<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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, New York 10017
(Address of principal executive offices) (Zip code)
(212) 250-2500
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the registrant's
classes of common stock as of October 31, 1994: Common Stock, $1 par value,
77,735,966 shares.
<PAGE> 1
BANKERS TRUST NEW YORK CORPORATION
SEPTEMBER 30, 1994 FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income
Three Months Ended September 30, 1994 and 1993 2
Nine Months Ended September 30, 1994 and 1993 3
Consolidated Balance Sheet
At September 30, 1994 and December 31, 1993 4
Consolidated Statement of Changes in Stockholders'
Equity
Nine Months Ended September 30, 1994 and 1993 5
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1994 and 1993 6
Consolidated Schedule of Net Interest Revenue
Three Months and Nine Months Ended
September 30, 1994 and 1993 7
In the opinion of management, all material adjustments
necessary for a fair presentation of the financial position
and results of operations for the interim periods presented
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). The
results of operations for the three months and nine months
ended September 30, 1994 are not necessarily indicative of the
results of operations for the full year or any other interim
period.
The financial statements included in this Form 10-Q should
be read with reference to the Corporation's 1993 Annual Report
as supplemented by the 1994 Forms 10-Q.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 33
SIGNATURE 34
<PAGE> 2
PART I. FINANCIAL INFORMATION
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Increase
THREE MONTHS ENDED SEPTEMBER 30, 1994 1993 (Decrease)
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $1,207 $1,177 $ 30
Interest expense 943 835 108
Net interest revenue 264 342 (78)
Provision for credit losses 17 17 -
Net interest revenue after provision
for credit losses 247 325 (78)
NONINTEREST REVENUE
Trading 278 431 (153)
Fiduciary and funds management 188 183 5
Fees and commissions 163 198 (35)
Securities available for sale gains 28 - 28
Investment securities gains - 3 (3)
Other 50 114 (64)
Total noninterest revenue 707 929 (222)
NONINTEREST EXPENSES
Salaries 200 176 24
Incentive compensation and employee benefits 197 326 (129)
Occupancy, net 40 40 -
Furniture and equipment 42 37 5
Other 234 210 24
Total noninterest expenses 713 789 (76)
Income before income taxes 241 465 (224)
Income taxes 72 155 (83)
NET INCOME $ 169 $ 310 $(141)
NET INCOME APPLICABLE TO COMMON STOCK $ 161 $ 305 $(144)
EARNINGS PER COMMON SHARE:
PRIMARY $1.98 $3.60 $(1.62)
FULLY DILUTED $1.98 $3.60 $(1.62)
Cash dividends declared per common share $.90 $.78 $.12
</TABLE>
<PAGE> 3
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Increase
NINE MONTHS ENDED SEPTEMBER 30, 1994 1993 (Decrease)
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $3,673 $3,265 $ 408
Interest expense 2,730 2,324 406
Net interest revenue 943 941 2
Provision for credit losses 17 70 (53)
Net interest revenue after provision
for credit losses 926 871 55
NONINTEREST REVENUE
Trading 416 1,182 (766)
Fiduciary and funds management 563 518 45
Fees and commissions 540 518 22
Securities available for sale gains 51 - 51
Investment securities gains - 15 (15)
Other 279 262 17
Total noninterest revenue 1,849 2,495 (646)
NONINTEREST EXPENSES
Salaries 566 508 58
Incentive compensation and employee benefits 561 910 (349)
Occupancy, net 115 114 1
Furniture and equipment 118 105 13
Other 682 582 100
Total noninterest expenses 2,042 2,219 (177)
Income before income taxes and
cumulative effects of accounting changes 733 1,147 (414)
Income taxes 219 356 (137)
INCOME BEFORE CUMULATIVE EFFECTS OF
ACCOUNTING CHANGES 514 791 (277)
Cumulative effects of accounting changes - (75) 75
NET INCOME $ 514 $ 716 $ (202)
NET INCOME APPLICABLE TO COMMON STOCK $ 492 $ 699 $ (207)
PRIMARY EARNINGS PER COMMON SHARE:
Income before cumulative effects of
accounting changes $5.97 $9.14 $(3.17)
Cumulative effects of accounting changes - (.88) .88
Net income $5.97 $8.26 $(2.29)
FULLY DILUTED EARNINGS PER COMMON SHARE:
Income before cumulative effects of
accounting changes $5.97 $9.12 $(3.15)
Cumulative effects of accounting changes - (.88) .88
Net income $5.97 $8.24 $(2.27)
Cash dividends declared per common share $2.70 $2.34 $.36
</TABLE>
<PAGE> 4
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in millions, except par value)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,780 $ 1,750
Interest-bearing deposits with banks 3,055 1,638
Federal funds sold 1,256 361
Securities purchased under resale agreements 15,129 9,567
Securities borrowed 5,713 2,937
Trading assets 54,180 48,276
Securities available for sale 7,036 7,073
Loans 12,268 15,200
Allowance for credit losses (1,329) (1,324)
Premises and equipment, net 881 719
Due from customers on acceptances 294 455
Accounts receivable and accrued interest 3,942 2,561
Other assets 3,354 2,869
Total $107,559 $92,082
LIABILITIES
Deposits
Noninterest-bearing
In domestic offices $ 2,972 $ 3,185
In foreign offices 440 707
Interest-bearing
In domestic offices 5,415 7,120
In foreign offices 13,481 11,764
Total deposits 22,308 22,776
Trading liabilities 21,659 9,349
Securities sold under repurchase agreements 25,285 23,834
Other short-term borrowings 20,817 18,992
Acceptances outstanding 294 455
Accounts payable and accrued expenses 3,764 3,771
Other liabilities 2,397 2,524
Long-term debt 6,054 5,597
Total liabilities 102,578 87,298
PREFERRED STOCK OF SUBSIDIARY 250 250
STOCKHOLDERS' EQUITY
Preferred stock 395 250
Common stock, $1 par value
Authorized, 300,000,000 shares
Issued, 83,678,973 shares 84 84
Capital surplus 1,316 1,321
Retained earnings 3,487 3,226
Common stock in treasury, at cost:
1994, 5,935,784 shares; 1993, 3,076,439 shares (441) (233)
Other (110) (114)
Total stockholders' equity 4,731 4,534
Total $107,559 $92,082
</TABLE>
<PAGE> 5
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in millions)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1994 1993
<S> <C> <C>
PREFERRED STOCK
Balance, January 1 $ 250 $ 500
Issuance of Adjustable Rate Cumulative
Preferred Stock, Series Q 200 -
Issuance of Adjustable Rate Cumulative
Preferred Stock, Series R 150 -
Redemption of Adjustable Rate Cumulative
Preferred Stock, Series D (205) -
Redemption of Money Market Cumulative Preferred Stock,
Series E, F, G and H - (250)
Balance, September 30 395 250
COMMON STOCK
Balance, January 1 and September 30 84 84
CAPITAL SURPLUS
Balance, January 1 1,321 1,306
Preferred stock issuance costs (8) -
Common stock distributed under employee
benefit plans 3 11
Balance, September 30 1,316 1,317
RETAINED EARNINGS
Balance, January 1 3,226 2,552
Net income 514 716
Cash dividends declared
Preferred stock (21) (17)
Common stock (213) (193)
Treasury stock distributed under employee benefit plans (19) (27)
Balance, September 30 3,487 3,031
COMMON STOCK IN TREASURY, AT COST
Balance, January 1 (233) (52)
Purchases of stock (262) (208)
Restricted stock granted, net 23 2
Treasury stock distributed under employee benefit plans 31 96
Balance, September 30 (441) (162)
COMMON STOCK ISSUABLE - STOCK AWARDS
Balance, January 1 143 53
Deferred stock awards granted, net 37 78
Deferred stock distributed (1) (1)
Balance, September 30 179 130
DEFERRED COMPENSATION - STOCK AWARDS
Balance, January 1 (47) (54)
Deferred stock awards granted, net (38) (78)
Restricted stock granted, net (20) (2)
Amortization of deferred compensation, net 47 74
Balance, September 30 (58) (60)
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, January 1 (319) (288)
Translation adjustments (57) (14)
Income taxes applicable to translation adjustments 51 (13)
Balance, September 30 (325) (315)
SECURITIES VALUATION ALLOWANCE
Balance, January 1 109 20
Change in unrealized net gains, after applicable
income taxes and minority interest (15) (8)
Balance, September 30 94 12
TOTAL STOCKHOLDERS' EQUITY, SEPTEMBER 30 $4,731 $4,287
</TABLE>
<PAGE> 6
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 514 $ 716
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Cumulative effects of accounting changes - 75
Provision for credit losses 17 70
Provision for policyholder benefits 156 108
Deferred income taxes 1 161
Depreciation and amortization of premises
and equipment 93 79
Other, net (50) 45
Earnings adjusted for noncash charges and credits 731 1,254
Net change in:
Trading assets (5,264) (13,795)
Trading liabilities 12,003 1,689
Receivables and payables from securities
transactions (1,798) 465
Other operating assets and liabilities, net (130) 298
Securities available for sale gains (51) -
Investment securities gains - (15)
Net cash provided by (used in) operating activities 5,491 (10,104)
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits with banks (1,466) 641
Federal funds sold (895) 385
Securities purchased under resale agreements (5,542) (1,580)
Securities borrowed (2,776) 1,626
Loans 2,956 1,696
Securities available for sale:
Purchases (4,358) -
Maturities and other redemptions 2,472 -
Sales 1,575 -
Investment securities:
Purchases - (6,815)
Maturities and other redemptions - 5,553
Sales - 758
Acquisitions of premises and equipment (223) (135)
Other, net (60) (86)
Net cash provided by (used in) investing activities (8,317) 2,043
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in:
Deposits (1,127) (2,699)
Securities sold under repurchase agreements 1,386 4,745
Other short-term borrowings 2,454 5,416
Issuances of long-term debt 1,813 1,670
Repayments of long-term debt (1,387) (430)
Issuance of preferred stock of subsidiary - 247
Issuance of preferred stock 342 -
Redemption of preferred stock (205) (250)
Purchases of treasury stock (262) (208)
Cash dividends paid (237) (212)
Other, net 20 140
Net cash provided by financing activities 2,797 8,419
Net effect of exchange rate changes on cash 59 1
NET INCREASE IN CASH AND DUE FROM BANKS 30 359
Cash and due from banks, beginning of year 1,750 1,384
Cash and due from banks, end of period $ 1,780 $ 1,743
Interest paid $2,755 $2,364
Income taxes paid, net $228 $131
Noncash investing activities $188 $123
Noncash financing activities $23 $-
</TABLE>
Certain prior period amounts have been reclassified to conform to the
current presentation.
<PAGE> 7
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
INTEREST REVENUE
Interest-bearing deposits
with banks $ 27 $ 51 $ 85 $ 167
Federal funds sold 3 9 9 18
Securities purchased under
resale agreements 114 96 318 305
Securities borrowed 56 29 129 110
Trading assets 700 663 2,221 1,706
Securities available for sale
Taxable 76 - 201 -
Exempt from federal income taxes 29 - 72 -
Investment securities
Taxable - 94 - 262
Exempt from federal income taxes - 15 - 46
Loans 202 220 638 651
Total interest revenue 1,207 1,177 3,673 3,265
INTEREST EXPENSE
Deposits
In domestic offices 76 56 183 164
In foreign offices 165 217 467 605
Trading liabilities 180 121 613 292
Securities sold under repurchase
agreements 226 241 674 668
Other short-term borrowings 225 155 603 434
Long-term debt 71 45 190 161
Total interest expense 943 835 2,730 2,324
NET INTEREST REVENUE $ 264 $ 342 $ 943 $ 941
</TABLE>
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Bankers Trust New York Corporation (the "Parent Company") and
subsidiaries (collectively, the "Corporation", or the "Firm") earned $169
million for the quarter ended September 30, 1994, or $1.98 primary earnings
per share. In the third quarter of 1993, the Corporation earned $310
million, or $3.60 primary earnings per share.
For the first nine months of 1994, net income was $514 million, or
$5.97 primary earnings per share. For the nine months ended September 30,
1993, income before cumulative effects of accounting changes was $791
million, or $9.14 primary earnings per share.
On January 1, 1994, the Corporation adopted FASB Interpretation No.
39, "Offsetting of Amounts Related to Certain Contracts." The
Interpretation requires that unrealized gains and losses on swaps,
forwards, options and similar contracts be recognized as assets and
liabilities, except where such gains and losses arise from contracts
covered by qualifying master netting agreements. It was the Corporation's
former policy to record such unrealized gains and losses on a net basis on
the balance sheet. As the result of this adoption, at September 30, 1994
the Corporation's consolidated total assets and total liabilities each
increased by approximately $13 billion. Effective January 1, 1993, the
Corporation adopted 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) in the first quarter of 1993 for the cumulative effects of these
changes in accounting principles.
BUSINESS FUNCTIONS ANALYSIS
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.
The following table breaks down earnings on the basis of the
Corporation's five business functions, which represent its core business
activities and are an important tool for analyzing the results of
operations. Detailed definitions of these categories, as well as a
discussion of the methodology used to calculate their results, appear in
the 1993 Annual Report on Form 10-K.
<PAGE> 9
<TABLE>
<CAPTION>
Business Functions Profitability
(Income Before Cumulative Effects of Accounting Changes - in millions)
Third Second
Qtr. Qtr. Increase Nine Months Increase
1994 1994(Decrease) 1994 1993(Decrease)
<S> <C> <C> <C> <C> <C> <C>
Client Finance $ 19 $ 36 $(17) $ 98 $ 53 $ 45
Client Advisory 4 23 (19) 57 50 7
Client Financial Risk
Management 67 50 17 231 249 (18)
Client Transaction
Processing 20 26 (6) 78 49 29
Trading and Positioning 68 52 16 71 410 (339)
Unallocated (9) (6) (3) (21) (20) (1)
Total $169 $181 $(12) $514 $791 $(277)
</TABLE>
Client Finance - Client Finance income was $19 million in the third
quarter of 1994, down from $36 million in the second quarter. Income for
the first nine months of 1994 rose to $98 million, more than 80 percent
above the results from the comparable nine month period in 1993. The nine
month growth was principally attributable to strong 1994 performance in
loan syndications and high yield bond underwritings, accompanied by a
significant improvement in the credit cost related to the loan portfolio.
The third quarter decline versus the second quarter was principally
attributable to a modest provision for credit losses in the third quarter
and a slowdown in U.S. high-yield bond underwriting.
Client Advisory - Client Advisory income was $4 million in the third
quarter of 1994, a decline of $19 million from the second quarter. Income
rose nearly 15 percent in the first nine months of 1994, to $57 million,
versus the comparable nine month period in 1993. The majority of products,
particularly funds management products in Australia, earned higher revenue
in the first nine months of 1994. Both the private banking and core
investment management areas experienced improved revenue performance during
1994 which was largely offset by increased staffing costs. Performance-
based funds management fees were down from 1993 levels. This function also
produced improved results in 1994 at the Corporation's Chilean insurance
subsidiary, Consorcio Nacional de Seguros S.A. The third quarter decline
versus the second quarter principally was due to the Corporation's
provision for a contingency in the funds management business taken at
September 30, 1994, the impact of which was reflected in the amount
unallocated to business functions at that time. However, subsequent to
this date, the contingency was realized and the effect has been reflected
in the Client Advisory Function. Also contributing to the third quarter
decline was a slight reduction in the profitability of Consorcio and
continued investment in the funds management and risk advisory/risk
merchant banking business.
Client Financial Risk Management - Client Financial Risk Management
income rose during the third quarter of 1994 to $67 million, up from $50
million in the second quarter. Income for the first nine months of 1994
was $231 million, slightly below the record results of $249 million
achieved in the comparable nine-month period in 1993. For the nine months
ended 1994, demand in the emerging markets of Southeast Asia and Latin
America from all types of clients continued to show a substantial increase
<PAGE> 10
and results by major product sub-groupings were all generally comparable
with 1993 levels. The results during the third quarter generally reflected
an improvement in the demand for risk management products from U.S. clients
(principally corporations). During the third quarter, commodity and equity
derivatives in particular continued to show increased performance.
Client Transaction Processing - Client Transaction Processing income
was $20 million in the third quarter of 1994, down $6 million from the
second quarter. Income for the first nine months of 1994 rose nearly 60
percent, to $78 million, from the comparable nine-month period in 1993.
Transaction processing volumes generally remained at levels above the
comparable 1993 periods. However, during the third quarter of 1994,
corporate trust, futures brokerage and securities lending volumes all
declined modestly.
Trading and Positioning - Trading and Positioning income during the
third quarter of 1994 increased $16 million from the second quarter, to $68
million. Income for the first nine months of 1994 was $71 million versus
the record results achieved during the comparable nine-month period in
1993. Although the market conditions continue to remain generally
unfavorable, the third quarter showed improvement principally as a result
of trading in the markets of Latin America and, to a lesser extent, those
throughout Asia.
REVENUE
The table below shows net interest revenue, average balances and
average rates. The tax equivalent adjustment is made to present the
revenue and yields on certain assets, primarily tax-exempt securities and
loans, as if such revenue were taxable.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
NET INTEREST REVENUE (in millions)
Book basis $264 $342 $ 943 $941
Tax equivalent adjustment 18 22 60 57
Fully taxable basis $282 $364 $1,003 $998
AVERAGE BALANCES (in millions)
Interest-earning assets $72,493 $80,121 $75,848 $76,936
Interest-bearing liabilities 70,402 72,625 73,150 69,574
Earning assets financed by
noninterest-bearing funds $ 2,091 $ 7,496 $ 2,698 $ 7,362
AVERAGE RATES (fully taxable basis)
Yield on interest-earning assets 6.70% 5.94% 6.58% 5.77%
Cost of interest-bearing liabilities 5.31 4.56 4.99 4.47
Interest rate spread 1.39 1.38 1.59 1.30
Contribution of noninterest-bearing
funds .15 .42 .18 .43
Net interest margin 1.54% 1.80% 1.77% 1.73%
</TABLE>
<PAGE> 11
REVENUE (continued)
Net interest revenue for the third quarter of 1994 totaled $264
million, down $78 million from the third quarter of 1993. Of this decline,
$63 million was from trading-related net interest revenue, as shown below.
Overall, interest rate spreads remained relatively constant compared with
the comparable 1993 period, however, net interest margin declined due to a
decrease in the level of average interest-earning assets.
Net interest revenue was $943 million for the first nine months of
1994, up $2 million from the first nine months of 1993. The nontrading-
related net interest revenue component for the nine-month period of 1994
was $533 million, up $6 million from the comparable 1993 period. The
Corporation's 29 basis point improvement in interest rate spread was offset
in part by a lower contribution from average non-interest bearing
liabilities.
The corporation views trading revenue and trading-related net interest
revenue in combination, as quantified below (in millions):
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Trading Revenue $278 $431 $416 $1,182
Trading-Related Net
Interest Revenue 112 175 410 414
Total $390 $606 $826 $1,596
</TABLE>
Third Quarter 1994 vs. Third Quarter 1993
This combined total for the third quarter of 1994 was $390 million, a
$216 million decrease from the then-record results achieved in the third
quarter of 1993 but was up $145 million, or 59 percent, from the second
quarter of 1994. The firm's traditional interest, currency and equity risk
management products, along with trading and positioning activities in the
emerging markets of Latin America, contributed to the current quarter's
trading revenue.
Nine Months 1994 vs. Nine Months 1993
For the nine months ended September 30, 1994, the combined trading
revenue and trading-related net interest revenue decreased $770 million.
This decline was primarily attributable to lower revenue from proprietary
trading and positioning activities, as market conditions continued to
remain difficult during the first nine months of 1994. The main areas of
reduced revenue, from the record results achieved during the comparable
nine-month period in 1993, were in interest rate-sensitive securities and
foreign exchange trading. Also positively impacting trading revenue and
net interest revenue for the nine months ended September 30, 1994 was the
sale of Brazilian Brady and Past-Due Interest bonds.
<PAGE> 12
REVENUE (continued)
Shown below is a comparison of the components of noninterest revenue
(in millions).
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, Increase September 30, Increase
1994 1993 (Decrease) 1994 1993 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Trading $278 $431 $(153) $ 416 $1,182 $(766)
Fiduciary and funds
management 188 183 5 563 518 45
Fees and commissions
Corporate finance fees 76 119 (43) 299 299 -
Service charges on
deposit accounts 21 22 (1) 65 69 (4)
Acceptances and letters
of credit commissions 12 13 (1) 33 38 (5)
Other 54 44 10 143 112 31
Total fees and commissions 163 198 (35) 540 518 22
Securities available for
sale gains 28 - 28 51 - 51
Investment securities gains - 3 (3) - 15 (15)
Other noninterest revenue
Insurance premiums 43 30 13 139 95 44
Net revenue from equity
investment transactions,
including write-offs 4 64 (60) 59 122 (63)
Other 3 20 (17) 81 45 36
Total other noninterest
revenue 50 114 (64) 279 262 17
Total noninterest revenue $707 $929 $(222) $1,849 $2,495 $(646)
</TABLE>
Third Quarter 1994 vs. Third Quarter 1993
Fiduciary and funds management revenue totaled $188 million for the
third quarter, up $5 million, or 3 percent, from the same period last year.
Higher revenue resulted from continued growth in global private banking
assets under management, global custody and securities lending. These
results were mostly offset by lower performance-based funds management
fees.
Fees and commissions of $163 million decreased by $35 million, or 18
percent, from the third quarter of 1993. Corporate finance fees decreased
by $43 million, to $76 million, due to decreases in financing and advisory
activities.
Other noninterest revenue totaled $50 million, down $64 million from
the prior year's quarter. This decline was due in part to a $60 million
decrease in net revenue from equity investment transactions. Also
impacting other noninterest revenue at September 30, 1994, was a provision
for a contingency in the funds management business similar to a charge
taken earlier in 1994. Subsequent to this date, the contingency has been
realized. This decline in revenue was offset in part by higher insurance
premium revenue from operations in Chile and an increase in equity in
income of unconsolidated subsidiaries.
<PAGE> 13
Nine Months 1994 vs. Nine Months 1993
Fiduciary and funds management revenue of $563 million increased $45
million, or 9 percent, from the first nine months of 1993. Continued
growth in global private banking assets under management contributed
significantly to this increase. Increases were also recorded by most other
business activities within this revenue category, except for performance-
based funds management fees, which declined during this period.
Fees and commissions increased $22 million, or 4 percent, from the
first nine months of 1993. Corporate finance fees of $299 million were
unchanged from the first nine months of 1993. Higher fees from loan
syndication and private placement activities, were mostly offset by lower
leasing syndication and securities underwriting fees.
Other noninterest revenue totaled $279 million, up $17 million from
the first nine months of 1993. This increase was due to several factors
including a $44 million increase in insurance premium revenue from
operations in Chile, the impact of an insurance settlement related to the
January 1993 fire at the Corporation's headquarters at 280 Park Avenue, a
lower level of losses from the revaluation of non-trading foreign currency
investments and an increase in equity in income of unconsolidated
subsidiaries. These results were offset in part by a $63 million decrease
in net revenue from equity investment transactions as well as the
previously mentioned provision and subsequent realization of a contingency
in the funds management business.
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
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.
The provision for credit losses for the current and prior year third
quarter was $17 million. Net charge-offs for the quarter were $28 million,
down from $33 million a year ago. Nonrefinancing country net charge-offs
for the current quarter were $33 million, which included $32 million of
real estate loans, compared with $45 million in the prior year's third
quarter, which included $27 million of real estate loans. Refinancing
country net recoveries for the third quarter of 1994 were $5 million,
compared with $12 million of net recoveries in last year's third quarter.
For the nine months ended September 30, 1994, the provision for credit
losses was $17 million, down from $70 million for the corresponding period
in the prior year, reflecting the improved trend in asset quality. Total
net charge-offs for the first nine months of 1994 were $12 million,
compared with $205 million a year ago. Nonrefinancing country net charge-
offs were $47 million in the first nine months of 1994, and included $46
million of real estate loans. In the first nine months of 1993, the
Corporation recorded $213 million of nonrefinancing country net charge-
offs, which included charge-offs of $79 million which resulted from the
sale of Mexican government Par Bonds and Discount Bonds, as well as $78
million of real estate loans and $16 million of loans to highly leveraged
borrowers.
<PAGE> 14
PROVISION AND ALLOWANCE FOR CREDIT LOSSES (continued)
The provision for credit losses and the other changes in the allowance
for credit losses are shown below (in millions).
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Allowance for credit losses
Balance, beginning of period $1,340 $1,501 $1,324 $1,620
Net charge-offs
Charge-offs 37 55 75 260
Recoveries 9 22 63 55
Total net charge-offs* 28 33 12 205
Provision for credit losses 17 17 17 70
Balance, end of period $1,329 $1,485 $1,329 $1,485
*Components:
Secured by real estate $12 $ 26 $ 24 $ 76
Real estate related 20 1 22 2
Highly leveraged 1 (1) (8) 16
Other - 19 9 119
Refinancing country (5) (12) (35) (8)
Total $28 $ 33 $ 12 $205
</TABLE>
The allowance for credit losses, at $1.329 billion at September 30,
1994, was down $11 million from its level at June 30, 1994, and was up $5
million from December 31, 1993. The allowance was equal to 192 percent,
180 percent and 136 percent of total cash basis loans at September 30,
1994, June 30, 1994 and December 31, 1993, respectively. The Corporation
believes that its allowance must be viewed in its entirety and therefore is
available for potential credit losses in its entire portfolio, including
loans, credit-related commitments, derivatives and other financial
instruments.
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.
EXPENSES
Third Quarter 1994 vs. Third Quarter 1993
Total noninterest expenses of $713 million decreased by $76 million,
or 10 percent, from the third quarter of 1993. Incentive compensation and
employee benefits expense decreased $129 million, or 40 percent, due almost
entirely to lower bonus expense reflecting the reduced earnings. Salaries
expense increased $24 million, or 14 percent, from the third quarter of
1993. The average number of employees increased by 5 percent versus the
same period, to 14,094. Of this increase, approximately 75 percent was in
business growth areas in BT Australia Limited, Asian merchant banking and
Chilean insurance subsidiaries.
<PAGE> 15
EXPENSES (continued)
All other expenses totaled $316 million for the quarter, up $29
million, or 10 percent, from last year's third quarter. Increases in the
provision for policyholder benefits, agency personnel fees and service
bureaus accounted for substantially all of this increase.
Nine Months 1994 vs. Nine Months 1993
Total noninterest expenses of $2.042 billion for the first nine months
of 1994 decreased by $177 million from the first nine months of 1993.
Incentive compensation and employee benefits expense decreased $349
million, or 38 percent almost entirely due to lower bonus expense
reflecting the reduced earnings. Salaries expense increased $58 million,
or 11 percent, from the first nine months of 1993. The average number of
employees increased by 5 percent versus the same period, to 13,856.
All other expenses for the first nine months of 1994 totaled $915
million, up $114 million, or 14 percent, from the first nine months of
1993. Increases in the provision for policyholder benefits, service
bureaus, agency personnel fees and minority interest accounted for
substantially all of this increase.
INCOME TAXES
Income tax expense for the third quarter of 1994 amounted to $72
million, compared with $155 million for the third quarter of 1993. For the
first nine months of 1994, income tax expense was $219 million, compared
with $356 million for the first nine months of 1993. The effective tax
rate was 30 percent for the quarter and nine months ended September 30,
1994, compared with 33 percent and 31 percent for the quarter and nine
months ended September 30, 1993, respectively. The nine month figure for
1993 excludes the income taxes included in the reported cumulative effects
of accounting changes for SFAS 106 and SFAS 112.
EARNINGS PER COMMON SHARE
Primary and fully diluted earnings per common share amounts were
computed by subtracting from 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 period.
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
<PAGE> 16
EARNINGS PER COMMON SHARE (continued)
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 market price. At no time during the three and nine month
periods ended September 30, 1994 and 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 (in
millions):
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Earnings applicable to common stock:
Income before cumulative effects
of accounting changes $161 $305 $492 $774
Cumulative effects of accounting changes - - - (75)
Net income $161 $305 $492 $699
Average number of common shares
outstanding 78.564 82.159 79.430 82.625
Primary earning per share
Average number of common and common
equivalent shares outstanding 81.377 84.648 82.397 84.656
Fully diluted earnings per share
Average number of common and common
equivalent shares outstanding -
assuming full dilution 81.427 84.792 82.429 84.832
</TABLE>
<PAGE> 17
BALANCE SHEET ANALYSIS
The following table highlights the changes in the balance sheet.
Since quarter-end balances can be distorted by one-day fluctuations, an
analysis of changes in the quarterly averages is provided to give a better
indication of balance sheet trends.
<TABLE>
<CAPTION>
CONDENSED AVERAGE BALANCE SHEETS
(in millions)
3rd Qtr 2nd Qtr 4th Qtr
1994 1994 1993
<S> <C> <C> <C>
ASSETS
Interest-bearing deposits with banks $ 1,164 $ 1,273 $ 2,042
Federal funds sold 326 425 488
Securities purchased under resale
agreements 12,777 13,007 8,791
Securities borrowed 5,136 4,622 2,343
Trading assets 34,151 35,977 41,942
Securities available for sale
Taxable 6,176 4,828 -
Exempt from federal income taxes 1,008 1,389 -
Total securities available for sale 7,184 6,217 -
Investment securities
Taxable - - 5,541
Exempt from federal income taxes - - 1,030
Total investment securities - - 6,571
Loans 11,755 12,586 14,211
Total interest-earning assets 72,493 74,107 76,388
Cash and due from banks 1,970 1,826 1,971
Noninterest-earning trading assets 21,511 19,297 3,772
All other assets 7,728 8,015 6,528
Allowance for credit losses (1,346) (1,349) (1,494)
Total $102,356 $101,896 $87,165
LIABILITIES
Interest-bearing deposits
In domestic offices $ 6,044 $ 6,193 $ 8,511
In foreign offices 11,728 11,144 12,410
Total interest-bearing deposits 17,772 17,337 20,921
Trading liabilities 9,884 9,616 7,430
Securities sold under repurchase agreements 20,092 22,265 21,671
Other short-term borrowings 16,970 16,361 14,504
Long-term debt 5,684 5,618 5,450
Total interest-bearing liabilities 70,402 71,197 69,976
Noninterest-bearing deposits 3,689 3,623 3,932
Noninterest-bearing trading liabilities 17,056 14,748 1,694
All other liabilities 6,147 7,280 6,883
Total liabilities 97,294 96,848 82,485
PREFERRED STOCK OF SUBSIDIARY 250 250 250
STOCKHOLDERS' EQUITY
Preferred stock 448 450 250
Common stockholders' equity 4,364 4,348 4,180
Total stockholders' equity 4,812 4,798 4,430
Total $102,356 $101,896 $87,165
<FN>
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.
</TABLE>
<PAGE> 18
BALANCE SHEET ANALYSIS (continued)
Third Quarter 1994 vs. Second Quarter 1994
The Corporation's average total assets amounted to $102.4 billion for
the third quarter of 1994, an increase of $460 million from the second
quarter of 1994. Average interest-earning assets decreased $1.6 billion,
or 2 percent, and the proportion of interest-earning assets to total assets
decreased slightly, from 73 percent to 71 percent. The decrease in
interest-earning assets was primarily due to the decrease in interest-
earning trading assets (down $1.8 billion, or 5 percent). As a percentage
of average total assets, interest-earning trading assets decreased from 35
percent to 33 percent in the third quarter of 1994.
Interest-bearing liabilities decreased $795 million from the second
quarter of 1994. This decrease was primarily attributable to a decrease in
securities sold under repurchase agreements (down $2.2 billion, or 10
percent) offset in part by increases in other short-term borrowings (up
$609 million, or 4 percent) and total interest-bearing deposits (up $435
million, or 3 percent). Total short-term borrowings (securities sold under
repurchase agreements and other short-term borrowings) as a percentage of
total interest-bearing liabilities decreased slightly to 53 percent, from
54 percent in the second quarter of 1994.
Third Quarter 1994 vs. Fourth Quarter 1993
The Corporation's average total assets for the third quarter of 1994,
increased $15.2 billion, or 17 percent, from the fourth quarter of 1993.
Noninterest-earning trading assets increased $17.7 billion due primarily to
the adoption of FASB Interpretation No. 39, effective January 1, 1994.
Average interest-earning assets decreased $3.9 billion and the proportion
of interest-earning assets to total assets decreased, from 88 percent to 71
percent, due primarily to the adoption of FASB Interpretation No. 39. The
decrease in interest-earning assets was primarily due to decreases in
interest-earning trading assets (down $7.8 billion, or 19 percent) and
loans (down $2.5 billion, or 17 percent) offset by increases in securities
purchased under resale agreements (up $4.0 billion, or 45 percent) and
securities borrowed (up $2.8 billion, or 119 percent). As a percentage of
average total assets, interest-earning trading assets decreased from 48
percent to 33 percent in the third quarter of 1994, while loans decreased
from 16 percent to 11 percent.
Average total liabilities increased $14.8 billion, or 18 percent, from
the fourth quarter of 1993. Noninterest-bearing trading liabilities
increased $15.4 billion due primarily to the adoption of FASB
Interpretation No. 39. Interest-bearing liabilities increased $426 million
from last year's fourth quarter. This increase was primarily attributable
to higher levels of trading liabilities (up $2.5 billion, or 33 percent)
and other short-term borrowings (up $2.5 billion, or 17 percent) offset by
a decrease in total interest-bearing deposits (down $3.1 billion, or 15
percent). Total short-term borrowings (securities sold under repurchase
agreements and other short-term borrowings) as a percentage of total
interest-bearing liabilities increased slightly to 53 percent, from 52
percent in the fourth quarter of 1993.
<PAGE> 19
BALANCE SHEET ANALYSIS (continued)
Trading Assets and Trading Liabilities
The components of these accounts, which are carried at market value,
were as follows (in millions):
<TABLE>
<CAPTION>
September 30,December 31,
1994 1993
<S> <C> <C>
TRADING ASSETS
U.S. government and agency securities $17,015 $19,648
Obligations of U.S. states and
political subdivisions 158 494
Foreign government securities 7,045 13,229
Corporate debt securities 6,147 5,565
Equity securities 4,316 3,804
Bankers acceptances and certificates
of deposit 1,707 2,178
Swaps, options and other
derivative contracts (1) 14,300 732
Other 3,492 2,626
Total trading assets $54,180 $48,276
TRADING LIABILITIES
Securities sold, not yet purchased
U.S. government and agency securities $ 5,236 $4,023
Foreign government securities 1,725 3,099
Equity securities 2,370 1,644
Other 361 583
Swaps, options and other
derivative contracts (1) 11,967 -
Total trading liabilities $21,659 $9,349
<FN>
(1)Comprised of fair values of interest rate instruments, foreign exchange
rate instruments, and equity and commodity instruments, reduced by the
effects of master netting agreements, in accordance with FASB
Interpretation No. 39, at September 30, 1994. At December 31, 1993, prior
to the adoption of FASB Interpretation No. 39, the Corporation's policy
was to record the unrealized gains and losses on these contracts on a net
basis.
</TABLE>
<PAGE> 20
BALANCE SHEET ANALYSIS (continued)
Securities Available for Sale
The fair value, amortized cost and gross unrealized holding gains and
losses for the Corporation's securities available for sale follow (in
millions):
<TABLE>
<CAPTION>
September 30, June 30,December 31,
1994 1994 1993
<S> <C> <C> <C>
Fair value $7,036 $6,961 $7,073
Amortized cost 6,855 6,783 6,898
Excess of fair value over
amortized cost (1) $ 181 $ 178 $ 175
(1) Components:
Unrealized gains $240 $254 $ 308
Unrealized losses (59) (76) (133)
$181 $178 $ 175
</TABLE>
Long-term Debt
During the third quarter of 1994, the Corporation obtained $897
million of cash proceeds from the issuances of long-term debt and repaid
$429 million of long-term debt. The larger of these debt issuances were as
follows (in millions):
<TABLE>
<CAPTION>
Face Amount
<S> <C>
Parent Company
Japanese Yen Libor Linked Notes
due December 1995 to October 2001 $158
Bankers Trust Company
Redeemable Preference Securities due September 1996 $433
</TABLE>
<PAGE> 21
BALANCE SHEET ANALYSIS (continued)
Preferred Stock Issuance/Redemption
On August 22, 1994, the Parent Company issued $150 million, or 6
million depositary shares at $25 per share, each representing a one-
hundredth interest in a share of Adjustable Rate Cumulative Preferred
Stock, Series R (Liquidation Preference - $2,500 per share) ("Series R").
At the option of the Parent Company, the Series R may be redeemed, in whole
or in part, on or after September 1, 1999, at $2,500 per share (or $25 per
depositary share), plus, in each case, accrued and unpaid dividends to the
redemption date. 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 R are cumulative and payable quarterly on
March 1, June 1, September 1 and December 1 of each year. The dividend
rate 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. In no event will the dividend rate be less than 4 1/2 percent per
annum.
A more detailed description of the terms of the Series R is contained
in the Prospectus, as supplemented, which was filed with the Securities and
Exchange Commission.
During the third quarter of 1994, the Parent Company redeemed its
Fixed/Adjustable Rate Cumulative Preferred Stock, Series D.
As a result of the issuance and redemption of preferred stock during
the quarter, the preferred stock component of total stockholders' equity
decreased by $55 million.
<PAGE> 22
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 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.
At September 30, 1994, total net end-user derivative unrealized losses
were $297 million, compared to $199 million of total net end-user
derivative unrealized losses at June 30, 1994. The $98 million increase
during the third quarter of 1994 was due to significant increases in
interest rates.
The following table provides the gross gains and gross losses not yet
recognized in the financial statements for end-user derivatives applicable
to certain hedged assets and liabilities (in millions):
<TABLE>
<CAPTION>
Other
short-
Interest- term Long-
Other bearing borrow- term
September 30, 1994 assets deposits ings debt Total
<S> <C> <C> <C> <C> <C>
Interest Rate Swap
Pay Variable Unrealized Gain $- $ 29 $ 2 $ 33 $ 64
Pay Variable Unrealized (Loss) - (118) (4) (170) (292)
Pay Variable Net - (89) (2) (137) (228)
Pay Fixed Unrealized Gain - 56 - 13 69
Pay Fixed Unrealized (Loss) - (48) - (29) (77)
Pay Fixed Net - 8 - (16) (8)
Total Unrealized Gain - 85 2 46 133
Total Unrealized (Loss) - (166) (4) (199) (369)
Total Net $- $ (81) $(2) $(153) $(236)
Currency Swap
Unrealized Gain $- $ 4 $ 1 $ 13 $ 18
Unrealized (Loss) - (6) (1) (17) (24)
Net $- $(2) $ - $ (4) $ (6)
Equity Swap/Collar
Unrealized Gain $ 8 $- $- $- $ 8
Unrealized (Loss) (63) - - - (63)
Net $(55) $- $- $- $(55)
Total Unrealized Gain $ 8 $ 89 $ 3 $ 59 $ 159
Total Unrealized (Loss) (63) (172) (5) (216) (456)
Total Net $(55) $ (83) $(2) $(157) $(297)
</TABLE>
<PAGE> 23
END-USER DERIVATIVES (continued)
Derivatives which are used to manage the risks associated with
securities available for sale are carried at fair value. The unrealized
gains and unrealized losses on derivatives included in securities available
for sale amounted to $40 million and $20 million, respectively, at
September 30, 1994, with the corresponding offset to securities valuation
allowance in stockholders' equity.
End-user derivatives used to manage foreign exchange risk associated
with net investments in foreign subsidiaries generated a net unrealized
loss of $14 million.
For pay variable and pay fixed interest rate swaps entered into as end
user, the weighted average receive rate and weighted average pay rate
(interest rates were based on the weighted averages of both U.S. and non-
U.S. currencies) by maturity and corresponding notional amounts at
September 30, 1994 were as follows ($ in millions):
<TABLE>
<CAPTION>
Notional
Amount Paying Variable Paying Fixed
Maturing Notional Receive Pay Notional Receive Pay Total
In: Amount Rate Rate Amount Rate Rate Notional
<S> <C> <C> <C> <C> <C> <C> <C>
1994 $ 2,772 4.48% 5.00% $1,290 4.96% 5.17% $ 4,062
1995-1996 10,616 5.44 4.88 3,504 4.46 5.80 14,120
1997-1998 3,424 5.51 4.94 1,647 4.65 6.09 5,071
1999 and thereafter 4,963 6.09 5.09 1,876 4.60 6.96 6,839
Total $21,775 $8,317 $30,092
<FN>
All rates were those in effect at September 30, 1994.
</TABLE>
<PAGE> 24
REGULATORY CAPITAL
The Federal Reserve Board's capital adequacy guidelines mandate that
minimum ratios ("FRB Minimum Regulatory Guidelines") be maintained by bank
holding companies and banks. The Corporation's 1993 Annual Report on Form
10-K, on page 39, provides a detailed discussion of both these regulatory
capital guidelines and the federal bank regulations regarding capital tiers
under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") for the Corporation's bank subsidiaries.
Based on their respective regulatory capital ratios at September 30,
1994, both Bankers Trust Company ("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.
All three regulatory capital ratios, at both September 30, 1994 and
December 31, 1993, excluded any benefit from the adoption of SFAS 115.
The table below indicates the regulatory capital ratios of the
Corporation and BTCo. and the minimum regulatory guidelines.
<TABLE>
<CAPTION>
FRB
Minimum
September 30, December 31, Regulatory
1994 1993 Guidelines
<S> <C> <C> <C>
CORPORATION
Risk-Based Ratios
Tier 1 Capital 8.22% 8.50% 4.0%
Total Capital 13.48% 14.46% 8.0%
Leverage Ratio 5.54% 6.28% 3.0%
BTCo.
Risk-Based Ratios
Tier 1 Capital 9.24% 9.38% 4.0%
Total Capital 12.10% 12.96% 8.0%
Leverage Ratio 6.09% 6.01% 3.0%
</TABLE>
The following were the essential components of the Corporation's risk-
based capital ratios (in millions):
<TABLE>
<CAPTION>
September 30,December 31,
1994 1993
<S> <C> <C>
Tier 1 Capital $4,393 $4,072
Tier 2 Capital 2,809 2,859
Total Capital $7,202 $6,931
Total risk-weighted assets $53,413 $47,916
</TABLE>
<PAGE> 25
REGULATORY CAPITAL (continued)
During the first nine months of 1994, each of the Corporation's three
regulatory capital ratios declined. The Tier 1 Capital and Total Capital
ratios declined by 28 basis points and 98 basis points, respectively, as
the increase in capital was more than offset by the increase in total risk-
weighted assets. The Leverage Ratio decreased by 74 basis points as a
result of a 22 percent increase in quarterly average total assets,
primarily due to the adoption of FASB Interpretation No. 39. The $321
million increase in Tier 1 Capital was primarily attributable to the
retention of earnings, the issuance of Series Q and Series R Preferred
Stock and the inclusion of net deferred tax assets which are permissible
for regulatory capital offset in part by the redemption of Series D
Fixed/Adjustable Rate Cumulative Preferred Stock and the Corporation's
previously announced stock repurchase plan. The Corporation's total risk-
weighted assets at September 30, 1994 were $5.497 billion higher than at
year-end 1993.
LIQUIDITY
Liquidity management at the Corporation focuses on both asset
liquidity and liability management. Enhancing asset liquidity remains a
particularly important element of our liquidity management philosophy. At
the same time, management is continually seeking opportunities to further
diversify the Corporation's funding sources.
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 assets and securities available
for sale. At September 30, 1994, the Corporation's liquid assets amounted
to $88.1 billion, or 81 percent of gross total assets, compared with 81
percent and 77 percent, respectively, at June 30, 1994 and December 31,
1993.
Cash Flows
The following comments apply to the consolidated statement of cash
flows, which appears on page 6.
Cash and due from banks increased $30 million during the first nine
months of 1994, as the net cash used in investing activities exceeded the
sum of net cash provided by operating and financing activities. The $8.3
billion of net cash used in investing activities was largely the result of
cash outflows from net changes in securities purchased under resale
agreements ($5.5 billion), as well as from purchases of securities
available for sale ($4.4 billion) and net changes in securities borrowed
($2.8 billion). These factors were partially offset by cash inflows from
sales, maturities and other redemptions of securities available for sale
($4.0 billion). The $5.5 billion of net cash provided by operating
activities primarily resulted from a $6.7 billion net change in trading
assets and liabilities. Within the financing activities category, cash
inflows from the net changes in other short-term borrowings ($2.5 billion),
as well as from the issuance of long-term debt ($1.8 billion) and net
changes in securities sold under repurchase agreements ($1.4 billion) were
offset in part by cash outflows from repayments of long-term debt ($1.4
billion) and the net change in deposits ($1.1 billion).
<PAGE> 26
LIQUIDITY (continued)
For the nine months ended September 30, 1993, cash and due from banks
increased $359 million, as the sum of net cash provided by financing and
investing activities exceeded the net cash used in operating activities.
The $8.4 billion of net cash provided by financing activities resulted from
increases of $5.4 billion in other short-term borrowings and $4.7 billion
in securities sold under repurchase agreements, partially offset by a $2.7
billion decrease in deposits. Within the investing activities category,
cash inflows from sales, maturities and other redemptions of investment
securities ($6.3 billion) and net changes in loans ($1.7 billion) and
securities borrowed ($1.6 billion) were offset in part by cash outflows
from purchases of investment securities ($6.8 billion) as well as net
changes in securities purchased under resale agreements ($1.6 billion).
The $10.1 billion of net cash used in operating activities primarily
resulted from a $12.1 billion increase in net trading assets, offset in
part by $1.3 billion of earnings adjusted for noncash charges and credits.
Interest Rate Sensitivity
Condensed interest rate sensitivity data for the Corporation at
September 30, 1994 is presented in the table below. For purposes of this
presentation, the interest-earning/bearing components of trading assets and
trading liabilities are assumed to reprice within three months.
Since the interest rate 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 Non-
interest-
Within 1 - 5 After bearing
(in billions) September 30, 1994 1 year years 5 years funds Total
<S> <C> <C> <C> <C> <C>
Assets $ 74.3 $ 2.3 $ 3.1 $ 27.9 $ 107.6
Liabilities, preferred stock
of subsidiary and preferred
stock (73.2) (4.1) (1.6) (24.3) (103.2)
Common stockholders' equity - - - (4.4) (4.4)
Effect of off-balance sheet
hedging instruments (3.8) 3.0 .8 - -
Interest rate sensitivity gap $ (2.7) $ 1.2 $ 2.3 $ (.8) $ -
</TABLE>
<PAGE> 27
NONPERFORMING ASSETS
The components of cash basis loans, renegotiated loans, other real
estate and other nonperforming assets are shown below ($ in millions).
<TABLE>
<CAPTION>
September 30,December 31,
1994 1993
<S> <C> <C>
CASH BASIS LOANS (NONREFINANCING COUNTRY)
Domestic
Commercial and industrial $179 $285
Secured by real estate 278 306
Financial institutions 25 30
Total domestic 482 621
International
Commercial and industrial 120 84
Secured by real estate 87 149
Other 2 2
Total international 209 235
Total cash basis loans (nonrefinancing country) 691 856
CASH BASIS LOANS (REFINANCING COUNTRY)
International 2 118
Total cash basis loans $693 $974
Ratio of cash basis loans to total loans 5.6% 6.4%
Ratio of allowance for credit losses to cash
basis loans 192% 136%
RENEGOTIATED LOANS
Highly leveraged $ - $ 6
Secured by real estate 13 14
Other nonrefinancing country 1 1
Total renegotiated loans $14 $21
OTHER REAL ESTATE $330 $287
OTHER NONPERFORMING ASSETS
Assets acquired in credit workouts $54 $ 85
Nonperforming derivative contracts 13 16
Total other nonperforming assets $67 $101
Loans 90 days or more past due and still
accruing interest $16 $40
</TABLE>
<PAGE> 28
NONPERFORMING ASSETS (continued)
An analysis of the changes in the Corporation's total cash basis loans
during the first nine months of 1994 follows (in millions).
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1993 $974
Net transfers from accrual status 86
Net paydowns (93)
Charge-offs (71)
Transfers to other real estate (72)
Transfers to other nonperforming assets (2)
Loan sales (47)
Other (82)
Balance, September 30, 1994 $693
</TABLE>
The Corporation's total cash basis loans amounted to $693 million at
September 30, 1994, down $281 million, or 29 percent, from December 31,
1993. Nonrefinancing country cash basis loans decreased $165 million and
the refinancing country component of the cash basis portfolio decreased
$116 million during the first nine months of 1994.
Within total nonrefinancing country cash basis loans were loans
secured by real estate of $365 million and $455 million at September 30,
1994 and December 31, 1993, respectively. Also within nonrefinancing
country cash basis loans, real estate related loans (included within the
domestic commercial and industrial category in the table on page 27)
decreased $31 million, to $27 million, during the first nine months of
1994. Other real estate increased by $43 million and assets acquired in
credit workouts decreased by $31 million during the same period.
<PAGE> 29
NONPERFORMING ASSETS (continued)
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 September 30 of each
year. The rates used in determining the gross amount of interest that
would have been recorded at the original rate were not necessarily
representative of current market rates.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(in millions) 1994 1993
<S> <C> <C>
Domestic Loans
Gross amount of interest that would have
been recorded at original rate $30 $44
Less, interest, net of reversals, recognized
in interest revenue 3 6
Reduction of interest revenue 27 38
International Loans
Gross amount of interest that would have
been recorded at original rate 12 38
Less, interest, net of reversals, recognized
in interest revenue 3 42
Reduction of (Increase in) interest revenue 9 (4)
Total reduction of interest revenue $36 $34
</TABLE>
<PAGE> 30
HIGHLY LEVERAGED TRANSACTIONS
Amounts included in the table and discussion which follow are
generally based on the definition that the Corporation uses in order to
monitor the extent of its exposure to highly leveraged transactions
("HLTs"). The Corporation's 1993 Annual Report on Form 10-K, on page 45,
provides a detailed discussion of the definition.
<TABLE>
<CAPTION>
Highly Leveraged Transactions
September 30, December 31,
(in millions) 1994 1993
<S> <C> <C>
Loans
Senior debt $685 $1,314
Subordinated debt 124 126
Total loans $809 $1,440
Unfunded commitments
Commitments to lend $240 $603
Letters of credit 183 201
Total unfunded commitments $423 $804
Equity investments $401 $477
Commitments to invest $165 $127
</TABLE>
The Corporation's outstanding loans were to 83 separate borrowers in
33 separate industry groups at September 30, 1994, compared to 105 separate
borrowers in 35 separate industry groups at December 31, 1993. Processed
foods and beverages, at 12 percent, was the only industry concentration
which exceeded 10 percent of total HLT loans outstanding at September 30,
1994.
In addition to the amounts shown in the table above, at September 30,
1994, the Corporation had issued commitment letters which had been
accepted, subject to documentation and certain other conditions, of $2.1
billion (which were in various stages of syndication) and had additional
HLTs in various stages of discussion and negotiation.
During the first nine months of 1994, the Corporation originated $1.2
billion of HLT commitments, of which $413 million were sold, syndicated or
participated, on a non-recourse basis.
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
September 30, 1994 was less than $10 million. However, at September 30,
1994, the Corporation had total exposure (loans outstanding plus unfunded
commitments) in excess of $50 million to 6 separate highly leveraged
borrowers.
<PAGE> 31
HIGHLY LEVERAGED TRANSACTIONS (continued)
At September 30, 1994, $188 million of the HLT loan portfolio was on a
cash basis. In addition, $6 million of the equity investments in HLT
companies represented assets acquired in credit workouts, which are
reported as other nonperforming assets. Net recoveries of $8 million of
HLT loans were recorded in the first nine months of 1994. In addition, the
Corporation recorded a net gain of $40 million in connection with the sales
and/or write-offs of its equity investments in highly leveraged companies
during the first nine months of 1994.
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 HLTs were approximately
$70 million during the first nine months of 1994 and that as of September
30, 1994, approximately $12 million of fees were deferred and will be
recognized as future revenue.
During the first quarter of 1994, the Corporation transferred
approximately $238 million of outstanding loans to highly leveraged
borrowers from its loan portfolio to trading. The transferred loans were
carried at market value upon transfer to trading. None of the loans was
classified as a nonperforming asset at the time of transfer. These and
other trading assets have been excluded from the Corporation's HLT
outstandings at September 30, 1994 as reported above. No significant
impact on earnings was recorded as a result of this transfer.
<PAGE> 32
RECENT DEVELOPMENTS
Following the sharp increase in interest rates in the first quarter
of this year, various counterparties experienced losses in connection with
leveraged derivatives transactions they had entered into with certain
subsidiaries of the Corporation. Various cases, which are being contested,
have been brought against these subsidiaries seeking damages and other
remedies. In addition, various regulatory authorities are investigating
these events, and the Corporation is cooperating in those investigations.
Finally, two shareholder derivative actions have been filed in connection
with these events.
The Corporation cannot predict the effect on the derivatives business
generally, or the Corporation's derivative business in particular, of these
events or of the current legislative, regulatory and media attention being
given to the derivatives industry.
<PAGE> 33
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(4) Instruments Defining the Rights of Security Holders,
Including Indentures
(v) - The Corporation hereby agrees to furnish to the
Commission, upon request, a copy of any instru-
ments defining the rights of holders of long-term
debt issued by Bankers Trust New York Corporation
or its subsidiaries.
(12) Statement re Computation of Ratios
(27) Financial Data Schedule
(b) Reports on Form 8-K - Bankers Trust New York Corporation filed
two reports on Form 8-K during the quarter ended September 30,
1994.
- The report dated July 22, 1994 filed the Corporation's Press
Release dated July 22, 1994, which announced earnings for the
quarter ended June 30, 1994.
- The report dated August 12, 1994 filed an underwriting agreement
covering the issuance and sale by Bankers Trust New York
Corporation of 6,000,000 Depositary Shares, each representing a
one-hundredth interest in a share of Adjustable Rate Cumulative
Preferred Stock, Series R and various other exhibits related to
the issuance.
<PAGE> 34
SIGNATURE
Pursuant to the requirements 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 November 14, 1994.
BANKERS TRUST NEW YORK CORPORATION
BY: GEOFFREY M. FLETCHER
Geoffrey M. Fletcher
Senior Vice President and
Principal Accounting Officer
<PAGE>
<TABLE>
EXHIBIT 12(a)
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
(dollars in millions)
<CAPTION>
Nine
Months
Ended
Year Ended December 31, Sept. 30,
1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
Earnings:
1. Income (loss) before
income taxes and
cumulative effects
of accounting
changes $ (815) $ 815 $ 834 $ 906 $1,550 $ 733
2. Add: Fixed charges
excluding
capitalized
interest
(Line 10) 4,803 4,826 3,614 3,099 3,148 2,750
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 14 47 31 40 30 33
4. Earnings including
interest on deposits 3,974 5,594 4,417 3,965 4,668 3,450
5. Less: Interest on
deposits 2,253 2,226 1,589 1,119 1,013 650
6. Earnings excluding
interest on deposits$1,721 $3,368 $2,828 $2,846 $3,655 $2,800
Fixed Charges:
7. Interest Expense $4,775 $4,799 $3,585 $3,072 $3,122 $2,730
8. Estimated interest
component of net
rental expense 26 27 29 27 26 20
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 2,750
11. Add: Capitalized
interest 5 - - - - -
12. Total fixed charges 4,808 4,826 3,614 3,099 3,148 2,750
13. Less: Interest on
deposits
(Line 5) 2,253 2,226 1,589 1,119 1,013 650
14. Fixed charges excluding
interest on deposits $2,555 $2,600 $2,025 $1,980 $2,135 $2,100
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 1.25
Excluding interest on
deposits
(Line 6/Line 14) 0.67 1.30 1.40 1.44 1.71 1.33
<FN>
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.
</TABLE>
<PAGE>
<TABLE>
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
(dollars in millions)
<CAPTION>
Nine
Months
Ended
Year Ended December 31, Sept. 30,
1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
Earnings:
1. Income (loss) before
income taxes and
cumulative effect
of accounting
changes $ (815) $ 815 $ 834 $ 906 $1,550 $ 733
2. Add: Fixed charges
excluding
capitalized
interest
(Line 13) 4,803 4,826 3,614 3,099 3,148 2,750
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 14 47 31 40 30 33
4. Earnings including
interest on deposits 3,974 5,594 4,417 3,965 4,668 3,450
5. Less: Interest on
deposits 2,253 2,226 1,589 1,119 1,013 650
6. Earnings excluding
interest on deposits$1,721 $3,368 $2,828 $2,846 $3,655 $2,800
Preferred Stock Dividend Requirements:
7. Preferred stock dividend
requirements $ 7 $ 31 $ 34 $ 30 $ 23 $ 22
8. Ratio of income from
continuing operations
before income taxes to
income from continuing
operations after income
taxes * 127% 123% 125% 142% 145% 143%
9. Preferred stock dividend
requirements on a pretax
basis $ 9 $ 38 $ 43 $ 43 $ 33 $ 31
Fixed Charges:
10. Interest Expense $4,775 $4,799 $3,585 $3,072 $3,122 $2,730
11. Estimated interest
component of net
rental expense 26 27 29 27 26 20
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 2,750
14. Add: Capitalized
interest 5 - - - - -
15. Total fixed charges 4,808 4,826 3,614 3,099 3,148 2,750
16. Add: Preferred stock
dividend require-
ments - pretax
(Line 9) 9 38 43 43 33 31
<PAGE>
17. Total combined fixed
charges and preferred
stock dividend require-
ments on a pretax
basis 4,817 4,864 3,657 3,142 3,181 2,781
18. Less: Interest on
deposits
(Line 5) 2,253 2,226 1,589 1,119 1,013 650
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 $2,131
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 1.24
Excluding interest on
deposits
(Line 6/Line 19) 0.67 1.28 1.37 1.41 1.69 1.31
<FN>
* 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.
</TABLE>
<PAGE>
BANKERS TRUST NEW YORK CORPORATION
280 PARK AVENUE
NEW YORK, NEW YORK 10017
Geoffrey M. Fletcher
Senior Vice President and
Principal Accounting Officer
November 14, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
Accompanying this letter is Bankers Trust New York Corporation's
quarterly report on Form 10-Q for the quarter ended September 30, 1994 (the
"Form 10-Q"). The Form 10-Q is being filed electronically through the
EDGAR System.
If there are any question or comments in connection with the enclosed
filing, please contact the undersigned at 212-250-7098.
Very truly yours,
BANKERS TRUST NEW YORK CORPORATION
By: GEOFFREY M. FLETCHER
Geoffrey M. Fletcher
Senior Vice President and
Principal Accounting Officer
Attachment
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS QTR-3
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-START> JAN-01-1994 JUL-01-1994
<PERIOD-END> SEP-30-1994 SEP-30-1994
<CASH> 1,780 1,780
<INT-BEARING-DEPOSITS> 3,055 3,055
<FED-FUNDS-SOLD> 16,385 16,385
<TRADING-ASSETS> 54,180 54,180
<INVESTMENTS-HELD-FOR-SALE> 7,036 7,036
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 12,268 12,268
<ALLOWANCE> (1,329) (1,329)
<TOTAL-ASSETS> 107,559 107,559
<DEPOSITS> 22,308 22,308
<SHORT-TERM> 46,102 46,102
<LIABILITIES-OTHER> 6,161 6,161
<LONG-TERM> 6,054 6,054
<COMMON> 84 84
0 0
395 395
<OTHER-SE> 4,252 4,252
<TOTAL-LIABILITIES-AND-EQUITY> 107,559 107,559
<INTEREST-LOAN> 638 202
<INTEREST-INVEST> 273 105
<INTEREST-OTHER> 814 305
<INTEREST-TOTAL> 3,673 1,207
<INTEREST-DEPOSIT> 650 241
<INTEREST-EXPENSE> 2,730 943
<INTEREST-INCOME-NET> 943 264
<LOAN-LOSSES> 17 17
<SECURITIES-GAINS> 51 28
<EXPENSE-OTHER> 2,042 713
<INCOME-PRETAX> 733 241
<INCOME-PRE-EXTRAORDINARY> 733 241
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 514 169
<EPS-PRIMARY> 5.97 1.98
<EPS-DILUTED> 5.97 1.98
<YIELD-ACTUAL> 1.77 1.54
<LOANS-NON> 693 693
<LOANS-PAST> 16 16
<LOANS-TROUBLED> 14 14
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 1,324 1,340
<CHARGE-OFFS> 75 37
<RECOVERIES> 63 9
<ALLOWANCE-CLOSE> 1,329 1,329
<ALLOWANCE-DOMESTIC> 167 167
<ALLOWANCE-FOREIGN> 232 232
<ALLOWANCE-UNALLOCATED> 930 930
</TABLE>
