsequent periods. Active management
dictates that longer-term economic views are balanced against prospects of
short-term interest rate changes in all repricing intervals.
<TABLE>
<CAPTION>
By Repricing Interval
-------------------------------------------------------------------------
After three After six After Non-
Within months months one year After interest-
three but within but within but within five bearing
(In millions) December 31, 1993 months six months one year five years years funds Total
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits with banks $ 1,411 $ 197 $ 30 $ - $ - $ - $ 1,638
Federal funds sold 361 - - - - - 361
Securities purchased under resale agreements 9,292 - 275 - - - 9,567
Securities borrowed 2,937 - - - - - 2,937
Trading account assets 43,483 - - - - 4,793 48,276
Securities available for sale 2,378 603 360 2,128 1,604 - 7,073
Loans 11,955 1,237 391 595 1,022 - 15,200
Noninterest-earning assets and allowance for credit
losses - - - - - 7,030 7,030
------- ------ ------ ------ ------ ------- -------
Total 71,817 2,037 1,056 2,723 2,626 11,823 92,082
------- ------ ------ ------ ------ ------- -------
Liabilities, Preferred Stock
of Subsidiary and Stockholders' Equity
Interest-bearing deposits 17,582 423 73 794 12 - 18,884
Securities sold, not yet purchased 7,523 - - - - 1,826 9,349
Securities sold under repurchase agreements 23,763 71 - - - - 23,834
Other short-term borrowings 16,086 1,137 1,497 100 172 - 18,992
Long-term debt 1,241 541 374 1,671 1,770 - 5,597
Preferred stock of subsidiary 250 - - - - - 250
Preferred stock - - 205 45 - - 250
Noninterest-bearing liabilities and common stockholders'
equity - - - - - 14,926 14,926
------- ------ ------ ------ ------ ------- -------
Total 66,445 2,172 2,149 2,610 1,954 16,752 92,082
------- ------ ------ ------ ------ ------- -------
Effect of off-balance sheet hedging instruments (4,929) 1,255 1,651 1,453 570 - -
------- ------ ------ ------ ------ ------- -------
Interest Rate Sensitivity Gap $ 443 $1,120 $ 558 $1,566 $1,242 $(4,929) $ -
======= ====== ====== ====== ====== ======= =======
Cumulative Interest Rate Sensitivity Gap $ 443 $1,563 $2,121 $3,687 $4,929 $ - $ -
======= ====== ====== ====== ====== ======= =======
</TABLE>
Deposits
The Corporation's certificates of deposit and other time deposits issued by
domestic and foreign offices in amounts of $100,000 or more, together with their
remaining maturities, and other interest-bearing deposits at December 31, 1993
were as follows:
<TABLE>
<CAPTION>
(in millions) Domestic Foreign Total
-------- ------- -------
Certificates of deposit of $100,000 or more
<S> <C> <C> <C>
3 months or less $ 35 $ 238 $ 273
Over 3 through 6 months 14 114 128
Over 6 through 12 months - 2 2
Over 12 months 449 43 492
------- ------- -------
Total 498 397 895
------- ------- -------
Other time deposits of $100,000 or more
3 months or less 100 9,592 9,692
Over 3 through 6 months 8 173 181
Over 6 through 12 months 49 18 67
Over 12 months 2 149 151
------- ------- -------
Total 159 9,932 10,091
------- ------- -------
Other 6,463 1,435 7,898
------- ------- -------
Total interest-bearing deposits $7,120 $11,764 $18,884
======= ======= =======
</TABLE>
Deposits by foreign depositors in domestic offices amounted to $1.1 billion, $.9
billion and $.9 billion at December 31, 1993, 1992 and 1991, respectively.
84 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
DESCRIPTION OF BUSINESS
Bankers Trust New York Corporation
Bankers Trust New York Corporation (the "Parent Company" and, together with its
subsidiaries, the "Corporation", or the "Firm") is a registered bank holding
company which was incorporated in 1965. The Parent Company, which accounted for
3 percent of consolidated assets at December 31, 1993, supplies Bankers Trust
Company, BT Securities Corporation and its other subsidiaries with various
advisory services and coordinates their general policies and activities.
The Parent Company is a legal entity separate and distinct from its
subsidiaries. The rights of the Parent Company to participate in any
distribution of assets of any subsidiary upon its liquidation or reorganization
or otherwise are subject to the prior claims of creditors of that subsidiary,
except to the extent that the Parent Company may itself be a creditor of that
subsidiary and its claims are recognized. Claims on the Parent Company's
subsidiaries by creditors other than the Parent Company include long-term debt
and substantial obligations with respect to deposit liabilities, securities
sold, not yet purchased, commercial paper, securities sold under repurchase
agreements and federal funds purchased, as well as various other liabilities.
Organizational Units
The Corporation concentrates its financial and managerial resources on selected
markets and services its clients by meeting their needs for financing, advisory,
processing and sophisticated risk management solutions. The Firm also conducts
its own proprietary operations. The Corporation currently organizes its
personnel into the following organizational units.
The Global Investment Bank delivers the Firm's full range of financing, and
risk management product and advisory capabilities to its corporate, financial
institution and investor clients in developed countries. These include the
underwriting, distribution and trading of public equity and debt (both
investment grade and high-yield); private placements; structured finance; asset
finance; interest rate, currency, equity, commodity and credit derivative
products, as well as merger and acquisition advisory services and a variety of
other advisory services that assist clients in the management of strategic risk.
Global Emerging Markets provides many of the same products and services to
clients in Asia, Latin America, the Middle East and Africa. Prominent among
these are financial advisory services to governments and both state-owned and
privatized businesses. This group also sells, trades and distributes
restructured loans, bonds, equities and other instruments of Latin American and
other emerging markets issuers.
Global Investment Management is responsible for most of the Firm's investment
management business for pension funds, corporations and other institutional
investors worldwide. The services they provide include both the active and
passive management of equities, fixed income securities and other financial
instruments, including currencies and derivatives, in many of the world's major
financial markets.
The Corporation's Global Markets Proprietary businesses are comprised of
Global Trading and the Global Portfolio Group, as well as the trading, capital
markets, funds management and merchant banking businesses in the Australia/New
Zealand markets. The Global Trading group manages the risk assumed in helping
clients manage their risk and enters into securities, derivatives, currency,
commodity and funding transactions on a proprietary basis. The Global Portfolio
Group is responsible for the funding of the Corporation worldwide; capital and
liquidity management; the management of the Corporation's securities available
for sale portfolio; and the intermediate and longer-term proprietary trading of
liquid securities, foreign exchange and derivative products.
Global Assets is engaged in the gathering, moving and managing of assets for
both institutional and individual clients throughout the world. Global
Institutional Services delivers many of the Corporation's processing, fiduciary
and trust services, such as cash management, custody and clearance and deposit
and credit services, to corporations, financial institutions and governments and
their agencies around the world. It also provides to sponsors of U.S. defined
benefit and defined contribution plans the Corporation's full range of services,
including recordkeeping and administrative services and portfolio measurement.
The Individual Services Group, through its Private Bank, and Mutual Fund and
Brokerage Services units, provides wealthy individuals, foundations, private
companies and individual investors with a wide range of Global Assets' services.
Other business activities include real estate finance and principal investing.
Insurance Activities
The Corporation has two majority-owned Chilean subsidiaries, known as Consorcio
and Compensa. Consorcio underwrites pension-related life and disability
insurance, and both companies sell pension-related life annuities.
Business Functions
Because of the close interrelationship among its organizational units, the
Corporation breaks down and analyzes its business on the basis of five business
functions, which represent the Firm's core business activities. A business
function is often common to two or more of the organizational units described
above. Descriptions of each of the Firm's five business functions appear on page
27.
Bankers Trust Company
The Parent Company's principal banking subsidiary is Bankers Trust Company,
which, along with its subsidiaries ("BTCo."), accounted for 61 percent of the
Corporation's consolidated assets at December 31, 1993. BTCo., founded in 1903,
is among the largest commercial banks in New York City and the United States,
based on total assets. BTCo. originates loans and other forms of credit, accepts
deposits, arranges financings and provides numerous other commercial banking and
financial services. BTCo. provides a broad range of financial advisory services
to its clients. It also engages in the trading of currencies, securities,
derivatives and commodities.
BT Securities Corporation
BT Securities Corporation ("BT Securities"), a wholly-owned subsidiary of the
Parent Company, accounted for 28 percent of the Corporation's consolidated
assets at December 31, 1993. BT Securities is a primary dealer in U.S.
Government securities. It also structures, underwrites and deals in money market
instruments, commercial paper, and municipal, asset-backed and corporate debt
and equity securities. BT Securities also provides advisory and private
placement services and structures a broad range of derivative transactions for
clients.
Bankers Trust (Delaware)
Bankers Trust (Delaware) is a state bank chartered under the laws of Delaware,
which, along with its subsidiaries, accounted for 2 percent of the Corporation's
consolidated assets at December 31, 1993. Bankers Trust (Delaware) engages in
commercial banking activities, with an emphasis on lending, funding and
corporate finance. BT Commercial Corporation, its wholly-owned subsidiary, is a
commercial finance company.
Supervision and Regulation
The Parent Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, and as such is required to register with the
Federal Reserve Board. As a registered bank holding company, the Parent Company
is required to file with the Federal Reserve Board certain reports
BANKERS TRUST 85
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
and information and is restricted in its acquisitions, certain of which are
prohibited and certain of which are subject to approval by the Federal Reserve
Board. In addition, the Parent Company would be required to obtain the approval
of the New York State Banking Department in order for it to acquire certain bank
and nonbank subsidiaries.
The Parent Company and its nonbank subsidiaries are affiliates of BTCo. and
Bankers Trust (Delaware) within the meaning of applicable federal statutes, and
such banks are therefore subject to restrictions on loans and other extensions
of credit to the Parent Company and certain other affiliates and on certain
other types of transactions with them or involving their securities.
BTCo. is subject to the supervision of, and to examination by, the New York
State Banking Department, the Federal Reserve Board and the Federal Deposit
Insurance Corporation. Bankers Trust (Delaware) is subject to regulation by the
Office of the State Bank Commissioner of the State of Delaware and by the
Federal Deposit Insurance Corporation. See Note 14 of Notes to Financial
Statements for the required reserve balances maintained by the Corporation's
subsidiary banks at a Federal Reserve Bank and limitations on the availability
of BTCo.'s undistributed earnings for the payment of dividends.
BT Securities is registered as a broker-dealer in all 50 states, the District
of Columbia and Puerto Rico and with the Securities and Exchange Commission, and
is a member of the National Association of Securities Dealers, Inc. and is
therefore subject to supervision by those regulators. As a bank securities
affiliate, BT Securities is subject to the supervision of the Federal Reserve
Board, which has imposed limitations on the gross revenue from certain
activities of such affiliates and certain other conditions governing their
operations.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") provides for cross-guarantees of the liabilities of insured
depository institutions pursuant to which any bank or savings association
subsidiary of a holding company may be required to reimburse the FDIC for any
loss or anticipated loss to the FDIC that arises from a default of any of such
holding company's other subsidiary banks or savings associations or assistance
provided to such an institution in danger of default.
In December 1991, the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") was enacted. FDICIA substantially revised the bank regulatory
and funding provisions of the Federal Deposit Insurance Act and revised several
other federal banking statutes.
FDICIA establishes five capital tiers, ranging from "well capitalized," to
"critically undercapitalized." A depository institution is well capitalized if
it significantly exceeds the minimum level required by regulation for each
relevant capital measure. Under FDICIA, an institution that is not well
capitalized is generally prohibited from accepting brokered deposits and
offering interest rates on deposits higher than the prevailing rate in its
market; in addition, "pass through" insurance coverage may not be available for
certain employee benefit accounts. FDICIA also requires an undercapitalized
depository institution to submit an acceptable capital restoration plan to the
appropriate federal bank regulatory agency. One requisite element of such a plan
is that the institution's parent holding company must guarantee compliance by
the institution with the plan, subject to certain limitations. In the event of
the parent holding company's bankruptcy, the guarantee, and any other
commitments that the parent holding company has made to federal bank regulators
to maintain the capital of its depository institution subsidiaries, would be
assumed by the bankruptcy trustee and entitled to priority in payment.
Based on their respective regulatory capital ratios at December 31, 1993, both
BTCo. and Bankers Trust (Delaware) are well capitalized, based on the
definitions in the regulations issued by the Federal Reserve Board and the other
federal bank regulatory agencies setting forth the general capital requirements
mandated by FDICIA. See "Capital Resources" on page 39 for information regarding
the Corporation's and BTCo.'s regulatory capital ratios.
FDICIA contains numerous other provisions, including new reporting
requirements, termination of the "too big to fail" doctrine except for special
cases, limitations on the FDIC's payment of deposits at foreign branches and
revised regulatory standards for, among other things, real estate lending and
capital adequacy.
A federal depositor preference statute was enacted in 1993 providing that
deposits and certain claims for administrative expenses and employee
compensation against an insured depository institution would be afforded a
priority over other general claims against such an institution, including
federal funds and letters of credit, in the "liquidation or other resolution" of
such an institution by any receiver.
In addition to banking and securities laws, regulations and regulatory
agencies governing the Corporation worldwide, the Corporation also is subject to
various other laws, regulations and regulatory agencies throughout the United
States and in other countries. Furthermore, various proposals, bills and
regulations have been and are being considered in the United States Congress,
the New York State Legislature and various other governmental regulatory and
legislative bodies, which could result in changes in the profitability and
governance of the Corporation. It cannot be predicted whether new legislation or
regulations will be adopted and, if so, how they would affect the Corporation.
References under the caption "Supervision and Regulation" to applicable
statutes, regulations and orders are brief summaries of portions thereof which
do not purport to be complete and which are qualified in their entirety by
reference thereto.
Competition and Other Market Factors
The banking and securities businesses are intensely competitive and the
Corporation competes for business with other financial services organizations,
including major commercial and investment banks and finance and investment
advisory companies, located in principal cities throughout the world.
The business of a large financial services organization such as the
Corporation is influenced by prevailing economic conditions and governmental
policies, both foreign and domestic. The actions and policy directives of the
Federal Reserve Board determine to a significant degree the cost and the
availability of funds obtained from money market sources for lending and
investing. Federal Reserve Board policies and regulations also influence,
directly and indirectly, the rates of interest paid by commercial banks on their
time and savings deposits. The nature and impact on the Corporation of future
changes in economic conditions and monetary and fiscal policies, both foreign
and domestic, are not predictable. Additionally, the Corporation's international
operations, which are widely diversified geographically and vary from country to
country, include certain economic and political risks which differ from those
associated with its domestic operations. These risks include the possibility of
expropriation of assets, exchange rate fluctuations, restrictions on the
withdrawal of funds and balance-of-payments problems.
Properties
BTCo. owns a 28-story office building located at 280 Park Avenue, and leases a
15-story middle annex and most of a 42-story office building, both of which are
adjacent to 280 Park Avenue. BTCo. also owns a 10-story office building at 4
Albany
86 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Street in Manhattan, as well as a 998-year leasehold interest in an eight-story
office building in the Broadgate complex in London, England. The other principal
office premises leased are a 39-story building known as One Bankers Trust Plaza,
seven stories of a 37-story building at 14-16 Wall Street, (both in Manhattan),
an eight-story building in Jersey City, New Jersey, a three-story building in
Nashville, Tennessee and a significant portion of a 42-story office building in
Sydney, Australia. Portions of certain of these properties are leased to tenants
or subtenants. BTCo. has exercised its purchase options on both of the leased
buildings adjacent to 280 Park Avenue for a closing in the second half of 1994.
The anticipated combined purchase price of these properties does not, in the
aggregate, represent a material commitment for BTCo. Purchase options are also
held on One Bankers Trust Plaza. In addition to the offices referred to above,
branch offices and locations for other activities are occupied in cities
throughout the world under various types of ownership and leaseholds. See Note 7
of Notes to Financial Statements for additional information concerning lease
commitments.
Legal Proceedings
Various actions and proceedings involving the Parent Company and various of its
subsidiaries are currently pending. Management, after discussions with counsel,
does not anticipate that losses, if any, resulting from these various actions
and proceedings would be material.
BANKERS TRUST 87
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Executive Officers of the Registrant
Set forth below are the names and ages of the executive officers of the Parent
Company, positions held and the year from which held. These officers are elected
annually by the Board of Directors. There are no family relationships among such
persons.
* Charles S. Sanford, Jr., 57
Chairman of the Board
Chairman of the Board of the Parent Company and of BTCo. since 1987 and Director
since 1982; Deputy Chairman 1986-1987; President of the Parent Company and of
BTCo. 1983-1986; Executive Vice President in charge of the Resources Management
Department of BTCo. 1974-1983.
James J. Baechle, 61
Executive Vice President and
General Counsel
Executive Vice President of the Parent Company since 1980; Managing Director of
BTCo. since June 1992; Executive Vice President of BTCo. 1979-1992; General
Counsel of the Parent Company and/or BTCo. since 1971.
Joseph A. Manganello, Jr., 58
Executive Vice President and
Chief Credit Officer
Executive Vice President and Chief Credit Officer of the Parent Company since
1988; Managing Director of BTCo. since June 1992 and Chief Credit Officer since
1984; Executive Vice President of BTCo. 1982-1992; Department Head of the United
States Department of BTCo. prior to 1984. He is in charge of the Credit Policy
Department.
*Eugene B. Shanks, Jr., 47
President
President and Director of the Parent Company and BTCo. since January 1992;
Executive Vice President of the Parent Company 1987-1992 and Managing Director
of BTCo. 1986-1992; in charge of the Technology Department, Strategic Planning
Department and the London operation of the Resources Management Department prior
to 1986. He is in charge of the Global Markets Proprietary, Global Assets and
Global Investment Management businesses and, with Mr. Vojta, manages the Global
Investment Bank.
*George J. Vojta, 58
Vice Chairman
Vice Chairman and Director of the Parent Company and BTCo. since January 1992;
Executive Vice President of the Parent Company and BTCo. 1984-1992. He is in
charge of the Global Emerging Markets, Real Estate Finance and Principal
Investing businesses and, with Mr. Shanks, manages the Global Investment Bank .
Timothy T. Yates, 46
Executive Vice President,
Chief Financial Officer and Controller
Executive Vice President and Chief Financial Officer of the Parent Company and
Managing Director and Chief Financial Officer of BTCo. since 1991; Controller
since 1993; Managing Director of BTCo. and Chief of Staff of Global Markets
1989-1991; Managing Director of BTCo. and later, BT Securities Corporation in
charge of High Yield/Structured Sales 1985-1989.
*Management Committee
88 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
United States Securities and Exchange Commission Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1993
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-5920
Bankers Trust New York Corporation
(Exact name of registrant as specified in its charter)
New York 13-6180473
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
280 Park Avenue
New York, NY 10017
(Address of principal (Zip code)
executive offices)
(212) 250-2500
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each
exchange on
Title of each class which registered
- --------------------------------------------------- -----------------------
<S> <C>
Common Stock, $1 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Preferred Purchase Units New York Stock Exchange
7 5/8% Convertible Capital Securities Due 2033 American Stock Exchange
Depositary Shares representing a one-tenth interest American Stock Exchange
in a share of 7 5/8% Cumulative Preferred Stock,
Series O ($250 Liquidation Preference)
7.50% Convertible Capital Securities Due 2033 American Stock Exchange
Depositary Shares representing a one-fortieth interest American Stock Exchange
in a share of 7.50% Cumulative Preferred Stock,
Series P ($1,000 Liquidation Preference)
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of January 31, 1994: Common Stock, $1 par value,
$6,650,132,038.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of January 31, 1994: Common Stock, $1 par value, 80,681,460
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1994 Annual Meeting of Stockholders
are incorporated by reference into Part III.
BANKERS TRUST 89
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Form 10-K Cross-Reference Index
<TABLE>
<CAPTION>
Part I
Item No. Pages
<C> <S> <C>
1. Business
Description of Business 27, 85
Supplemental Financial Data
International Operations 70
Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates and
Interest Differential 81
Investment Portfolio 57
Loan Portfolio 43, 44, 45, 46, 55, 58
Summary of Credit Loss Experience 29, 58
Deposits 83, 84
Return on Equity and Assets 26
Short-Term Borrowings 60
2. Properties 86
3. Legal Proceedings 87
4. Submission of Matters to a Vote of Security Holders *
- Executive Officers of the Registrant 88
<CAPTION>
Part II
<C> <S> <C>
5. Market for Registrant's Common Equity and
Related Stockholder Matters 65, 80
6. Selected Financial Data 26
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 27
8. Financial Statements and Supplementary Data
Bankers Trust New York Corporation and
Subsidiaries (Consolidated) 50 - 53
Notes to Financial Statements 54
Report of Independent Auditors 79
Selected Quarterly Financial Data 80
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure *
</TABLE>
Part III
The information required by Items 10 through 13 in this part is omitted pursuant
to Instruction G of Form 10-K since the Corporation intends to file with the
Commission a definitive Proxy Statement, pursuant to Regulation 14A, not later
than 120 days after December 31, 1993.
<TABLE>
<CAPTION>
Part IV
Item No. Pages
<C> <S> <C>
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
(a) (1) Financial Statements - See Item 8.
(2) Financial Statement Schedules
All schedules normally required by Form 10-K
are omitted since they are either not applicable
or the required information is shown in the
financial statements or the notes thereto.
(3) Exhibits
3. Articles of Incorporation and By-laws,
as amended **
4. Instruments Defining the Rights of Security
Holders, Including Indentures
(ii) Long-Term Debt Indentures ***
10.Material Contracts
(ii) (D) Leases for Principal Premises
described on page 86 **
(iii)(A) Compensation, Incentive and
Benefit Plans **
12. Statements Re Computation of Ratios **
21. Subsidiaries of the Registrant **
23. Consent of Experts **
24. Power of Attorney **
99. Additional Exhibits
(i)Preferred Share Purchase Rights **
<CAPTION>
<C> <S>
(b) Reports on Form 8-K - The Corporation filed four
reports on Form 8-K during the quarter ended
December 31, 1993.
- The report dated October 7, 1993 filed an
underwriting agreement covering the issuance
and sale by the Parent Company of 6%
Subordinated Notes due October 15, 2008
and various other exhibits related to the issuance.
- The report dated October 21, 1993 filed the
Corporation's Press Release dated October 21,
1993, which announced earnings for the quarter
and nine months ended September 30, 1993.
- The report dated October 22, 1993 filed an
underwriting agreement covering the issuance
and sale by the Parent Company of Floating Rate
Notes due October 29, 1995 and various other
exhibits related to the issuance.
- The report dated December 21, 1993 filed the
Corporation's Press Release dated December 21,
1993, which announced an increase in the
regular quarterly common stock dividend.
</TABLE>
- --------------------------------------------------------------------------------
* Not applicable.
** A copy of any exhibit not contained herein may be obtained by writing to
James T. Byrne, Jr., Office of the Secretary, Bankers Trust New York
Corporation, 280 Park Avenue-Mail Stop 1175, New York, NY 10017.
*** The Corporation hereby agrees to furnish to the Commission, upon request,
a copy of any instruments defining the rights of holders of long-term debt
issued by the Parent Company or its subsidiaries.
This report on Form 10-K has not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this report. Portions of the 1993 Annual Report to the Corporation's
stockholders are not required by the Form 10-K report and are not "filed" as
part of the Form 10-K. Only those sections of the Annual Report referenced in
the above index are incorporated in the Form 10-K.
90 BANKERS TRUST
<PAGE>
Bankers Trust New York Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Form 10-K Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 10, 1994.
Bankers Trust New York Corporation
By JAMES T. BYRNE, JR.
----------------------------------------------------------
(James T. Byrne, Jr., Senior Vice President and Secretary)
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on
March 10, 1994.
CHARLES S. SANFORD, JR.* Chairman of the Board,
- --------------------------- Chief Executive Officer
(Charles S. Sanford, Jr.) and Director
(Principal Executive
Officer)
TIMOTHY T. YATES* Executive Vice
- --------------------------- President, Chief
(Timothy T. Yates) Financial Officer
and Controller
(Principal Financial
Officer)
GEOFFREY M. FLETCHER* Senior Vice President
- --------------------------- (Principal Accounting
(Geoffrey M. Fletcher) Officer)
GEORGE B. BEITZEL* Director
- ---------------------------
(George B. Beitzel)
WILLIAM R. HOWELL* Director
- ---------------------------
(William R. Howell)
JON M. HUNTSMAN* Director
- ---------------------------
(Jon M. Huntsman)
VERNON E. JORDAN, JR.* Director
- ---------------------------
(Vernon E. Jordan, Jr.)
HAMISH MAXWELL* Director
- ---------------------------
(Hamish Maxwell)
DONALD F. McCULLOUGH* Director
- ---------------------------
(Donald F. McCullough)
N. J. NICHOLAS JR.* Director
- ---------------------------
(N. J. Nicholas Jr.)
RUSSELL E. PALMER* Director
- ---------------------------
(Russell E. Palmer)
DIDIER PINEAU-VALENCIENNE* Director
- ---------------------------
(Didier Pineau-Valencienne)
EUGENE B. SHANKS, JR.* President and Director
- ---------------------------
(Eugene B. Shanks, Jr.)
PATRICIA CARRY STEWART* Director
- ---------------------------
(Patricia Carry Stewart)
GEORGE J. VOJTA* Vice Chairman
- --------------------------- and Director
(George J. Vojta)
*By JAMES T. BYRNE, JR.
---------------------------------------
(James T. Byrne, Jr., Attorney-in-Fact)
BANKERS TRUST 91
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
EXHIBITS
TO
FORM 10-K
FILED UNDER
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
----------------------
BANKERS TRUST NEW YORK CORPORATION
92
<PAGE>
BANKERS TRUST NEW YORK CORPORATION
EXHIBIT INDEX TO FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
3. Articles of Incorporation and By-laws, as amended
Restated Certificate of Incorporation of the Registrant filed with
the State of New York on June 9, 1988 (1)
Certificate of Amendment of the Restated Certificate of Incorporation
of the Registrant filed with the State of New York on
August 30, 1989 (1)
Certificate of Amendment of the Restated Certificate of Incorporation
of the Registrant filed with the State of New York on June
14, 1990 (1)
Certificate of Amendment of the Restated Certificate of Incorporation
of the Registrant filed with the State of New York on March
20, 1992 (1)
Certificate of Amendment of the Restated Certificate of Incorporation
of the Registrant filed with the State of New York on October
27, 1992 (1)
Certificate of Amendment of the Restated Certificate of Incorporation
of the Registrant filed with the State of New York on January
21, 1993 (1)
Certificate of Amendment of the Restated Certificate of Incorporation
of the Registrant filed with the State of New York on June
1, 1993 (1)
Certificate of Amendment of the Restated Certificate of Incorporation
of the Registrant filed with the State of New York on August
18, 1993 (2)
By-laws as in effect September 21, 1993 (1)
4. Instruments Defining the Rights of Security Holders, Including
Indentures
(ii) Long-Term Debt Indentures 90
10. Material Contracts
(ii) (D) Leases for Principal Premises Described on Page 86
Lease Agreement relating to the 39-story building known
as One Bankers Trust Plaza (3)
Lease Agreement relating to the 15-story middle annex
adjacent to 280 Park Avenue (3)
Lease Agreement relating to the 42-story office building
adjacent to 280 Park Avenue (3)
Lease Agreement relating to the seven stories of a
37-story building located at 14-16 Wall Street (4)
Lease Agreement relating to the eight-story building
located in Jersey City, New Jersey (5)
Lease Agreement relating to the eight-story building
located in London, England (6)
Lease Agreement relating to the three-story building in
Nashville, Tennessee (7)
Synopsis of the Agreement for Sub-Lease and the Sub-Lease
relating to the 42-story building located in Sydney,
Australia 95
(iii) (A) Compensation, Incentive and Benefit Plans
Change of Control Employment Contract (8)
1991 Stock Option and Stock Award Plan (9)
1985 Stock Option and Stock Award Plan (10)
January, 1989 amendments thereto (8)
Stock Option Plan (1976) (3)
January, 1989 amendments thereto (8)
Additional Capital Accumulation Plan (11)
The Supplemental Executive Retirement Plan (6)
Deferred Compensation Plan for Directors (3)
January, 1989 amendments to the Deferred
Compensation Plan for Directors and
The Supplemental Executive Retirement Plan (8)
12. Statements Re Computation of Ratios
Computation of Consolidated Ratios of Earnings to Fixed Charges 96
Computation of Consolidated Ratios of Earnings to Combined Fixed
Charges and Preferred Stock Dividends Requirements 97
21. Subsidiaries of the Registrant 98
23. Consent of Experts 99
24. Power of Attorney 100
99. Additional Exhibits
(i) Rights Agreement dated as of February 22, 1988 describing the
terms of the Preferred Share Purchase Rights (6)
(NOTE: FOOTNOTE REFERENCES FOR THIS INDEX APPEAR ON THE NEXT PAGE.)
93
<PAGE>
BANKERS TRUST NEW YORK CORPORATION
EXHIBIT INDEX TO FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
FOOTNOTE REFERENCES
(1) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 8-K dated September 24, 1993, file number 1-5920.
(2) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 8-K dated August 6, 1993, file number 1-5920.
(3) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1980, file number
1-5920.
(4) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1986, file number
1-5920.
(5) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1983, file number
1-5920.
(6) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1987, file number
1-5920.
(7) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1992, file number
1-5920.
(8) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1988, file number
1-5920.
(9) This document is incorporated by reference from Bankers Trust New York
Corporation's Registration Statement on Form S-8 (No. 33-41014) as filed on
June 10, 1991.
(10) This document is incorporated by reference from Bankers Trust New York
Corporation's Proxy Statement dated as of March 21, 1988, file number
1-5920.
(11) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1989, file number
1-5920.
94
<PAGE>
EXHIBIT 10
BANKERS TRUST AUSTRALIA LIMITED
THE CHIFLEY TOWER, SYDNEY, AUSTRALIA
SYNOPSIS OF THE AGREEMENT FOR SUB-LEASE AND THE SUB-LEASE
Sublessor: Mid Sydney PTY Limited
Sublessee: Bankers Trust Australia Limited
Term: 12 years, 356 days
Commencement Date: March 23, 1993
Termination Date: March 13, 2006
Early Termination: Applicable to the 3rd floor only-any time after
September 13, 1998 upon 6 months written notice at
sublessee's option
Renewal Options: 2 options to renew, each for a period of 3 years
Area - Total Building: 42 stories, (72.268 square meters)
Area - Demised Premises 9 stories (16,803.5 square meters) with options for
an additional 6 floors
Base Rent (Initial): AUD$10,538,054 (11.95% increase in year 4, 12.49%
increase in year 7)
Second rent period
- 2003: Adjusted to market
Third rent period
- 2004: Indexed to CPI subject to 6% limit
Fourth rent period
through 3/13/06: Indexed to CPI subject to 4% limit
Lessee's Contribution: Proportionate share of building operating expenses -
fixed at AUD$130 per square meter
Cleaning Contribution: Landlord's cost plus proportionate share of areas
outside demised space
Taxes Contribution: Tenant to pay proportionate share of rates
Utilities: To be separately metered
Overtime A/C: For 1994 the charge will be $98 per hour
Extermination: Responsibility of tenant
Rent Commencement Date: March 14, 1994
Landlord's Incentive
Contribution: AUD$40,214,356
Alterations: At tenant's cost with prior approval of landlord
Assignment: Permitted with landlord's approval but not prior to
March 14, 1994 (approval not required if to a related
entity)
Sublet: Permitted with landlord's approval (not required if
to a related entity)
Insurance: Tenant must maintain public risk insurance of not
less than AUD$20 million; plate glass coverage
required other than exterior windows; at tenant's
expense
Carpet Replacement: At landlord's cost at no greater than 10 year
intervals
Restoration: Premises must be left in "clean state and condition";
all personal property must be removed
95
<PAGE>
EXHIBIT 12(a)
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
($ in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
1989 1990 1991 1992 1993
------- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Earnings:
1. Income (loss) before
income taxes and
cumulative effects of
accounting changes $ (815) $ 815 $ 834 $ 906 $1,550
2. Add: Fixed charges
excluding capitalized
interest (Line 10) 4,803 4,826 3,614 3,099 3,148
3. Less: Equity in
undistributed income of
unconsolidated
subsidiaries and
affiliates 14 47 31 40 30
----- ------ ------ ------ ------
4. Earnings including
interest on deposits 3,974 5,594 4,417 3,965 4,668
5. Less: Interest on
deposits 2,253 2,226 1,589 1,119 1,013
------ ------ ------ ------ ------
6. Earnings excluding
interest on deposits $1,721 $3,368 $2,828 $2,846 $3,655
====== ====== ====== ====== ======
Fixed Charges:
7. Interest expense $4,775 $4,799 $3,585 $3,072 $3,122
8. Estimated interest
component of net rental
expense 26 27 29 27 26
9. Amortization of debt
issuance expense 2 - - - -
------ ------ ------ ------ ------
10. Total fixed charges
including interest on
deposits and excluding
capitalized interest 4,803 4,826 3,614 3,099 3,148
11. Add: Capitalized interest 5 - - - -
------ ------ ------ ------ ------
12. Total fixed charges 4,808 4,826 3,614 3,099 3,148
13. Less: Interest on
deposits (Line 5) 2,253 2,226 1,589 1,119 1,013
14. Fixed charges excluding
interest on deposits $2,555 $2,600 $2,025 $1,980 $2,135
====== ====== ====== ====== ======
Consolidated Ratios of Earnings to Fixed Charges:
Including interest on deposits
(Line 4/Line 12) 0.83 1.16 1.22 1.28 1.48
====== ====== ====== ====== ======
Excluding interest on deposits
(Line 6/Line 14) 0.67 1.30 1.40 1.44 1.71
====== ====== ====== ====== ======
</TABLE>
For the year ended December 31, 1989, earnings, as defined above, did not cover
fixed charges, including and excluding interest on deposits, by $834 million as
a result of the 1989 special provision for refinancing country credit losses of
$1.6 billion.
96
<PAGE>
EXHIBIT 12(b)
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
($ in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
1. Income (loss) before income
taxes and cumulative effects of
accounting changes $(815) $ 815 $ 834 $ 906 $1,550
2. Add: Fixed charges excluding
capitalized interest (Line 13) 4,803 4,826 3,614 3,099 3,148
3. Less: Equity in undistributed
income of unconsolidated
subsidiaries and affiliates 14 47 31 40 30
------ ------ ------ ------ ------
4. Earnings including interest on
deposits 3,974 5,594 4,417 3,965 4,668
5. Less: Interest on deposits 2,253 2,226 1,589 1,119 1,013
------ ------ ------ ------ ------
6. Earnings excluding interest on
deposits $1,721 $3,368 $2,828 $2,846 $3,655
====== ====== ====== ====== ======
Preferred Stock Dividend Requirements:
7. Preferred stock dividend
requirements $ 7 $ 31 $ 34 $ 30 $ 23
8. Ratio of income from continuing
operations before income taxes to
income from continuing operations
after income taxes* 127% 123% 125% 142% 145%
------ ------ ------ ------ ------
9. Preferred stock dividend requirements
on a pretax basis $ 9 $ 38 $ 43 $ 43 $ 33
====== ====== ====== ====== ======
Fixed Charges:
10. Interest expense $4,775 $4,799 $3,585 $3,072 $3,122
11. Estimated interest component
of net rental expense 26 27 29 27 26
12. Amortization of debt issuance
expense 2 - - - -
------ ------ ------ ------ ------
13. Total fixed charges including
interest on deposits
and excluding
capitalized interest 4,803 4,826 3,614 3,099 3,148
14. Add: Capitalized interest 5 - - - -
------ ------ ------ ------ ------
15. Total fixed charges 4,808 4,826 3,614 3,099 3,148
16. Add: Preferred stock dividend
requirements - pretax (Line 9) 9 38 43 43 33
------ ------ ------ ------ ------
17. Total combined fixed charges
and preferred stock
dividend requirements on
a pretax basis 4,817 4,864 3,657 3,142 3,181
18. Less: Interest on deposits (Line 5) 2,253 2,226 1,589 1,119 1,013
------ ------ ------ ------ ------
19. Combined fixed charges and
preferred stock dividend requirements
on a pretax basis excluding interest on
deposits $2,564 $2,638 $2,068 $2,023 $2,168
====== ====== ====== ====== ======
Consolidated Ratios of Earnings to Combined
Fixed Charges and Preferred Stock Dividend
Requirements:
Including interest on deposits
(Line 4/Line 17) 0.82 1.15 1.21 1.26 1.47
====== ====== ====== ====== ======
Excluding interest on deposits
(Line 6/Line 19) 0.67 1.28 1.37 1.41 1.69
====== ====== ====== ====== ======
</TABLE>
* Represents income from continuing operations before income taxes, excluding
the 1989 special provision for refinancing country credit losses of $1.6
billion, divided by income from continuing operations after income taxes,
excluding the 1989 special provision for refinancing country credit losses of
$1.6 billion, which adjusts preferred stock dividend requirements to a pretax
basis.
For the year ended December 31, 1989, earnings, as defined above, did not cover
combined fixed charges and preferred stock dividend requirements, including and
excluding interest on deposits, by $843 million as a result of the 1989 special
provision for refinancing country credit losses of $1.6 billion.
97
<PAGE>
EXHIBIT 21
BANKERS TRUST NEW YORK CORPORATION
SUBSIDIARIES OF THE REGISTRANT
DECEMBER 31, 1993
Subsidiary /(1)/ State of Incorporation
---------------- ----------------------
Bankers Trust Company New York
BT Securities Corporation Delaware
BT Holdings (NY) Inc. New York
All other subsidiaries of the Corporation, in the aggregate, would not
constitute a significant subsidiary, as defined.
(1) Subsidiaries' names listed hereon are names under which such subsidiaries do
business.
98
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 2-96104, 33-13278, 33-27498, 33-45699, 33-58340 and 33-50395 and
Form S-8 Nos. 2-67517, 2-97972, 33-20693, 33-21564, 33-41014 and 33-52329) and
related Prospectuses of Bankers Trust New York Corporation of our report dated
January 26, 1994 with respect to the consolidated financial statements of
Bankers Trust New York Corporation included in this Annual Report (Form 10-K)
for the year ended December 31, 1993.
/S/ ERNST & YOUNG
New York, New York
March 10, 1994
99
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of Bankers Trust New York Corporation hereby constitute and appoint
Charles S. Sanford, Jr., Eugene B. Shanks, Jr., George J. Vojta, James J.
Baechle, Timothy T. Yates and James T. Byrne, Jr., or any one of them, their
true and lawful attorney or attorneys and agent or agents, with the power and
authority to sign the names of the undersigned to the Annual Report for the year
1993 of Bankers Trust New York Corporation on Form 10-K pursuant to Section 13
of the Securities and Exchange Act of 1934 and each of the undersigned does
hereby ratify and confirm all that said attorney or attorneys and agent or
agents or any one of them shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents.
February 15, 1994 Bankers Trust New York Corporation
By /S/ CHARLES S. SANFORD, JR.
---------------------------------
Charles S. Sanford, Jr.
Chairman of the Board
/S/CHARLES S. SANFORD, JR.
----------------------------------
Charles S. Sanford, Jr.
Chairman of the Board of Directors
(Principal Executive Officer)
/S/TIMOTHY T. YATES
----------------------------------
Timothy T. Yates
Executive Vice President and
Controller
(Principal Financial Officer)
/S/GEOFFREY M. FLETCHER
----------------------------------
Geoffrey M. Fletcher
Senior Vice President
(Principal Accounting Officer)
100
<PAGE>
February 15, 1994
/S/GEORGE B. BEITZEL Director
----------------------------------
George B. Beitzel
/S/WILLIAM R. HOWELL Director
----------------------------------
William R. Howell
/S/JON M. HUNTSMAN Director
----------------------------------
Jon M. Huntsman
/S/VERNON E. JORDAN, JR. Director
----------------------------------
Vernon E. Jordan, Jr.
/S/HAMISH MAXWELL Director
----------------------------------
Hamish Maxwell
/S/DONALD F. McCULLOUGH Director
----------------------------------
Donald F. McCullough
/S/N.J. NICHOLAS JR. Director
----------------------------------
N.J. Nicholas Jr.
/S/RUSSELL E. PALMER Director
----------------------------------
Russell E. Palmer
/S/DIDIER PINEAU-VALENCIENNE Director
----------------------------------
Didier Pineau-Valencienne
/S/EUGENE B. SHANKS, JR. Director
----------------------------------
Eugene B. Shanks, Jr.
/S/PATRICIA C. STEWART Director
----------------------------------
Patricia C. Stewart
/S/GEORGE J. VOJTA Director
----------------------------------
George J. Vojta
101
