BANKERS TRUST NEW YORK CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Pages 1-35 represent portions of the 1996 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 113 and 114,
respectively.
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TABLE 1 FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
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<CAPTION>
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($ in millions, except per share data) 1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net interest revenue (book basis) $ 966 $ 817 $ 1,172 $ 1,314 $ 1,147
Noninterest revenue 3,199 2,423 2,473 3,364 2,331
Income before cumulative effects of accounting changes $ 612 $ 215 $ 615 $ 1,070 $ 639
Cumulative effects of accounting changes -- -- -- (75) 446
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Net income $ 612 $ 215 $ 615 $ 995 $ 1,085
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PER COMMON SHARE
Primary Earnings Per Share
Income before cumulative effects of accounting changes $ 6.78 $ 2.03 $ 7.17 $ 12.40 $ 7.23
Cumulative effects of accounting changes -- -- -- (.89) 5.30
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Net income $ 6.78 $ 2.03 $ 7.17 $ 11.51 $ 12.53
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Fully Diluted Earnings Per Share
Income before cumulative effects of accounting changes $ 6.74 $ 2.02 $ 7.17 $ 12.29 $ 7.22
Cumulative effects of accounting changes -- -- -- (.88) 5.29
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Net income $ 6.74 $ 2.02 $ 7.17 $ 11.41 $ 12.51
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Cash dividends declared $ 4.00 $ 4.00 $ 3.70 $ 3.24 $ 2.88
--as a percentage of net income (1) 59 % 198 % 52 % 26 % 40 %
Book value, end of year 53.27 50.58 53.67 51.90 43.23
Market price
High 90 7/8 72 84 5/8 83 1/2 70 1/8
Low 61 49 3/4 54 3/4 65 3/4 50
End of year 86 1/4 66 1/2 55 3/8 79 1/8 68 1/2
Price/earnings ratio, end of year (1) 12.7 x 32.8 x 7.7 x 6.4 x 9.5 x
Cash dividend yield, end of year 4.6 % 6.0 % 7.2 % 4.5 % 4.6 %
AT YEAR END
Total assets $120,235 $104,002 $97,016 $92,082 $72,886
Long-term debt not included in risk-based capital 8,533 6,934 4,230 3,219 2,286
Long-term debt included in risk-based capital 2,576 2,360 2,225 2,378 1,706
Mandatorily redeemable capital securities of subsidiary trusts
holding solely junior subordinated deferrable interest
debentures included in risk-based capital 730 -- -- -- --
Preferred stock of subsidiary 250 250 250 250 --
Preferred stock (Corporation) 810 865 395 250 500
Common stockholders' equity 4,424 4,119 4,309 4,284 3,621
Total stockholders' equity 5,234 4,984 4,704 4,534 4,121
PROFITABILITY RATIOS
Return on average common stockholders' equity (1) 12.9 % 4.0 % 13.5 % 26.3 % 19.5 %
Return on average total stockholders' equity (1) 11.8 % 4.4 % 13.0 % 25.0 % 17.7 %
Return on average total assets (1) .51 % .20 % .59 % 1.25 % .86 %
CAPITAL RATIOS
Common stockholders' equity to total assets, end of year 3.7 % 4.0 % 4.4 % 4.7 % 5.0 %
Total stockholders' equity to total assets, end of year 4.4 % 4.8 % 4.8 % 4.9 % 5.7 %
Average total stockholders' equity to average total assets 4.4 % 4.4 % 4.5 % 4.9 % 5.4 %
Bankers Trust New York Corporation:
Risk-Based Capital Ratios
Tier 1 Capital (2) 8.7 % 8.5 % 9.1 % 8.5 % 7.7 %
Total Capital (2) 13.7 % 13.9 % 14.8 % 14.5 % 13.6 %
Leverage Ratio (2) 5.5 % 5.1 % 5.3 % 6.3 % 6.1 %
Bankers Trust Company:
Risk-Based Capital Ratios
Tier 1 Capital (2) 9.3 % 9.5 % 9.9 % 9.4 % 8.0 %
Total Capital (2) 12.9 % 12.8 % 12.9 % 13.0 % 12.0 %
Leverage Ratio (2) 5.3 % 5.1 % 5.9 % 6.0 % 5.6 %
EMPLOYEES, AT DECEMBER 31
In domestic offices 8,413 7,760 8,258 8,300 8,096
In foreign offices 6,815 6,309 6,271 5,271 4,821
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Total 15,228 14,069 14,529 13,571 12,917
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</TABLE>
(1) These figures exclude the cumulative effects of accounting changes recorded
in 1993 and 1992.
(2) Regulatory capital ratios at December 31, 1992 were not restated in
connection with the adoption, retroactive to January 1, 1992, of SFAS 109.
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FINANCIAL REVIEW
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Management's discussion and analysis of Bankers Trust New York Corporation's
results of operations and financial condition appears on pages 37 through 62.
The discussion and analysis should be read in conjunction with the financial
statements and supplemental financial data, which begin on page 64.
RESULTS OF OPERATIONS
SUMMARY OF 1996 RESULTS
For the year 1996, Bankers Trust New York Corporation and subsidiaries (the
"Corporation," or the "Firm") earned $612 million, or $6.78 primary earnings per
share. For the year 1995, the Corporation earned $215 million, or $2.03 primary
earnings per share.
For the year, total net revenues (net interest revenue after provision for
credit losses plus noninterest revenue) of $4.160 billion were up $951 million,
or 30 percent, from 1995. This increase was broadly based and reflected growth
in nearly all of the Firm's businesses. Net revenues reached their second
highest level in the Corporation's history, trailing only the record set in
1993.
Total noninterest expenses for the year increased $390 million, or 13
percent, from 1995. This increase was primarily due to incentive compensation
related to the improved financial performance and higher employee benefits.
Credit quality continued to improve during the year. At December 31, 1996,
total cash basis loans amounted to $452 million, down from $744 million at
December 31, 1995.
ORGANIZATIONAL HIGHLIGHTS
The Corporation delivers a wide range of financial products and services
worldwide principally through eight broad Organizational Units. Five units are
organized around specific products and services: Investment Banking, Risk
Management Services, Trading & Sales, Investment Management, and Client
Processing Services. Three additional units are organized to deliver these same
types of financial products and services with the unique local expertise
necessary to operate successfully in Australia/New Zealand, Asia and Latin
America.
Organizational Unit business results are determined based on the
Corporation's internal management accounting process, which allocates revenue
and expenses among the organizational units. Because the Corporation's business
is diverse in nature and its operations are integrated, it is impractical to
segregate respective contributions of the organizational units with precision.
As a result, estimates and judgments have been made to apportion revenue and
expense items. In addition, certain revenue and expenses have been segregated
and reported in Corporate/Other because in the opinion of management, they could
not be reasonably allocated or because their contributions to a particular
organizational unit would be distortive. The internal management accounting
process, unlike financial accounting in accordance with generally accepted
accounting principles, is based on the way management views its business and is
not necessarily comparable with similar information disclosed by other financial
institutions. In order to provide comparability from one period to the next, the
Corporation will restate this analysis to conform with material changes in the
allocation process and/or significant changes in organizational structure. The
following tables present the results by Organizational Units. (in millions):
Total Non- Pretax Net
Year Ended Total Net interest Income/ Income/
December 31, 1996 Revenue Expenses (Loss) (Loss)
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Investment Banking $ 935 $ 475 $ 460 $ 323
Risk Management
Services 321 335 (14) (9)
Trading & Sales 425 275 150 105
Investment Management 300 281 19 13
Client Processing
Services 801 668 133 94
Australia/New Zealand 481 294 187 132
Asia 133 104 29 23
Latin America 526 410 116 82
Corporate/Other 238 446 (208) (151)
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Total $4,160 $3,288 $ 872 $ 612
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Total Non- Pretax Net
Year Ended Total Net interest Income/ Income/
December 31, 1995* Revenue Expenses (Loss) (Loss)
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Investment Banking $ 783 $ 316 $ 467 $ 326
Risk Management
Services 232 337 (105) (74)
Trading & Sales 361 244 117 82
Investment Management 265 278 (13) (10)
Client Processing
Services 717 583 134 93
Australia/New Zealand 401 256 145 102
Asia 76 101 (25) (19)
Latin America 267 439 (172) (120)
Corporate/Other 107 344 (237) (165)
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Total $3,209 $2,898 $ 311 $ 215
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Total Non- Pretax Net
Year Ended Total Net interest Income/ Income/
December 31, 1994* Revenue Expenses (Loss) (Loss)
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Investment Banking $ 570 $ 351 $ 219 $ 135
Risk Management
Services 631 401 230 163
Trading & Sales 90 238 (148) (95)
Investment Management 247 294 (47) (30)
Client Processing
Services 741 578 163 98
Australia/New Zealand 436 203 233 152
Asia 144 86 58 43
Latin America 537 359 178 109
Corporate/Other 224 241 (17) 40
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Total $3,620 $2,751 $ 869 $ 615
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* Prior year information has been restated to conform to the current year
presentation.
Investment Banking delivers the Firm's full range of financing, advisory
and research products and services to corporate, financial institution and
investor clients. Services include underwriting, distribution and trading of
public equity and debt (both investment grade and high-yield); private
placements and structured finance; and merger and acquisition advisory services.
The unit is also responsible for the Firm's private equity investments. The
Corporation's Asset-Based Lending activities are included in Investment Banking.
Investment Banking 1996 net income of $323 million, which was down $3 million
from a year ago, reflected strong results from corporate finance activities
including loan syndication and private placements. Investment Banking net income
in 1995 benefited
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from an after-tax gain of $144 million from the sale of a substantial portion of
the Corporation's investment in Northwest Airlines Corporation.
Risk Management Services assists clients in the management of their
financial and economic risk. Products and services include interest rate,
currency, equity, commodity and credit derivatives, as well as risk management
advisory services. This unit also manages the Corporation's risk associated with
client derivative transactions. The 1996 net loss of $9 million compared to a
net loss of $74 million in 1995. The 1996 results included losses associated
with the steep drop in the price of copper early in the year. Revenues from new
client derivative transactions increased during 1996.
Trading & Sales provides financial products and services to the
Corporation's clients and enters into securities, currency, commodity, and
derivatives transactions on a proprietary basis. The unit is also responsible
for the Corporation's worldwide funding as well as its capital and liquidity
management. Trading & Sales net income of $105 million increased 28 percent from
1995 net income of $82 million. The increase is attributable to arbitrage and
foreign exchange trading activities.
Investment Management manages investments for pension funds, corporations
and other institutional investors worldwide. (The Australian funds management
business is reported in the results of Australia/New Zealand.) The Corporation's
Private Banking activities, although managed separately, are included in
Investment Management for reporting purposes. Investment Management net income
of $13 million for 1996 increased $23 million from a 1995 net loss of $10
million. As of December 31, 1996, assets under management in this organizational
unit were approximately $201 billion compared to $175 billion as of December 31,
1995.
Client Processing Services delivers 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 retirement services, including
recordkeeping and administrative services and portfolio measurement, to sponsors
of U.S. defined benefit and defined contribution plans. Client Processing
Services 1996 net income of $94 million increased slightly from 1995 net income
of $93 million.
Australia/New Zealand provides funds management, corporate finance, and
financial markets services to local and international clients, and trades for
its own account in related markets. Australia/New Zealand net income was $132
million up from $102 million in 1995. The 1996 results reflect strong investment
management and trading results. As of December 31, 1996 assets under management
in Australia/New Zealand's investment management business were approximately $26
billion, compared to $22 billion in 1995.
Asia provides advisory and corporate finance services to financial
institutions, governments and both state-owned and private businesses. In
addition, it engages in arbitrage trading and equity investments. Asia net
income was $23 million in 1996 compared to a $19 million loss in 1995. The
current year reflects strong results from trading activities.
Latin America engages in trading and distribution, origination and
underwriting of corporate finance securities, mergers and acquisitions services
and private equity investments. In addition, this organizational unit, through
the Corporation's Chilean insurance subsidiary, underwrites pension-related life
and disability insurance and sells pension-related life annuities. Latin America
net income was $82 million compared to a net loss of $120 million in 1995. The
1996 results included a $31 million pre-tax gain on the sale of Compensa, which
was the smaller of the Corporation's two Chilean insurance subsidiaries.
Consorcio, the remaining subsidiary, is the largest life insurance company in
Chile. The 1995 results included losses from derivative trading activities.
Corporate/Other includes the unallocated costs of corporate staff together
with the notional interest income on the Corporation's capital accounts. In
addition, the provision for credit losses and various special charges and
reserves are reflected within Corporate/ Other. Corporate/Other net loss for
1996 was $151 million compared with a 1995 net loss of $165 million. The most
notable items in 1996 were $20 million pre-tax reserves related to prior period
items in the transaction processing business in addition to exceptional legal
and professional fees related to the completion of the Independent Counsel's
report and the settlement of old leveraged derivatives disputes. The 1996
results also included a gain on the sale of Golden American Life Insurance
Company, an indirect wholly-owned subsidiary of the Corporation acquired in
satisfaction of debt in 1992.
FINANCIAL REPORTING MATTERS
Effective January 1, 1996, the Corporation adopted the pro forma net income and
earnings per share disclosure requirements set forth in Statement of Financial
Accounting Standards ("SFAS") 123, "Accounting for Stock-Based Compensation." As
permitted by SFAS 123, the Corporation will continue to account for stock-based
employee compensation plans in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees."
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On January 1, 1995, the Corporation adopted SFAS 114, "Accounting by
Creditors for Impairment of a Loan" as amended by SFAS 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures." SFAS 114
requires the creation of a valuation allowance for impaired loans based on one
of the following: 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 if the loan is collateral dependent. 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. At December 31, 1995, adoption of this standard
resulted in a $90 million allocation of the existing allowance for credit losses
to a specific valuation allowance for impaired loans.
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
Net interest revenue for 1996 was $966 million, up $149 million, or 18 percent,
from 1995. Net interest revenue of $817 million in 1995 decreased by $355
million, or 30 percent, from the amount earned in 1994.
The Firm's trading and risk management businesses include significant
activities in interest rate instruments and related derivatives. These
activities can periodically shift revenue 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, which is discussed in the trading revenue section
below.
The Firm's nontrading-related net interest revenue, historically a more
stable component of overall net interest revenue than trading-related net
interest revenue, was $729 million in 1996, compared to $726 million in 1995.
For the 1995 versus 1994 comparison, net interest revenue decreased by $355
million due to a $369 million, or 80 percent, decrease in trading-related net
interest revenue, which totaled $91 million for 1995. Total nontrading-related
net interest revenue was $726 million for 1995 compared to $712 million in 1994.
TABLE 2 NET INTEREST REVENUE ANALYSIS
The table below presents the Corporation's trend of net interest revenue,
average balances and rates. For further details on these statistics, see
pages 104 through 106.
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($ in millions) Year Ended December 31, 1996 1995 1994
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Net interest revenue
Book basis $ 966 $ 817 $ 1,172
Tax equivalent adjustment* 16 41 83
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Fully taxable basis $ 982 $ 858 $ 1,255
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Average balances
Interest-earning assets $93,179 $82,078 $76,300
Interest-bearing liabilities 88,472 78,850 73,748
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Earning assets financed by noninterest-bearing
funds $ 4,707 $ 3,228 $ 2,552
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Average rates (fully taxable basis)
Yield on interest-earning assets 6.85% 7.22% 6.70%
Cost of interest-bearing liabilities 6.10 6.43 5.23
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Interest rate spread .75 .79 1.47
Contribution of noninterest-bearing funds .30 .26 .17
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Net interest margin 1.05% 1.05% 1.64%
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* The applicable combined federal, state and local incremental tax rate used
to determine the amounts of the tax equivalent adjustments (which recognize
the income tax savings on tax-exempt assets) was 42 percent for 1996, 1995
and 1994.
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PROVISION FOR CREDIT LOSSES
The provision for credit losses amounted to $5 million for 1996, compared with
$31 million for 1995 and $25 million in 1994. A discussion of the Corporation's
summary of credit loss experience, including charge-off procedures and the
adequacy of the allowance for credit losses, appears on page 54.
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 among worldwide interest rates,
exchange rates and equity and commodity indices. Trading revenue is generated by
both client-related activities and proprietary activities. These activities
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. In addition, these activities include the trading of
U.S. government and agency securities, foreign sovereign securities, foreign
exchange and currency options and commodity futures and options. The Firm also
trades restructured loans, bonds, equities and other instruments of Latin
American and other emerging markets issuers.
Trading-related net interest revenue represents interest earned on cash
instruments held in the trading accounts less the cost to fund both cash and
derivatives positions.
For the year 1996, trading revenue was $846 million, up $505 million, or
148 percent, from the $341 million reported in 1995. The trading revenue in 1995
was down $124 million from the results reported in 1994. Trading-related net
interest revenue increased to $237 million in 1996, up $146 million, or 160
percent, from the $91 million reported in 1995. The trading-related net interest
revenue in 1995 was down $369 million from 1994 results.
The table below presents the Firm's 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.
Trading-
Related
Net
Trading Interest
(in millions) Revenue Revenue Total
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Year Ended December 31, 1996
Interest rate risk $ 445 $ 273 $ 718
Foreign exchange risk 178 -- 178
Equity and commodity risk 223 (36) 187
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Total $ 846 $ 237 $ 1,083
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Year Ended December 31, 1995
Interest rate risk $ 87 $ 156 $ 243
Foreign exchange risk 36 -- 36
Equity and commodity risk 218 (65) 153
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Total $ 341 $ 91 $ 432
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Year Ended December 31, 1994
Interest rate risk $ 278 $ 495 $ 773
Foreign exchange risk (54) -- (54)
Equity and commodity risk 241 (35) 206
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Total $ 465 $ 460 $ 925
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Interest Rate Risk
As indicated above, 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 revenue, depending on a variety of
factors, including risk management activities. During 1996 the increase in
trading and trading-related net interest revenue in this category was primarily
due to a rebound in the Firm's activities in Latin America. This rebound was
attributed to reduced risk positions in Latin America during 1996 and a return
to normal volatility levels in the region. Conversely, 1995 was a year marked,
especially in the early months, by heightened volatility in Latin American
interest rates coupled with liquidity problems resulting from the Mexican peso
devaluation. Also affecting this category in 1996 was an increase in the volume
of London, New York, and Tokyo interest rate products, and increased revenue
from U.S. bonds attributable to increased capital inflows to the market. As a
result, total trading revenue and trading-related net interest revenue
associated with interest rate positions increased by 195 percent to $718 million
in 1996.
During 1995 total trading revenue and trading-related net interest revenue
associated with interest rate positions declined by 69 percent to $243 million
from $773 million in 1994. This decrease was affected by the heightened
volatility in interest rates and associated liquidity problems in the emerging
markets of Latin America in 1995 discussed above.
Foreign Exchange Risk
The Firm's trading and risk management strategies also involve positions in
foreign exchange and currency related derivatives such as swaps, options,
forwards and other similar types of contracts. Improved performance in the
Australian, Asian, and Latin American foreign exchange markets was the primary
reason for the $142 million increase in foreign exchange trading revenue
compared to 1995.
Trading revenue related to foreign exchange risk resulted in a gain of $36
million in 1995, compared with a loss of $54 million in 1994. The general
decline in global interest rates favorably impacted positions as trading revenue
in this category increased $90 million compared to 1994, due principally to a
rebound in the Firm's proprietary trading business.
Equity and Commodity Risk
The Firm's trading and risk management activities also include positions in
equity securities and commodities and related derivatives. Total trading and
trading-related net interest revenue related to equity and commodity risk
increased $34 million compared to 1995. This increase primarily related to
strong results from equity arbitrage trading activities partially offset by
losses incurred in the commodity derivatives books when copper prices dropped
sharply in 1996.
Total trading and trading-related net interest revenue related to equity
and commodity risk decreased $53 million in 1995 compared to 1994. This decrease
included a decline in equity-related derivative products which was reflective of
the lower average margin on deriva-
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tive products as a whole. The volatility in the Latin American markets that
occurred in 1995 had a ripple effect on equity prices which was also a factor in
the overall performance in this category.
NONINTEREST REVENUE (Excluding Trading)
The following table presents noninterest revenue (in millions):
Year Ended December 31, 1996 1995 1994
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Fiduciary and funds management $ 783 $ 697 $ 740
Corporate finance fees 507 398 431
Other fees and commissions 343 314 325
Net revenue from equity
investment transactions 211 146 109
Securities available for sale gains 75 180 72
Insurance premiums 230 234 183
Other 204 113 148
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Total $2,353 $2,082 $2,008
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Fiduciary and funds management revenue was up $86 million, or 12 percent,
from 1995, which was down $43 million from 1994. All major activities within
this category contributed to the revenue growth in 1996 which resulted from
higher transaction volumes, as well as a higher level of assets under
management. The decrease in 1995 compared to 1994 was primarily due to a decline
in transaction volumes in global fiduciary services, as well as a decline in
brokerage fee income at the Corporation's Australian subsidiary as a result of
lower fund growth as compared to 1994. Partially offsetting these factors was
an increase in custodian fees due to a higher level of global custody assets
under management.
Corporate finance fees were up $109 million, or 27 percent from 1995, which
were down $33 million from 1994. The increase in 1996 was primarily due to a
higher volume of securities underwriting, financial advisory and private
placement activities. The decrease in 1995 compared to 1994 was primarily due to
lower revenue from securities underwriting and merger and acquisition fees which
was partially offset by higher revenue from private placement fees.
Net revenue from equity investment transactions was up $65 million, or 45
percent, from 1995, which was up $37 million from 1994. The increase in 1996 was
primarily due to gains realized in the Private Equity Investment unit of
Investment Banking. The 1995 results included a $62 million gain on the sale of
a portion of the Corporation's merchant banking investment in Northwest Airlines
Corporation.
Securities available for sale gains were down $105 million, or 58 percent,
from 1995, which were up $108 million from 1994. The 1995 results included a
$145 million gain on the sale of most of the Corporation's merchant banking
investment in Northwest Airlines Corporation.
Insurance premiums decreased $4 million, or 2 percent, from 1995. This
decrease was mainly due to the sale of Compensa, which was the smaller of the
Corporation's two Chilean insurance subsidiaries, in the second quarter of 1996,
partially offset by increased annuity and traditional life insurance activity at
Consorcio. Insurance premiums in 1995 were $51 million higher than 1994. Higher
insurance premium revenue was realized from the Corporation's Chilean
subsidiaries primarily as a result of an increase in their annuity business.
Other noninterest revenue increased $91 million, or 81 percent, from 1995.
Other noninterest revenue in 1995 was $35 million lower than 1994. The increase
in 1996 was primarily due to a $31 million gain on the sale of Compensa, as well
as a gain on the sale of Golden American Life Insurance Company, an indirect
wholly-owned subsidiary of the Corporation acquired in satisfaction of debt in
1992.
NONINTEREST EXPENSES
The following table presents noninterest expenses (in millions):
Year Ended December 31, 1996 1995 1994
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Salaries $ 867 $ 804 $ 774
Incentive compensation and
employee benefits 951 640 724
Agency and other professional
service fees 311 318 268
Communication and data services 193 184 176
Occupancy, net 150 152 146
Furniture and equipment 171 162 163
Travel and entertainment 97 88 109
Provision for policyholder benefits 280 271 205
Other 268 229 186
Provision for severance-related costs -- 50 --
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Total $3,288 $2,898 $2,751
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Total noninterest expenses increased $390 million, or 13 percent, from
1995. Salaries expense increased $63 million, or 8 percent, in 1996. Incentive
compensation and employee benefits expense increased $311 million, or 49
percent, reflecting an increase in incentive compensation awards in response to
increasingly competitive market conditions and improved financial performance.
The number of full time staff at December 31, 1996 was 15,228 compared to 14,069
at December 31, 1995.
All other noninterest expenses totaled $1.470 billion for 1996, compared
with $1.404 billion for 1995 which excluded the provision for severance-related
costs of $50 million. Included in the 1996 amount were reserves, as previously
discussed, for potential charges established after a review of accounting
operations since 1989 in the Corporation's transaction processing business.
Total noninterest expenses increased $147 million in 1995 from 1994.
Excluding the provision for severance-related costs, noninterest expenses were
$2.848 billion, an increase of $97 million, or 4 percent, from 1994. Salaries
expense increased $30 million, or 4 percent, in 1995. Incentive compensation and
employee benefits expense decreased $84 million, or 12 percent, due to lower
bonus expense reflecting the reduced earnings.
All other noninterest expenses, excluding the provision for
severance-related costs, totaled $1.404 billion for 1995, which was $151
million, or 12 percent, higher than in 1994. This increase was primarily due to
an increase in the provision for policyholder benefits as well as an increase in
professional fees, which included exceptional legal costs related to leveraged
derivative transactions.
The Corporation is engaged in a global effort to manage potential system
failure and risk from the "Year 2000" problem. A Year 2000 program has been set
up to manage, track and report on the Firm's worldwide effort with the goal of
ensuring uninterrupted service across the full range of products and services
offered by the Firm.
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INCOME TAXES
Income tax expense for 1996 amounted to $260 million, compared with $96
million for 1995 and $254 million in 1994. The effective tax rate for 1996
was 30 percent, while the 1995 and 1994 effective tax rate was 31 percent and
29 percent, respectively.
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 results of operations for 1996, 1995 and
1994 have been allocated between domestic and international operations in Note
22 of Notes to Financial Statements. This analysis, which is based on the
domicile of the customer, incorporates numerous subjective assumptions.
Management views the operation of the Corporation on an organizational unit
basis, as disclosed on page 37.
International net income totaled $297 million for 1996, compared with $106
million for 1995. This represented a contribution of 49 percent to the
Corporation's overall net income in 1996 and 1995. The 1995 balances have been
restated to reflect the change in methodology used to allocate corporate
overhead and operating expenses.
While there was no change to international net income as a percentage of
the Corporation's net income, there were some significant fluctuations between
geographical regions. Australia/New Zealand and the United Kingdom had the
greatest change in net income. Australia/New Zealand's net income (after
corporate expense allocations) increased from $101 million to $144 million due
to increases in foreign exchange trading, fiduciary and funds management
revenue, and other fees and commissions. The United Kingdom net income was nil
(after corporate expense allocations) compared to the prior year's net loss of
$144 million. This improvement was driven primarily by positive trading
revenues.
These increases in international results were partially offset by a
reduction in net income for Europe which decreased from $37 million to $18
million.
Domestic net income increased by $206 million to $315 million due to
increased trading revenue, and other fees and commission income.
International total assets were $62.5 billion at December 31, 1996 compared
to $51.5 billion at December 31, 1995 which represented 52 percent and 50
percent of total consolidated assets, respectively. The $11 billion increase in
assets was primarily due to increases of $2.8 billion for Australia/New Zealand
operations, $4.4 billion for the Western Hemisphere, and $6.4 billion for
Europe. These increases were offset by a decline of $3.4 billion in the United
Kingdom. Australia/New Zealand operations' assets rose due to increases in
loans, securities available for sale and trading assets. Assets for Europe and
the Western Hemisphere rose as trading assets increased. United Kingdom
operations' assets decreased due to a decline in trading assets at year end.
Domestic total assets increased $5.2 billion to $57.7 billion driven by
increases in trading assets.
International net income totaled $106 million for 1995 as restated,
compared with $368 million for 1994. International operations contributed 49
percent and 60 percent of the Corporation's net income in 1995 and 1994,
respectively. The decrease in 1995 international net income, as compared to
1994, was primarily due to a decline in the Corporation's overall results. The
decrease in international operations' income in proportion to domestic income
(49 percent in 1995 as compared to 60 percent in 1994) is primarily due to
losses incurred in the United Kingdom and a decrease in net income for
Australia/New Zealand. The United Kingdom had a net loss (after Corporate
expense allocations) of $144 million, a decrease of $249 million, which was
primarily caused by trading losses. The decrease in net income for Australia/New
Zealand (to $101 million from $151 million) was primarily due to foreign
exchange trading losses and an overall increase in other expenses.
Domestic net income decreased by $138 million, to $109 million in 1995 due
to a decline in interest earned caused by a reduction in interest-bearing
trading assets, decreases in fees and commissions and increases in interest
expense and other noninterest expense.
International total assets were $51.5 billion at December 31, 1995,
compared with $36.1 billion at December 31, 1994 and represented 50 percent and
37 percent of total consolidated assets, respectively. The $15.4 billion
increase was primarily due to an increase in United Kingdom assets of $3.2
billion, an increase in Western Hemisphere assets of $1.5 billion and a decrease
in intersegment activity of $10 billion. Assets for both regions rose due to
increases in trading assets. Domestic total assets decreased $8.4 billion to
$52.5 billion primarily due to reductions in federal funds sold, domestic
trading assets and intersegment balances. These decreases were partially offset
by an increase in securities purchased under resale agreements.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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42
<PAGE>
- --------------------------------------------------------------------------------
CHANGES IN FINANCIAL CONDITION
BALANCE SHEET ANALYSIS
Table 3 below highlights the trends in the balance sheet over the past two
years. Because annual averages may 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 3 CONDENSED BALANCE SHEETS--FOURTH QUARTER AVERAGES
<TABLE>
<CAPTION>
(in millions) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-earning
Interest-bearing deposits with banks $ 3,545 $ 3,624 $ 2,139
Federal funds sold 1,990 2,387 1,497
Securities purchased under resale agreements 22,380 15,167 11,282
Securities borrowed 15,447 13,817 9,592
Trading assets 31,427 31,926 33,106
Securities available for sale
Taxable 6,777 5,206 5,240
Exempt from federal income taxes 1,077 1,365 2,238
- ------------------------------------------------------------------------------------------------------
Total securities available for sale 7,854 6,571 7,478
Loans
In domestic offices 8,172 7,199 6,750
In foreign offices 7,032 5,624 5,798
- ------------------------------------------------------------------------------------------------------
Total loans 15,204 12,823 12,548
- ------------------------------------------------------------------------------------------------------
Total interest-earning assets 97,847 86,315 77,642
Noninterest-earning
Cash and due from banks 1,378 1,972 1,835
Noninterest-earning trading assets 17,700 17,858 19,778
All other assets 8,409 9,736 8,081
Allowance for credit losses (988) (1,028) (1,327)
- ------------------------------------------------------------------------------------------------------
Total $ 124,346 $ 114,853 $ 106,009
======================================================================================================
LIABILITIES
Interest-bearing
Interest-bearing deposits
In domestic offices $ 8,738 $ 5,788 $ 5,584
In foreign offices 18,812 18,404 15,611
- ------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 27,550 24,192 21,195
Trading liabilities 9,687 12,599 8,856
Securities sold under repurchase agreements 25,750 22,680 20,833
Other short-term borrowings 18,852 15,960 18,327
Long-term debt 11,173 8,904 6,310
Mandatorily redeemable capital securities of subsidiary trusts
holding solely junior subordinated deferrable interest debenture 165 -- --
- ------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 93,177 84,335 75,521
Noninterest-bearing
Noninterest-bearing deposits 3,518 3,606 3,728
Noninterest-bearing trading liabilities 15,725 15,392 15,539
All other liabilities 6,352 6,240 6,212
- ------------------------------------------------------------------------------------------------------
Total Liabilities 118,772 109,573 101,000
PREFERRED STOCK OF SUBSIDIARY 250 250 250
- ------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock 815 865 395
Common stockholders' equity 4,509 4,165 4,364
- ------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 5,324 5,030 4,759
- ------------------------------------------------------------------------------------------------------
Total $ 124,346 $ 114,853 $ 106,009
======================================================================================================
</TABLE>
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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43
<PAGE>
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Corporation has sufficient resources to meet the
needs of its business operations for liquidity and capital resources.
Liquidity
Liquidity is the ability to have funds available at all times to meet the
commitments of the Corporation. The Corporation has a formal process for
managing global liquidity for the Firm as a whole and for each of its
significant subsidiaries. Management's guiding policy is to maintain
conservative levels of liquidity designed to ensure that the Firm has the
ability to meet its obligations under all reasonably foreseeable circumstances.
Management maintains appropriate asset liquidity and actively manages
liability/capital levels, maturities and diversification. The fundamental
objective is to ensure that, even in the event of a complete loss of access to
the liability markets, the Corporation will be able to continue to fund those
assets that cannot be liquidated in a timely manner.
The Corporation has a strong global funding presence and maintains a
centralized funding unit while retaining a funding presence in local markets. A
consolidated funding function provides for central coordination and control of
pricing and global information and strategy, while the proximity to local
markets allows for greater customer diversity and the flexibility to respond
quickly to market opportunities.
In addition, the Corporation assesses its liquidity profile, such as asset
marketability, asset-to-liability repayment/maturity characteristics and funding
diversification, under various stress scenarios. Management believes that the
Corporation has the ability to withstand severe and prolonged liquidity shocks,
both systemic and institution-specific.
Most of the Corporation's assets are highly liquid and of high credit
quality. The Corporation maintains excess liquidity through its base of liquid
assets. 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. 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 assets are
marked-to-market daily and primarily consist of swaps, options and other
derivative contracts, foreign government securities, corporate debt securities,
U.S. government and agency securities, and equity securities. The Corporation's
liquid assets amounted to $96.9 billion as of December 31, 1996, and $83.5
billion as of December 31, 1995, both of which equaled 80 percent of gross
total assets.
The Corporation continues to focus on extending and diversifying its
funding base by geography, investor segment, legal vehicle issuer, and type of
instrument. This is done by strengthening secured funding capabilities and
issuing a substantial amount of long-term debt and preferred stock in various
markets. The Corporation places particular emphasis on a large and diverse base
of stable customer deposits, which are generated incidentally from other
transactions or services provided in its Client Processing Services business.
Also, the Corporation has a relatively high proportion of active unsecured
funding which is provided by capital and long-term debt.
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 and other OECD sovereign bonds. Short-term
financing is also available to the Corporation under various commercial paper
programs. The Corporation maintains its own sales force, which enables the
Corporation to develop and maintain ongoing relationships with a diverse group
of investors. 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's consolidated long-term debt and mandatorily redeemable
capital securities of subsidiary trusts holding solely junior subordinated
deferrable interest debentures included in risk-based capital ("trust preferred
capital securities"), at December 31, 1996 totaled $11.8 billion, substantially
all of which was unsecured, and consisted of $7.5 billion in senior borrowings,
$3.6 billion of subordinated debt, and $730 million of trust preferred capital
securities issued principally by the Parent Company and Bankers Trust Company
("BTCo"), the Corporation's principal banking subsidiary. These liabilities
mature between 1997 and 2033, as detailed in Notes 9 and 10 of Notes to
Financial Statements.
The following information should be read in conjunction with the
consolidated statement of cash flows, which appears on page 67.
For the year ended 1996, cash and due from banks decreased $794 million as
the net cash used in investing activities and operating activities exceeded the
net cash provided by financing activities. Within investing activities, cash
outflows from purchases of securities available for sale ($5.9 billion),
securities borrowed ($5.7 billion), securities purchased under resale agreements
($4.8 billion), and loans ($2.9 billion), were partially offset by cash inflows
from sales, maturities and other redemptions of securities available for sale
($4.8 billion). The $3.9 billion of net cash used in operating activities was
primarily the result of net changes in trading assets ($2.6 billion) and trading
liabilities ($2.4 billion) partially offset by net changes in receivables and
payables from securities transactions ($1.2 billion). Within financing
activities, cash inflows from securities sold under repurchase agreements ($8.3
billion), deposits ($4.7 billion), issuances of long-term debt and trust
preferred capital securities ($4.3 billion) and other short-term borrowings
($3.5 billion) were partially offset by cash outflows from repayments of
long-term debt ($1.3 billion).
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
44
<PAGE>
- --------------------------------------------------------------------------------
For the year ended 1995, cash and due from banks increased $352 million as
the net cash provided by operating activities and financing activities exceeded
the net cash used in investing activities. The $3.5 billion of net cash provided
by operating activities primarily resulted from $5.8 billion of net cash
provided by a net change in trading liabilities offset in part by $1.4 billion
and $1.1 billion of net cash used by net changes in trading assets and
receivables and payables from securities transactions, respectively. Within
investing activities, cash outflows from securities purchased under resale
agreements ($6.4 billion), purchases of securities available for sale ($4.2
billion) and securities borrowed ($1.6 billion), were offset in part by cash
inflows from sales, maturities and other redemptions of securities available for
sale ($5.7 billion), federal funds sold ($1.7 billion) and interest-bearing
deposits with banks ($1.2 billion). Within financing activities, cash inflows
from the issuances of long-term debt ($4.7 billion) were partially offset by
cash outflows from other short-term borrowings ($2.3 billion) and repayments of
long-term debt ($1.6 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.
Combined consolidated total stockholders' equity and preferred stock of
subsidiary totaled $5.484 billion on December 31, 1996, up $250 million, or 5
percent, from year end 1995, which was up $280 million, or 6 percent, from year
end 1994. The increase in 1996 was primarily due to net income, exercise of
employee stock options, and shares issued in connection with an acquisition,
partially offset by dividends declared and the repurchase of stock. The increase
in 1995 was primarily due to the issuance of preferred stock and net income,
partially offset by dividends declared.
In December 1996, the Corporation, through newly established subsidiary
trusts, issued $750 million of trust preferred capital securities, a type of
security that is reported within the Corporation's liabilities, but qualifies as
regulatory capital (refer to Note 10 of Notes to the Financial Statements for
further discussion of these securities). The Corporation's issuance of trust
preferred capital securities was an important factor in the 18 percent increase
in the Corporation's Tier 1 Capital and the 13 percent increase in Total Capital
during 1996.
The Corporation's primary measure of capital strength is the RAROC
framework (see page 50 for further discussion), which quantifies and assigns
capital to business activities based upon their credit, interest rate, foreign
currency, equity, commodity, liquidity and operating risks. Changes in the
Corporation's global balance sheet are monitored centrally on a regular basis.
In addition, the Corporation actively monitors compliance with bank regulatory
capital requirements, focusing primarily on the risk-based capital guidelines.
The Corporation manages its capital base and on- and off-balance sheet items to
ensure that it remains strongly capitalized.
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 risk-based capital 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. The
Federal Reserve Board also has a minimum Leverage Ratio which is used as a
supplement to the risk-based capital ratios in evaluating the capital adequacy
of banks and bank holding companies. The Leverage Ratio is calculated by
dividing Tier 1 Capital by adjusted quarterly average assets.
The following discussion of the risk-based capital and leverage ratios
should be read in conjunction with Note 16 of the Notes to Financial Statements,
which details the components of Tier 1 Capital and Tier 2 Capital, as well as
the regulatory guidelines for well-capitalized banks and bank holding companies.
The Corporation's and BTCo's regulatory capital ratios are presented in
Table 4. The Corporation's risk-weighted assets are presented in Table 5.
During 1996, the Corporation's Tier 1 Capital ratio and Leverage ratio
increased by 20 and 40 basis points, respectively, due primarily to the issuance
of $750 million of trust preferred capital securities. The Corporation's Total
Capital ratio decreased by 20 basis points due primarily to an increase in
risk-weighted assets. Refer to Table 5, which details the Corporation's
risk-weighted assets.
During 1996, BTCo's Total Capital ratio increased by 10 basis points, due
primarily to the issuance of $250 million of trust preferred capital securities
(included in the $750 million above) which qualifies as Tier 2 Capital for BTCo.
The Leverage ratio increased by 20 basis points, due to a slight increase in
Tier 1 Capital. However, the increase in Tier 1 Capital was offset by higher
risk-weighted assets, resulting in a 20 basis points decrease to the Tier 1
Capital ratio.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
45
<PAGE>
- --------------------------------------------------------------------------------
Table 4 presents the regulatory capital ratios of the Corporation and BTCo
at December 31, 1996 and 1995 and the well capitalized guidelines.
TABLE 4 REGULATORY CAPITAL RATIOS
Well
December 31, December 31, Capitalized
1996 1995 Guidelines
- -------------------------------------------------------------------------------
CORPORATION
Risk-Based Ratios
Tier 1 Capital 8.7% 8.5% 6.0%
Total Capital 13.7% 13.9% 10.0%
Leverage Ratio 5.5% 5.1% 3.0-4.0%
BTCo
Risk-Based Ratios
Tier 1 Capital 9.3% 9.5% 6.0%
Total Capital 12.9% 12.8% 10.0%
Leverage Ratio 5.3% 5.1% 5.0%
===============================================================================
The following were the essential components (in millions) used in
calculating the Corporation's and BTCo's risk-based capital ratios:
December 31, 1996 1995
- --------------------------------------------------------------------------------
CORPORATION
Tier 1 Capital $ 5,326 $ 4,512
Tier 2 Capital 3,004 2,858
- --------------------------------------------------------------------------------
Total Capital $ 8,330 $ 7,370
================================================================================
Total risk-weighted assets $60,990 $53,021
================================================================================
BTCo
Tier 1 Capital $ 4,869 $ 4,394
Tier 2 Capital 1,900 1,532
- --------------------------------------------------------------------------------
Total Capital $ 6,769 $ 5,926
================================================================================
Total risk-weighted assets $52,484 $46,389
================================================================================
TABLE 5 RISK-WEIGHTED ASSETS--CORPORATION (in billions)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
December 31, 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Balance Balance Risk-
sheet/ Risk- sheet/ weighted
notional weighted notional amounts
amount amounts amount(2) (2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks and interest-bearing deposits with banks $ 3.8 $ .8 $ 4.4 $ .7
Federal funds sold and securities purchased under resale agreements 19.6 1.3 14.1 .8
Securities borrowed 16.7 10.0 10.9 4.1
Trading assets 48.9 18.1 47.9 15.9
Securities available for sale 7.9 4.0 6.3 4.6
Loans 15.8 12.3 12.6 11.0
Allowance for credit losses (.8) -- (1.0) --
All other assets 8.3 6.4 8.8 4.9
- -------------------------------------------------------------------------------------------------------------------
Total assets 120.2 52.9 104.0 42.0
Less: applicable assets of BT Securities Corporation (1) 22.5 8.3 18.7 4.3
- -------------------------------------------------------------------------------------------------------------------
ASSETS $ 97.7 $ 44.6 $ 85.3 $37.7
===================================================================================================================
OFF-BALANCE SHEET EXPOSURES
Derivatives $1,803.4 $ 6.1 $1,746.3 $ 7.4
Credit-related arrangements 16.7 8.3 13.9 7.0
Securities lending indemnifications 37.8 1.9 28.8 .9
When-issued securities and other 4.0 .3 10.2 .3
- -------------------------------------------------------------------------------------------------------------------
Total off-balance sheet exposures 1,861.9 16.6 1,799.2 15.6
Less: applicable off-balance sheet exposures of BT Securities Corporation (1) 3.9 -- 2.2 --
- -------------------------------------------------------------------------------------------------------------------
OFF-BALANCE SHEET EXPOSURES $1,858.0 $ 16.6 $1,797.0 15.6
===================================================================================================================
Less: allowance for credit losses limitation adjustment .2 .3
- -------------------------------------------------------------------------------------------------------------------
TOTAL RISK-WEIGHTED ASSETS $61.0 $53.0
===================================================================================================================
</TABLE>
(1) As well as certain foreign insurance subsidiaries.
(2) Certain amounts have been restated to conform with the current presentation.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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46
<PAGE>
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Future Developments:
The Measure of Market Risk in the
Trading Accounts as Defined by the BIS
In 1996 the Federal Reserve Board and the other U.S. federal bank regulatory
agencies jointly issued a final rule that amends the current risk-based capital
guidelines to incorporate a measure for market risk ("the market risk
amendment"). The market risk amendment is consistent with the amendment to the
Basle Capital Accord adopted by the Basle Committee on Banking Supervision at
the Bank for International Settlements ("the BIS"), which is described below.
Essentially, the market risk amendment will change in future years the
calculation of risk-weighted assets in the trading accounts, as well as include
the positions and capital of all non-bank subsidiaries in the combined credit
risk and market risk capital calculation of the Corporation. In all other
respects, the current capital adequacy guidelines will remain in effect.
The Corporation will be subject to this amendment. Compliance is mandatory
by January 1, 1998 for those banks that meet certain threshold tests. Banks may
choose to adopt early during 1997, with prior approval from their primary
federal regulator.
The market risk amendment allows banks to measure general market risk using
a bank's internal risk model. Capital charges for market risk are calculated
based upon the level of general market risk and specific risk. General market
risk refers to changes in value due to variations in market conditions (i.e.,
levels of rates, prices, etc.). Specific risk refers to the risk of variations
in value due to changes in factors associated with a particular security (for
example, the credit rating of a corporate debenture).
Under the provisions of the final rule implementing the amendment in the
U.S., models and processes used to manage market risk must meet a number of
quantitative and qualitative standards. The following is a summary of these
standards:
Quantitative Standards
o the general market risk capital must be based on a Value at Risk approach
and computed daily;
o the Value at Risk must be calibrated to a ten-day holding period and a 99
percent confidence level (i.e., if the Corporation maintained an absolutely
static portfolio for ten business days, there would be a 1 percent chance
that the portfolio would decline in value by more than the Value at Risk);
o the risk model must capture the non-linear price characteristics of option
positions;
o the historical observation period for estimating risk factors must be at
least one year;
o for interest rates, there must be a set of risk factors corresponding to
each currency in which the bank has interest rate sensitive on- or
off-balance sheet positions;
o for interest rates, the risk measurement system must incorporate separate
risk factors to capture spread risk between government and other
fixed-income securities;
o for exchange rates, the risk measurement system should incorporate risk
factors corresponding to the individual foreign currencies in which the
bank's positions are denominated;
o for equity prices, there should be risk factors corresponding to each of the
equity markets in which the bank holds significant positions;
o for commodity prices, there should be risk factors corresponding to each of
the commodity markets in which the bank holds significant positions.
Qualitative Standards
o the bank should have an independent risk control unit that reports directly
to senior management;
o the unit should conduct regular backtesting;
o the bank's risk measurement model should be integrated into the day-to-day
risk management process of the bank;
o the risk measurement model should be complemented by a routine and rigorous
program of stress testing.
The Corporation believes that the risk management process and the risk
model employed to produce its Daily Price Volatility and RAROC meet the
standards established by the BIS and the Federal Reserve Board.
After making certain interpretations in order to apply the new rule to the
Corporation's positions at December 31, 1996, it is estimated that the Tier 1
Capital and the Total Capital ratios would have been somewhat higher on a fully
consolidated basis under the new guidelines.
RISK MANAGEMENT
Risk management is a core competency from which the Corporation derives many of
its competitive advantages. The ability to measure and manage risk is a prime
concern in all of the Corporation's business decisions, and sensitivity to risk
management innovations and issues is an integral part of its culture. Four
overarching principles guide the Corporation's management of risk:
o a firm-wide commitment to effective risk management starts at the
senior-management level;
o a strong, centralized and independent control function for risk management
operating in conjunction with decentralized business activities enables the
Corporation to be agile and efficient in its business activities, yet
prudent in its overall risk-taking;
o diversification is an efficient mechanism for managing risk;
o returns earned must be commensurate with the marginal risk associated with
each business activity.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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47
<PAGE>
- --------------------------------------------------------------------------------
The Corporation has made substantial investments in both information
technology and human capital to support its risk management processes.
Proprietary systems allow a team of dedicated risk management professionals to
track the Corporation's global portfolio from its offices worldwide. This team
of risk management professionals is independent of the Corporation's business
lines and reports directly to senior management.
Market Risk
Each day the Corporation's risk management process assembles position and risk
information on financial instruments of the Firm whose economic (fair) value is
a function of market-determined variables: interest rates, currency exchange
rates, equity prices, and commodity prices. This information is consolidated
into daily risk and limits reports for the Corporation and business lines. These
reports are reviewed by the Corporation's senior risk managers and provide them
with a consistent set of information upon which to base their business
judgments.
One summary measure of market risk that is produced by this process is
Daily Price Volatility. The Daily Price Volatility of a portfolio is the
potential loss in fair value that would be exceeded 1 percent of the time if
that portfolio were held unchanged for one day. The Daily Price Volatility
information in the table and diagram reported below reflects the market risk for
virtually all of the Corporation's financial assets and liabilities irrespective
of accounting classification. The positions captured by the Daily Price
Volatility include both derivative and cash positions which are reported as
trading assets and liabilities, repurchase and resale agreements, funding assets
and liabilities, deposits, assets held for sale and end-user derivatives. The
Daily Price Volatility is based upon proprietary simulation and risk modeling
techniques and incorporates the nonlinear payoffs, or convexity, and the
volatility risk stemming from options in the Corporation's portfolio.
Figure 1 shows the frequency distribution of Daily Price Volatility for
1996 business days for the overall Corporation. The diagram illustrates that the
Daily Price Volatility for the overall Corporation had an approximately
bell-shaped distribution. The distribution was centered at $39 million and
ranged between $27 million and $54 million during 1996.
Figure 1
1996 BTNY DPV Frequency Distribution
The figure displays a histogram. Daily Price Volatility (DPV) amounts ranging
from $27 million to $54 million appear on the horizontal axis and Frequency
amounts ranging from 0 to 25 observations are displayed on the vertical axis.
The DPV has an approximately bell shaped distribution. The DPV reaches
frequencies of approximately 21 to 22 observations at the top portion of the
bell curve (i.e. between DPV's of $33 million and $43 million). A portion of the
middle of the bell curve (i.e. between DPV's of $35 million and $39 million)
dips to frequencies ranging from 11 to 15 observations. Frequencies are much
lower (from 0 to 6 observations) for DPV's at the tail ends of the curve (i.e.
within the ranges $27 million to $31 million and $46 million to $54 million).
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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48
<PAGE>
- --------------------------------------------------------------------------------
Table 6 shows the sensitivity of the Corporation's market-risk profile by
risk class in 1996 and 1995. The Corporation's portfolio, on average, in 1996
was most sensitive to changes in interest rates and equity prices. Note that the
impact of diversification across all risk classes reduced total risk by $15
million on average in 1996.
The table also shows that in comparison to 1995 the Corporation maintained
a modestly higher average exposure to market risk during 1996. This increase
occurred primarily with respect to equity and interest rate risk and reflected
the Corporation's assessment of improved market opportunities in 1996 relative
to 1995. Although average risk exposure increased during 1996, the Corporation
ended the year with relatively low risk exposures compared to both the average
for 1996 and the exposure at the end of 1995.
TABLE 6 BTNY DAILY PRICE VOLATILITY STATISTICS (in millions)
- -------------------------------------------------------------------------------
1996 1996 1996 December 31,
Market Risk Average Minimum Maximum 1996
- -------------------------------------------------------------------------------
Interest rate $ 25 $17 $39 $ 17
Currency 11 6 20 10
Equity 16 12 20 17
Commodity 2 1 4 2
Diversification (15) -- -- (14)
- -------------------------------------------------------------------------------
Overall portfolio $ 39 * * $ 32
===============================================================================
- -------------------------------------------------------------------------------
1995 1995 1995 December 31,
Market Risk Average Minimum Maximum 1995
- -------------------------------------------------------------------------------
Interest rate $ 20 $12 $32 $ 24
Currency 10 5 26 10
Equity 13 7 21 17
Commodity 3 1 5 4
Diversification (16) -- -- (15)
- -------------------------------------------------------------------------------
Overall portfolio $ 30 * * $ 40
===============================================================================
* The minimum (maximum) for each risk category occurred on different days so
it is not meaningful to total the amounts presented above. During 1996 and
1995, respectively, the minimum Daily Price Volatilities for the overall
portfolio were $27 million and $19 million, and the maximum Daily Price
Volatilities were $54 million and $44 million.
The methodology underlying these Daily Price Volatility calculations and the
risk-adjusted return on capital ("RAROC") calculations described below relies on
established asset pricing and statistical models. The Daily Price Volatility is
a loss amount that would be exceeded 1 percent of the time. This implies that
one would expect two or three instances each year when the daily loss amount
exceeded the Daily Price Volatility. A comparison between our Daily Price
Volatility amounts and accounting profit/loss flows for each business day during
1996 revealed no instances in which a loss greater than the Daily Price
Volatility occurred. It is important to note that this comparison does not
represent a formal statistical test because Daily Price Volatility measures the
risk of a static portfolio, but the profits and losses occurring in any given
day reflect a changing portfolio. Furthermore, because Daily Price Volatility
measures the potential economic variation in the Corporation's market sensitive
positions, it includes the risk of certain positions that are not
marked-to-market daily in accordance with accounting standards and that are
omitted from the portion of the Corporation's daily profit/loss flows used in
this comparison. The absence of outliers (i.e., losses greater than Daily Price
Volatility) during 1996, however, suggests that the methodology provides a
reasonable statistical measure of the Corporation's exposure to market risk.
The Daily Price Volatility, as a statistical measure of potential loss,
provides an objective benchmark of portfolio risk which complements, but does
not substitute for, management's judgment of the appropriate level and mix of
risk taken by the Corporation. Furthermore, the methodology employed in the
calculation of Daily Price Volatility will change due to enhancements in
risk-assessment and information-processing technologies and as new risks are
undertaken by the Corporation.
Daily Price Volatility is supplemented by the statistical measures of risk
and return provided by the RAROC system (discussed below), by scenario analyses
performed periodically by the risk management group, and by a formal limits
process that monitors excess concentration or exposure to liquidity risk in the
portfolio. The RAROC system provides information on the potential effect of
large changes in interest rates, currency, equity and commodity prices, and
volatilities. As such, it produces a stress test of the Corporation's positions
each business day. Taken together, all of these measures and reports provide the
Corporation's senior management with timely and relevant risk information.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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<PAGE>
- --------------------------------------------------------------------------------
RAROC--Performance Measurement and Capital Adequacy
The Corporation pioneered the development of risk-based capital attribution
processes. The Corporation's risk capital model, RAROC, is integral to
management's conceptual framework for strategic decision making. This framework
has as its objective maximizing return on risk capital, where risk capital is
attributed to a business activity according to the level of risk it assumes.
Risk capital calculated by the RAROC framework is used to support decisions on
the allocation of human and financial resources. In addition, the disciplined
assessment of risk in RAROC produces a benchmark for assessing capital adequacy
both for the Corporation and for its major businesses.
The definition of risk capital produced by the RAROC process is the amount
of funds required 99 percent of the time to cover a potential after-tax loss
over a one year holding period. Specifically, if the Corporation maintained an
absolutely static portfolio (of assets, counterparties and businesses) for one
year, there would be a 1 percent chance that the portfolio would decline in
value by more than the RAROC risk capital amount after adjusting for taxes.
RAROC is designed to assess the following general classes of risk: market
risk, credit risk and operational risk. Market risk is the potential loss in
economic (fair) value due to changes in interest rates, currency, equity and
commodity prices, and volatilities. Financial instruments of the Corporation
whose fair values are functions of these market variables are included in the
assessment of market risk irrespective of accounting designation. Credit risk is
defined as potential loss in fair value of all extensions of credit, on- and
off-balance sheet, by the Corporation.
Operational risk is defined by the Corporation in the context of five risk
classes: Employee, Technology, Relationship/Liability, Physical Assets, and
Other External. Losses that are characterized as operational include but are not
limited to the following examples: losses due to personnel unavailability or
injury, natural disasters, the failure of external systems such as an exchange,
or a failure of internal controls. A process using actuarial and other
proprietary models has been implemented to provide an estimate of the potential
losses from these risks. However, by their nature, these risks are difficult to
measure or quantify and the process has less precision than approaches used for
other types of risks.
CREDIT RISK MANAGEMENT
The Credit Department, headed by the Chief Credit Officer, is responsible for
developing credit policies, as well as for monitoring and managing overall
credit risk. 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 borrower/issuer/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 also monitor
the usage of credit risk by entity versus the limits at the product and business
activity level. The Credit Department monitors country exposures and assigns
country risk ratings. It also monitors country, industry,
borrower/issuer/counterparty, product and regional risk concentrations in order
to evaluate the degree of diversification in the portfolio.
RAROC credit capital represents the translation into potential losses of
the exposure of the overall portfolio of the Corporation to default risk. This
translation is accomplished using proprietary statistical models. These
statistical models incorporate information on the duration of the exposure, the
potential magnitude of the exposure, and the creditworthiness of the
borrower/issuer/counterparty. 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 as reflected in
RAROC capital calculations conform with the Corporation's policies.
DERIVATIVES
Derivatives are swaps, futures, forwards, options and other similar types of
contracts based on interest rates, foreign exchange rates and the prices of
equities and commodities (or related indices). Derivatives are generally either
privately-negotiated over-the-counter ("OTC") contracts or standard contracts
transacted through regulated exchanges. OTC contracts generally consist of
swaps, forwards and options. In the normal course of business, with the
agreement of the original customer, OTC derivatives may be terminated or
assigned to another customer. Exchange-traded derivatives include futures and
options. These capital markets products are described further in Note 23 of
Notes to Financial Statements. Derivatives may be used for either trading or
end-user purposes.
Trading Derivatives
The Corporation holds derivatives in connection with its activities as a dealer
acting as principal for particular transactions with clients, as a market maker
quoting bid and offer prices to provide liquidity and regular availability of
derivatives for clients, as a risk manager of its own trading positions
resulting from these client-driven transactions and, finally, as a position
taker in the expectation of profiting from favorable movements in prices, rates
or indices. As a result, the Corporation may build up sizable positions in
derivatives. The risks of derivative positions are managed in accordance with
the Corporation's risk management policies.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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<PAGE>
- --------------------------------------------------------------------------------
Substantially all of the Corporation's derivative positions at December 31,
1996 were trading-related, with gains and losses included in trading revenue as
they occur. Contracts with positive fair values are recorded as assets and
contracts with negative fair values are recorded as liabilities, after
application of qualifying master netting agreements. These positions may vary in
size from period to period, similar to the positions in cash instruments also
carried in the Corporation's trading account. Average trading assets and trading
liabilities related to derivatives during 1996 were $10.4 billion and $11.6
billion, respectively. The notional amounts, which are not recorded on the
balance sheet, of trading derivatives totaled $1,735 billion at December 31,
1996 and indicate the volume of activity but do not represent the Corporation's
exposure to market or credit risk.
End-User Derivatives
The Corporation utilizes end-user derivatives to manage exposures to interest
rate, foreign currency and equity market risks associated with certain
liabilities and assets such as interest-bearing deposits, short-term borrowings
and long-term debt, as well as securities available for sale, loans, investments
in non-marketable equity securities and net investments in foreign subsidiaries.
For example, the Corporation's Treasury Department, which manages the majority
of the Corporation's end-user derivatives, utilizes certain instruments
(principally interest rate swaps) to transform fixed-rate-paying liabilities
into variable-rate-paying liabilities. See Note 25 and Note 23 of Notes to
Financial Statements for the fair value of end-user derivatives and related
financial instruments and additional end-user information. The notional amounts,
which are not recorded on the balance sheet, of end-user derivatives totaled $68
billion at December 31, 1996 and indicate the volume of activity but do not
represent the Corporation's exposure to market or credit risk. These contracts
represent less than 4 percent of the aggregate notional amounts of all
derivatives outstanding at year end.
Market Risk
The market risk of derivatives arises principally from the potential for changes
in interest rates, foreign exchange rates, and equity and commodity prices and
is generally similar to the market risk of the cash instruments underlying the
contracts. The market risk to the Corporation is not measured by the price
sensitivity of the 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. Therefore, the
Corporation believes it is not meaningful to view the market risk of derivatives
in isolation. Market exposures arising from derivatives are monitored in the
Corporation's RAROC system and are included in the Daily Price Volatility
amounts discussed in the preceding Risk Management section.
Liquidity Risk
In times of stress, sharp price movements or volatility shocks may reduce
liquidity in certain derivatives positions, as well as in cash instruments. The
liquidity risk of derivatives is substantially 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 liquidity risks, when appropriate. These practices are
consistent with those applied to the Corporation's trading positions in cash
instruments.
Derivatives-Related Credit Risk
Derivative transactions create dynamic credit exposure which changes as markets
move. The credit risk of derivatives arises from the potential for a customer to
default on its contractual obligations. Accordingly, credit risk related to
derivatives depends on the following: the current fair value of the contracts
with the customer; the potential credit exposure over time; the extent to which
legally enforceable netting arrangements allow the fair value of offsetting
contracts with that customer to be netted against each other; the extent to
which collateral held against the contracts reduces credit risk exposure; and
the likelihood of default by the customer.
The Corporation monitors and manages the credit risk associated with
derivatives by applying a uniform credit process for all credit exposures. The
credit risk of derivatives is included in the Corporation's centralized credit
management and RAROC systems. In order to reduce derivatives-related credit
risk, the Corporation enters into master netting agreements that provide for
offsetting of all contracts under each such agreement and obtains collateral
where appropriate. Such master netting agreements contemplate payment netting as
well as the net settlement of all covered contracts through a single payment in
a single currency with the same counterparty in the event that a default
(including insolvency) under the agreement occurs. The Corporation monitors
credit risk exposure on a gross and a net basis and on a collateralized and an
uncollateralized basis, as appropriate.
Table 7 summarizes the Corporation's derivatives-related credit risk. It
displays, by internal rating, the Corporation's current credit risk to
customers. The majority of the Corporation's derivative transactions are with
foreign and U.S. commercial banks, as well as corporations, governments and
their agencies, securities firms and other financial institutions. Current
credit risk is calculated based on the current replacement cost of outstanding
positions with customers in OTC derivative financial instruments. The gross
replacement cost of a derivative portfolio with a customer is the positive
mark-to-market value of all transactions with that customer without
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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51
<PAGE>
- --------------------------------------------------------------------------------
the effects of netting or collateral arrangements. The replacement costs, after
netting and collateral, of $9.487 billion more accurately portray the credit
risk associated with the Corporation's derivatives activities with external
customers at December 31, 1996 than do the gross replacement costs. The increase
compared to 1995 was predominantly related to short-term foreign exchange
forward contracts with foreign and U.S. commercial bank counterparties.
Approximately 92 percent of the derivatives-related credit risk at December 31,
1996 was to investment-grade customers.
Internal ratings are based upon the Corporation's assessment of the
customer's creditworthiness. Ratings of 1 to 4 generally equate to
investment-grade ratings (BBB/Baa and higher) from rating agencies in the U.S.
markets. A rating of 5 usually approximates long-term debt ratings of BB/Ba.
Ratings of 6 to 8 are generally equivalent to B/B and below. Customers in the 6
to 8 category may be internally designated for special monitoring by the Credit
Audit Department. Factors such as guarantors and collateral held, as well as the
impact of country risk on private foreign companies, may differentiate the
Corporation's ratings from those of the rating agencies.
The Corporation applies netting based upon the criteria prescribed by
Financial Accounting Standards Board ("FASB") Interpretation No. 39 ("FIN 39"),
"Offsetting of Amounts Related to Certain Contracts," which provides that
offsetting is appropriate where the available evidence indicates that there are
reasonable assurances that the right of setoff contained in a master netting
agreement governing derivatives contracts would be upheld after default,
including in the event of the customer's bankruptcy.
Collateral also reduces credit risk. The Corporation generally accepts
collateral in the form of cash, U.S. Treasuries, and other approved securities
(generally, only liquid, marketable, publicly-traded securities are acceptable).
TABLE 7 DERIVATIVES-RELATED CREDIT RISK(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Internal Rating For Customer
----------------------------
(in millions) December 31, 1996 1 to 4 5 6 to 8 Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Replacement costs (gross) $ 28,079 $ 3,338 $ 120 $ 31,537
Impact of netting agreements (18,628) (2,133) (52) (20,813)
- --------------------------------------------------------------------------------------------------------
Replacement costs (after netting agreements) 9,451 1,205 68 10,724
Collateral held and applied (763) (459) (15) (1,237)
- --------------------------------------------------------------------------------------------------------
Replacement costs after netting and collateral $ 8,688 $ 746 $ 53 $ 9,487
========================================================================================================
Replacement costs after netting and collateral, December 31, 1995 $ 7,946 $ 606 $ 131 $ 8,683
========================================================================================================
</TABLE>
(1) End-user derivatives and exchange-traded contracts are not included.
The Corporation's allowance for credit losses is 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. Net charge-offs to the allowance that were
related to derivative contracts totaled $22 million during 1996 and $240 million
during 1995 (see Leveraged Derivative Transactions section below).
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 Capital Accord of July 1988 and
adopted in 1989 by the U.S. bank regulators, including the Federal Reserve
Board. These standards use a formula-based assessment of customer credit risk
which, as amended at year-end 1995, reflect the credit-risk-reducing impact of
legally enforceable master netting agreements. These standards include a
calculation for estimating the potential future credit exposure caused by
potential price volatility (the "add-on"). At December 31, 1996, this add-on was
$9.0 billion before application of risk weightings, of which 91 percent, 8
percent, and 1 percent related to customers internally rated 1 to 4, 5, and 6 to
8, respectively. At December 31, 1996, the risk-weighted amounts (reflecting
both current and potential future credit exposure) that were calculated based on
these international standards for derivative financial instruments aggregated to
$6.1 billion.
Presented in Table 8 below is a maturity profile of the Corporation's
trading derivative products. This profile indicates the extent of the
Corporation's involvement in derivative transactions of specific maturities and
also provides the basis for calculating the estimate of potential future credit
exposure (the add-on) under the international bank regulatory standards. The
percentages in Table 8 are based on notional amounts which do not necessarily
represent cash flows and do not represent a quantification of the market risk or
credit risk of these positions.
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<PAGE>
- --------------------------------------------------------------------------------
TABLE 8 MATURITY PROFILE OF TRADING DERIVATIVES(1)(2)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Interest Foreign Equity- Commodity
Rate Exchange Related and Other
Remaining Maturity at December 31, 1996 Total Contracts Contracts Contracts Contracts
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Within 12 months 61% 21% 38% 1% 1%
After 1 but within 5 years 30% 27% 3% --% --%
After 5 years 9% 8% 1% --% --%
- --------------------------------------------------------------------------------------------------
Total 100% 56% 42% 1% 1%
==================================================================================================
</TABLE>
(1) Based on notional amounts. Includes both purchase and sale contracts and
contracts for which the fair values are recorded as trading assets and as
trading liabilities. The leveraging effects of leveraged derivative
transactions are reflected above.
(2) Presented in accordance with the risk-based capital standards, this maturity
profile does not include futures contracts, spot foreign exchange contracts,
or options written. These types of contracts are considered in the
Corporation's market and credit risk management processes.
Leveraged Derivative Transactions
A leveraged derivative transaction is a specific type of derivative financial
instrument containing a formula or multiplier which, for any given change in
market prices, could cause the change in the transaction's fair value to be
significantly different from the change in fair value that would occur for a
similar transaction without the formula or multiplier. Cash instruments
(including structured notes) with embedded forward or option features and all
former leveraged derivative transactions that are now included in the loan
portfolio are excluded from the foregoing definition. The Corporation's
leveraged derivative transactions are carried at fair value in the trading
portfolio on the consolidated balance sheet and changes in fair value are
reported in trading revenue as they occur. The Corporation's leveraged
derivative transactions are affected by the same general market risks as the
trading portfolio as a whole and are subject to the risk management policies
outlined in the preceding section.
During 1996 no material leveraged derivative transactions were reclassified
to the loan portfolio at amounts equal to or less than the contractual amounts
due, compared to $33 million in 1995. These transactions are not included in
Tables 7 and 8. In 1996, $26 million of these leveraged derivative loans were
charged-off to the allowance for credit losses, compared to $245 million in
1995. Amounts charged to trading revenue resulting from settlements of leveraged
derivative transactions remaining in the trading portfolio were immaterial in
1996. At December 31, 1996 the balance included in loans after charge-offs and
cash collections was $20 million of which $12 million was classified as cash
basis loans.
For further information regarding regulatory and legal matters, refer to
"Supervision and Regulation" on page 109.
Further information applicable to derivatives in general may be found in the
following sections:
Relevant Information Page Title
- --------------------------------------------------------------------------------
Risk-weighted amounts 45 Capital Resources
Revenue by risk category 40 Trading Revenue
Daily Price Volatility,
RAROC and
credit management 47 Risk Management
Credit losses 54 Summary of Credit Loss Experience
Nonperforming amounts 57 Nonperforming Assets
Accounting 68 Significant Accounting Policies
Balance sheet amounts 70 Trading Assets and Trading Liabilities
Product descriptions, fair
values and notional amounts 88 Derivatives and Financial Instruments
With Off-Balance Sheet Risk
Significant counterparties 92 Concentrations of Credit Risk
End-user derivatives 93 Fair Value of Financial Instruments
================================================================================
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<PAGE>
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. Counterparty risk exposure is analyzed
across all product lines 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. Their 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 NEW YORK CORPORATION AND SUBSIDIARIES
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<PAGE>
TABLE 9 ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES
The following table analyzes the changes in the allowance for credit losses ($
in millions).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR CREDIT LOSSES, BEGINNING OF YEAR $ 992 $ 1,252 $ 1,324 $ 1,620 $1,806
- ------------------------------------------------------------------------------------------------
CHARGE-OFFS
Domestic (nonrefinancing country)
Commercial and industrial 46 177 55 64 164
Financial institutions -- -- 11 4 --
Real estate
Construction 3 10 1 6 3
Mortgage 18 22 23 51 35
Other -- -- -- 1 --
International
Nonrefinancing country 22 121 77 302 98
Refinancing country -- -- 1 32 43
- ------------------------------------------------------------------------------------------------
Total charge-offs 89 330 168 460 343
- ------------------------------------------------------------------------------------------------
RECOVERIES
Domestic (nonrefinancing country)
Commercial and industrial 32 11 24 19 7
Real estate
Construction -- -- 1 -- --
Mortgage 7 4 -- 1 1
Other -- -- -- 2 2
International
Nonrefinancing country 20 15 8 7 16
Refinancing country 6 9 38 42 23
- ------------------------------------------------------------------------------------------------
Total recoveries 65 39 71 71 49
- ------------------------------------------------------------------------------------------------
TOTAL NET CHARGE-OFFS (1) 24 291 97 389 294
LOSSES ON SALES AND SWAPS OF REFINANCING
COUNTRY LOANS -- -- -- -- 117
- ------------------------------------------------------------------------------------------------
TOTAL NET CHARGES TO THE ALLOWANCE 24 291 97 389 411
PROVISION FOR CREDIT LOSSES 5 31 25 93 225
- ------------------------------------------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES, END OF YEAR (2) $ 973 $ 992 $ 1,252 $ 1,324 $1,620
================================================================================================
PERCENTAGE OF TOTAL NET CHARGES TO
AVERAGE LOANS FOR THE YEAR .18% 2.48% .78% 2.54% 2.45%
================================================================================================
(1) Components:
Secured by real estate $ 14 $ 23 $ 24 $ 116 $ 71
Real estate related 3 2 23 3 27
Highly leveraged 11 30 (5) 15 117
Other * 2 245 92 265 59
Refinancing country (6) (9) (37) (10) 20
- ------------------------------------------------------------------------------------------------
Total $ 24 $ 291 $ 97 $ 389 $ 294
================================================================================================
(2) Allocation: **
Loans $773
Other liabilities 200
- ----------------------------------------------------
Balance, End of Year $973
====================================================
</TABLE>
* The 1996, 1995 and 1994 amounts included net charge-offs of $15 million,
$240 million and $72 million, respectively, related to leveraged derivative
transactions.
** Beginning December 31, 1996, the Corporation has allocated its total
allowance for credit losses between a reduction of loans and as other
liabilities related to other credit-related items. Prior year amounts have
not been restated. For further detail, see discussion on the following page.
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<PAGE>
- --------------------------------------------------------------------------------
Provision and Allowance for Credit Losses
The provision for credit losses amounted to $5 million for 1996, compared with
$31 million for 1995 and $25 million in 1994.
The total allowance for credit losses decreased to $973 million at December
31, 1996, from $992 million at year end 1995 and $1.252 billion at December 31,
1994. Beginning December 31, 1996, in accordance with the American Institute of
Certified Public Accountants Banks and Savings Institutions Audit Guide, the
Corporation has allocated its total allowance for credit losses as follows: $773
million as a reduction of loans, and $200 million as other liabilities related
to other credit-related items. The Corporation continues to believe that the
total allowance for credit losses is available for credit losses in its entire
portfolio, which is comprised of loans, credit-related commitments, derivatives
and other financial instruments. Due to a multitude of complex and changing
factors that are collectively weighed in determining the adequacy of the
allowance for credit losses, management expects that the allocation of the total
allowance for credit losses may be adjusted as risk factors change. Prior year
amounts have not been restated.
Pursuant to a regulatory requirement, the table below provides the components
of the allowance for credit losses by category. 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 (in
millions).
December 31, 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------
Domestic
Commercial and industrial $ 75 $165 $ 133 $ 115 $ 162
Financial institutions 10 20 20 8 19
Real estate
Construction 8 8 5 15 10
Mortgage 67 70 54 65 50
Other 1 3 2 1 4
- -----------------------------------------------------------------------------
Total domestic 161 266 214 204 245
International 144 222 266 190 403
- -----------------------------------------------------------------------------
Total allocated 305 488 480 394 648
Unallocated portion*
Domestic 288 306 402 599 368
International 180 198 370 331 604
- -----------------------------------------------------------------------------
Allowance for
credit losses--loans 773 -- -- -- --
Allowance for
credit losses--other
liabilities 200 -- -- -- --
- -----------------------------------------------------------------------------
Total $973 $992 $1,252 $1,324 $1,620
=============================================================================
* 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
(in millions):
Year Ended December 31, 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------
Balance, beginning of year $ 420 $ 636 $521 $ 1,007 $ 1,198
- ----------------------------------------------------------------------------
Net charge-offs
Charge-offs 22 121 78 334 141
Recoveries 26 24 46 49 39
- ----------------------------------------------------------------------------
Total net charge-offs
(recoveries) (4) 97 32 285 102
Losses on sales and swaps of
refinancing country loans -- -- -- -- 117
- ----------------------------------------------------------------------------
Total net charges (recoveries)
to the allowance (4) 97 32 285 219
Provision for credit losses (1) 9 11 40 61
Reclass to other liabilities (24) -- -- -- --
Reallocation (to) from
domestic allowance (75) (128) 136 (241) (33)
- ----------------------------------------------------------------------------
Balance, end of year* $ 324 $ 420 $636 $ 521 $ 1,007
============================================================================
* The December 31, 1996 amount represents the international component of the
allowance for credit losses that has been allocated to loans.
The $75 million reallocation during 1996 and the $128 million reallocation
during 1995, from the international to the domestic component of the allowance
for credit losses, was based on the continuing evaluation of the Corporation's
overall credit portfolio.
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<PAGE>
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS
Table 10 shows the Corporation's trend of cash basis loans, renegotiated
loans, other real estate and other nonperforming assets ($ in millions).
TABLE 10 NONPERFORMING ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
December 31, 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash basis loans (nonrefinancing country)
Domestic
Commercial and industrial $117 $263 $316 $285 $ 481
Secured by real estate 233 297 277 306 349
Financial institutions -- 10 25 30 2
Other -- -- -- -- 1
- --------------------------------------------------------------------------------------------------
Total domestic 350 570 618 621 833
- --------------------------------------------------------------------------------------------------
International
Commercial and industrial 57 106 247 84 167
Secured by real estate 39 65 79 149 148
Financial institutions 4 3 48 -- --
Other 2 -- 2 2 8
- --------------------------------------------------------------------------------------------------
Total international 102 174 376 235 323
- --------------------------------------------------------------------------------------------------
Total cash basis loans (nonrefinancing country) 452 744 994 856 1,156
Cash basis loans (refinancing country)
International -- -- 2 118 221
- --------------------------------------------------------------------------------------------------
Total cash basis loans $452 $744 $996 $974 $1,377
==================================================================================================
Ratio of cash basis loans to total gross loans 2.9% 5.9% 8.0% 6.4% 8.0%
==================================================================================================
Ratio of allowance for credit losses to cash basis loans (1) 171% 133% 126% 136% 118%
==================================================================================================
Renegotiated loans
Mexican government Par Bonds $ -- $ -- $ -- $ -- $ 611
Highly leveraged -- -- -- 6 27
Secured by real estate 37 88 65 14 20
Other -- 12 1 1 1
- --------------------------------------------------------------------------------------------------
Total renegotiated loans $ 37 $100 $ 66 $ 21 $ 659
==================================================================================================
Other real estate $213 $259 $301 $287 $ 315
==================================================================================================
Other nonperforming assets
Assets acquired in credit workouts $ 10 $ 66 $ 61 $ 85 $ 73
Other -- 1 2 16 32
- --------------------------------------------------------------------------------------------------
Total other nonperforming assets $ 10 $ 67 $ 63 $101 $ 105
==================================================================================================
Loans 90 days or more past due and still accruing interest (2) $ -- $ 26 $ -- $ 40 $ 86
==================================================================================================
</TABLE>
(1) The 1996 ratio was computed using the $773 million allowance for credit
losses that has been allocated to loans.
(2) Represents loans 90 days or more past due with respect to interest or
principal. These loans were considered to be well secured and were in the
process of collection. The December 31, 1993 and 1992 balances include $15
million and $66 million of international loans, respectively.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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<PAGE>
- --------------------------------------------------------------------------------
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 evaluated to determine whether it
represents a potential loss. Whenever the probability of loss is believed to be
greater than 50 percent, a charge-off of the amount deemed uncollectible is
recommended to the Audit Committee of the Board of Directors. Once a charge-off
is taken the remaining portion, if any, is immediately placed on a cash basis.
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 as doubtful. It is the Corporation's policy to place all
assets classified as 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 $452 million at
December 31, 1996, a decrease of $292 million, or 39 per cent, from 1995, which
had decreased $252 million, or 25 percent, from 1994.
Cash basis loans decreased $292 million during 1996, primarily due to
collections and charge-offs in connection with the settlement of old derivative
transactions of $109 million, which were primarily classified as commercial and
industrial loans, as well as a $90 million decrease in loans secured by real
estate and an $87 million decrease in various other commercial and industrial
loans.
Within cash basis loans, loans secured by real estate were $272 million at
December 31, 1996. Commercial and industrial loans to highly leveraged borrowers
decreased $36 million to $117 million.
An analysis of the changes in the Corporation's total cash basis loans
follows:
(in millions)
Year Ended December 31, 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------
Balance, beginning of year $ 744 $ 996 $ 974 $ 1,377 $ 1,750
Net transfers to cash basis loans 96 314 520 230 312
Net paydowns (241) (221) (130) (140) (112)
Charge-offs (87) (330) (163) (232) (322)
Net transfers from (to)
other real estate (14) 13 (72) (10) (87)
Transfers to other
nonperforming assets -- -- (7) (58) (45)
Loan sales (38) (1) (49) (153) (50)
Other (8) (27) (77) (40) (69)
- ----------------------------------------------------------------------------
Balance, end of year $ 452 $ 744 $ 996 $ 974 $ 1,377
============================================================================
Cash basis loans decreased $252 million during 1995, primarily due to
charge-offs of $245 million and payments of $81 million on cash basis leveraged
derivative transactions. These were partially offset by additional transfers of
leveraged derivative transactions to cash basis loans of $79 million.
Within cash basis loans, loans secured by real estate increased by $6
million, to $362 million during 1995. Also included in cash basis loans were
commercial and industrial loans to highly leveraged borrowers which increased
$3 million, to $153 million at December 31, 1995.
Renegotiated loans decreased to $37 million at December 31, 1996 due to $63
million of transfers to cash basis loans. In 1995, renegotiated loans increased
$34 million primarily due to an increase in loans secured by real estate of $23
million.
Other real estate decreased $46 million to $213 million at December 31,
1996. The decrease was primarily attributable to $73 million of sales of
properties offset by an additional $24 million of foreclosed properties during
1996.
Other real estate decreased $42 million during 1995 primarily as a result
of the adoption of SFAS 114 during the first quarter of 1995. SFAS 114 required
the transfer of in-substance foreclosed properties, where the Corporation had
not taken possession of the collateral, to cash basis loans.
SPECIAL PORTFOLIO SEGMENTS
REAL ESTATE PORTFOLIO
The global real estate loan portfolio totaled $2.002 billion at December 31,
1996. This included domestic loans secured by real estate of $1.695 billion,
international loans secured by real estate of $130 million, and total real
estate related loans of $177 million. The largest geographic concentration
within loans secured by real estate was in properties in the Mid-Atlantic
region, at 25 percent, of which New York City and its suburbs comprised
approximately 57 percent. The next largest geographic concentrations were loans
secured by properties in California, Texas and the Southeast region, which
comprised 19 percent, 12 percent and 11 percent of the total, respectively. The
largest product-type concentrations were loans secured by office buildings,
apartments, and 1-4 family residential properties at 24 percent, 19 percent and
11 percent, respectively. All other concentrations were individually less than
11 percent of total loans secured by real estate. Approximately 50 percent of
the loans secured by real estate were purchased in the secondary market. These
were comprised primarily of domestic commercial real estate loans. Real estate
related loans consist of loans made for any purpose to organizations or
individuals, 80 percent of whose revenues 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
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
58
<PAGE>
- --------------------------------------------------------------------------------
$239 million of standby letters of credit and $155 million of unused commitments
to extend credit in connection with its commercial real estate financing
activities at December 31, 1996.
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 11 details the global real estate portfolio
at December 31, 1996 (in millions).
TABLE 11 REAL ESTATE LOANS AND OTHER REAL ESTATE
- ------------------------------------------------------------------------------
Outstanding Balance
---------------------------
Inter- Cash Basis
December 31, 1996 Domestic national Total Balance
- ------------------------------------------------------------------------------
Loans secured by real estate
Land under development $ 24 $ -- $ 24 $ 21
Construction
In lease-up (1) 109 -- 109 10
Standing (2)
1-4 family residential 190 26 216 1
Multifamily residential 365 24 389 10
Commercial 1,007 80 1,087(3) 230
- ------------------------------------------------------------------------------
Total loans secured by real estate 1,695 130 1,825 272
Real estate related loans 130 47 177 25
- ------------------------------------------------------------------------------
Total real estate loans $1,825 $177 $2,002 $297
==============================================================================
Other real estate $ 125 $ 88 $ 213
===================================================================
(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) Includes $37 million of renegotiated loans.
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 a 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 12 HIGHLY LEVERAGED TRANSACTIONS
(in millions) December 31, 1996 1995
- ----------------------------------------------------------------------
Loans
Senior debt $1,587 $1,105
Subordinated debt 76 68
- ----------------------------------------------------------------------
Total loans $1,663 $1,173
======================================================================
Unfunded commitments
Commitments to lend $ 875 $ 539
Letters of credit 128 263
- ----------------------------------------------------------------------
Total unfunded commitments $1,003 $ 802
======================================================================
Equity investments $ 665 $ 648
======================================================================
Commitments to invest $ 425 $ 289
======================================================================
The Corporation's outstanding loans were to 127 separate borrowers in 43
separate industry groups at December 31, 1996, compared to 97 separate borrowers
in 38 separate industry groups at December 31, 1995. There were no industry
concentrations which
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
59
<PAGE>
- --------------------------------------------------------------------------------
exceeded 10 percent of total HLT loans outstanding at December 31, 1996.
In addition to the amounts shown in Table 12, at December 31, 1996, the
Corporation had issued commitment letters which had been accepted, subject to
documentation and certain other conditions, of $749 million (which were in
various stages of syndication) and had additional HLTs in various stages of
discussion and negotiation.
During 1996, the Corporation originated $5.4 billion of HLT commitments. 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 per borrower for the portfolio at December 31, 1996 was less than
$14 million. However, at December 31, 1996, the Corporation had total exposure
(loans outstanding plus unfunded commitments) in excess of $50 million to 7
separate highly leveraged borrowers.
At December 31, 1996, $117 million of the HLT loan portfolio was on a cash
basis. In addition, $4 million of the equity investments in HLT companies
represented assets acquired in credit workouts, which are reported as other
nonperforming assets. Net charge-offs of $11 million of HLT loans were recorded
in 1996. In addition, the Corporation recorded a net gain of $143 million in
connection with the sales and/or write-offs of certain equity investments in
highly leveraged companies during 1996.
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
$120 million during 1996 and that as of December 31, 1996, approximately $24
million of fees were deferred and will be recognized as future revenue.
CROSS-BORDER OUTSTANDINGS
The Corporation's cross-border outstandings reflect certain additional economic
and political risks beyond those associated with its domestic outstandings.
These risks include those arising from exchange rate fluctuations, restrictions
on the transfer of funds and balance-of-payments issues.
Set forth in Table 13 are the Corporation's cross-border outstandings at
December 31, 1996, 1995 and 1994, for each foreign country where such
outstandings exceeded one percent of total assets. The cross-border outstandings
were compiled based upon category and domicile of ultimate risk and are
comprised of balances with banks, trading securities, securities available for
sale, securities purchased under resale agreements, loans, accrued interest
receivable, acceptances outstanding and investments with foreign entities. The
amounts outstanding for each country exclude local currency outstandings. The
Corporation does not have significant local currency outstandings to the
individual countries listed in the following table that are not hedged or are
not funded by local currency borrowings.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
60
<PAGE>
- --------------------------------------------------------------------------------
TABLE 13 CROSS-BORDER OUTSTANDINGS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Governments Banks and
% of and Other Commercial
Total Total Official Financial and
($ in millions) Outstandings Assets Institutions Institutions Industrial Other
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1996
United Kingdom $3,904 3.25% $ 12 $3,461 $ 430 $1
Switzerland 3,598 2.99 -- 3,332 266 --
France 3,485 2.90 63 3,005 416 1
Spain 2,670 2.22 960 1,667 43 --
Japan (1) 2,523 2.10 477 979 1,067 --
Germany 1,700 1.41 537 758 405 --
Mexico (2) 1,332 1.11 676 329 327 --
Italy 1,285 1.07 751 384 150 --
Brazil (2) 1,266 1.05 569 454 243 --
- ------------------------------------------------------------------------------------------------------------------------
At December 31, 1995
Japan (1) $2,844 2.73% $ 456 $1,393 $ 987 $8
France 2,150 2.07 291 1,615 244 --
United Kingdom 1,945 1.87 19 1,448 478 --
Spain 1,877 1.80 1,338 494 44 1
Italy 1,522 1.46 1,265 209 48 --
Brazil (2) 1,120 1.08 475 494 151 --
- ------------------------------------------------------------------------------------------------------------------------
At December 31, 1994
Japan $4,661 4.80% $1,911 $2,267 $ 483 $--
United Kingdom 1,960 2.02 26 1,787 145 2
Italy 1,574 1.62 1,039 449 86 --
France 1,559 1.61 105 1,091 363 --
Germany 1,424 1.47 585 698 140 1
Mexico (2) 1,416 1.46 509 801 106 --
Argentina (2) 1,072 1.10 912 22 138 --
Spain 1,035 1.07 628 374 32 1
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Corporation's cross-border outstandings with Japanese banks and other
financial institutions primarily consisted of interest-bearing deposits
with banks and trading assets carried at fair value.
(2) The Corporation's cross-border outstandings as presented above for Brazil
and Argentina primarily consisted of trading assets which are carried at
fair value. The cross-border outstanding for Mexico primarily consisted of
trading assets carried at fair value and securities purchased under resale
agreements.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
61
<PAGE>
- --------------------------------------------------------------------------------
Governments and official institutions comprises foreign governments and
their agencies; state, provincial and local governments and their agencies; and
central banks. Banks and other financial institutions comprises 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 13.
Cash Basis Renegotiated
(in millions) Loans Loans
- ---------------------------------------------------------
AT DECEMBER 31, 1996
Italy $ 3 $--
Spain 2 --
- ---------------------------------------------------------
Total $ 5 $--
=========================================================
At December 31, 1995
Italy $16 $--
- ---------------------------------------------------------
Total $16 $--
=========================================================
At December 31, 1994
United Kingdom $11 $--
Other 27 --
- ---------------------------------------------------------
Total $38 $--
=========================================================
At December 31, 1996, total cross-border commitments to borrowers or
counterparties domiciled in the countries presented in Table 13 were: United
Kingdom, $242 million; Switzerland, $66 million; France, $121 million; Spain, $1
million; Japan, $39 million; Germany, $212 million; Mexico, $16 million; Italy,
$2 million; and Brazil, $24 million.
Hong Kong and Canada were the only countries whose cross-border outstanding
was between .75 percent and 1.00 percent of total assets at December 31, 1996.
The aggregate cross-border outstandings for these countries amounted to $1.1
billion, or .94 percent of total assets for Hong Kong and $914 million, or .76
percent of total assets for Canada.
Mexico, Germany and Belgium were the only countries whose cross-border
outstanding was between .75 percent and 1.00 percent of total assets at December
31, 1995. The aggregate cross-border outstandings for these countries amounted
to $1.0 billion, or .98 percent of total assets for Mexico (a majority of which
consisted of trading assets carried at fair value), $939 million, or .90 percent
of total assets for Germany, and $840 million, or .81 percent of total assets
for Belgium.
Switzerland was the only country whose cross-border out standing was
between .75 percent and 1.00 percent of total assets at December 31, 1994. The
aggregate cross-border outstandings for this country amounted to $963 million,
or .99 percent of total assets.
ACCOUNTING DEVELOPMENTS
In June 1996, the FASB issued SFAS 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS 125
establishes, among other things, criteria for determining whether a transfer
of financial assets is a sale or a secured borrowing. As issued, SFAS 125 is
effective for all transfers occurring after December 31, 1996.
In December 1996, the FASB issued SFAS 127 which defers for one year the
effective date of some portions of SFAS 125 which relate to collateral,
repurchase agreements, dollar-rolls, securities lending and similar
transactions.
The adoption as of January 1, 1997 of the effective portions of SFAS 125
will not have a material impact on the Corporation's net income, stockholders'
equity or total assets. The Corporation is continuing to assess the impact of
the portions of SFAS 125 required to be adopted as of January 1, 1998, and does
not expect a material impact on the Corporation's net income, stockholders'
equity or total assets.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
62
<PAGE>
(GRAPHIC OMITTED)
================================================================================
--------------
ARCHITECTS
OF VALUE
CREATE
SOLUTIONS
THAT
CONTINUE TO
PERFORM
OVER TIME.
--------------
Financial Reports
Section
Financial Statements
CONSOLIDATED STATEMENT
OF INCOME.................................................................. 64
CONSOLIDATED BALANCE SHEET................................................. 65
CONSOLIDATED STATEMENT
OF CHANGES IN
STOCKHOLDERS' EQUITY....................................................... 66
CONSOLIDATED STATEMENT
OF CASH FLOWS.............................................................. 67
NOTES TO FINANCIAL
STATEMENTS................................................................. 68
MANAGEMENT'S REPORT ON
RESPONSIBILITY FOR
FINANCIAL REPORTING........................................................ 101
REPORT OF
INDEPENDENT AUDITORS....................................................... 102
Supplemental Financial Data
CONDENSED QUARTERLY
CONSOLIDATED STATEMENT
OF INCOME.................................................................. 103
STOCKHOLDER DATA........................................................... 103
AVERAGE BALANCES, INTEREST
AND AVERAGE RATES.......................................................... 104
VOLUME/RATE ANALYSIS
OF CHANGES IN NET
INTEREST REVENUE........................................................... 106
INTEREST RATE SENSITIVITY.................................................. 107
DEPOSITS................................................................... 108
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 1-35, 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 114 are
incorporated in the Form 10-K.
<PAGE>
CONSOLIDATED STATEMENT OF INCOME (in millions, except per share data)
- -------------------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------
NET INTEREST REVENUE
Interest revenue $6,366 $5,886 $5,030
Interest expense 5,400 5,069 3,858
- -------------------------------------------------------------------------------
NET INTEREST REVENUE 966 817 1,172
Provision for credit losses 5 31 25
- -------------------------------------------------------------------------------
NET INTEREST REVENUE AFTER PROVISION FOR
CREDIT LOSSES 961 786 1,147
- -------------------------------------------------------------------------------
NONINTEREST REVENUE
Trading 846 341 465
Fiduciary and funds management 783 697 740
Corporate finance fees 507 398 431
Other fees and commissions 343 314 325
Net revenue from equity investment transactions 211 146 109
Securities available for sale gains 75 180 72
Insurance premiums 230 234 183
Other 204 113 148
- -------------------------------------------------------------------------------
Total noninterest revenue 3,199 2,423 2,473
- -------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries 867 804 774
Incentive compensation and employee benefits 951 640 724
Agency and other professional service fees 311 318 268
Communication and data services 193 184 176
Occupancy, net 150 152 146
Furniture and equipment 171 162 163
Travel and entertainment 97 88 109
Provision for policyholder benefits 280 271 205
Other 268 229 186
Provision for severance-related costs -- 50 --
- -------------------------------------------------------------------------------
Total noninterest expenses 3,288 2,898 2,751
- -------------------------------------------------------------------------------
Income before income taxes 872 311 869
Income taxes 260 96 254
- -------------------------------------------------------------------------------
NET INCOME $ 612 $ 215 $ 615
===============================================================================
NET INCOME APPLICABLE TO COMMON STOCK $ 561 $ 164 $ 587
===============================================================================
EARNINGS PER COMMON SHARE:
PRIMARY $ 6.78 $ 2.03 $ 7.17
===============================================================================
FULLY DILUTED $ 6.74 $ 2.02 $ 7.17
===============================================================================
Cash dividends declared per common share $ 4.00 $ 4.00 $ 3.70
===============================================================================
The accompanying notes are an integral part of the financial statements.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
64
<PAGE>
CONSOLIDATED BALANCE SHEET ($ in millions, except par value)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
December 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,543 $ 2,337
Interest-bearing deposits with banks 2,210 2,023
Federal funds sold 1,599 854
Securities purchased under resale agreements 17,986 13,206
Securities borrowed 16,676 10,951
Trading assets:
Government securities 16,745 20,704
Corporate debt securities 8,005 5,648
Equity securities 6,048 5,098
Swaps, options and other derivatives 11,410 10,555
Other trading assets 6,711 5,888
- -----------------------------------------------------------------------------------------------------------
Total trading assets 48,919 47,893
Securities available for sale 7,920 6,283
Loans -- 12,633
Allowance for credit losses -- (992)
Loans, net of allowance for credit losses of $773 at December 31, 1996 15,053 --
Due from customers on acceptances 597 500
Accounts receivable and accrued interest 3,003 4,220
Other assets 4,729 4,094
- -----------------------------------------------------------------------------------------------------------
Total $ 120,235 $ 104,002
===========================================================================================================
LIABILITIES
Noninterest-bearing deposits
Domestic offices $ 2,600 $ 2,687
Foreign offices 1,013 605
Interest-bearing deposits
Domestic offices 9,928 5,402
Foreign offices 16,774 17,014
- -----------------------------------------------------------------------------------------------------------
Total deposits 30,315 25,708
Trading liabilities:
Securities sold, not yet purchased
Government securities 7,652 11,092
Equity securities 4,151 3,262
Other trading liabilities 325 473
Swaps, options and other derivatives 11,585 11,264
- -----------------------------------------------------------------------------------------------------------
Total trading liabilities 23,713 26,091
Securities sold under repurchase agreements 23,000 15,247
Other short-term borrowings 19,395 15,761
Acceptances outstanding 597 500
Accounts payable and accrued expenses 3,656 3,931
Other liabilities, including allowance for credit losses of $200 at December 31, 1996 2,236 2,236
Long-term debt not included in risk-based capital 8,533 6,934
Long-term debt included in risk-based capital 2,576 2,360
Mandatorily redeemable capital securities of subsidiary trusts holding solely
junior subordinated deferrable interest debentures included in risk-based capital 730 --
- -----------------------------------------------------------------------------------------------------------
Total liabilities 114,751 98,768
===========================================================================================================
Commitments and contingent liabilities (Notes 7 and 23)
PREFERRED STOCK OF SUBSIDIARY 250 250
- -----------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock 810 865
Common stock, $1 par value
Authorized, 300,000,000 shares
Issued 83,678,973 shares 84 84
Capital surplus 1,339 1,302
Retained earnings 3,462 3,316
Common stock in treasury, at cost: 1996, 4,435,226 shares; 1995, 4,602,855 shares (372) (336)
Other stockholders' equity (89) (247)
- -----------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,234 4,984
- -----------------------------------------------------------------------------------------------------------
Total $ 120,235 $ 104,002
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
65
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK
Balance, beginning of year $ 865 $ 395 $ 250
Preferred stock issued 1 470 350
Preferred stock repurchased (56) -- --
Preferred stock redeemed -- -- (205)
- ------------------------------------------------------------------------------------
Balance, end of year 810 865 395
- ------------------------------------------------------------------------------------
COMMON STOCK
Balance, beginning and end of year 84 84 84
- ------------------------------------------------------------------------------------
CAPITAL SURPLUS
Balance, beginning of year 1,302 1,317 1,321
Preferred stock issuance and conversion costs -- (17) (8)
Common stock distributed under employee benefit plans 30 2 4
Preferred stock repurchased 7 -- --
- ------------------------------------------------------------------------------------
Balance, end of year 1,339 1,302 1,317
- ------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of year 3,316 3,494 3,226
Net income 612 215 615
Cash dividends declared
Preferred stock (58) (47) (28)
Common stock (321) (314) (291)
Treasury stock distributed under employee benefit plans (80) (32) (28)
Treasury stock associated with acquisition (7) -- --
- ------------------------------------------------------------------------------------
Balance, end of year 3,462 3,316 3,494
- ------------------------------------------------------------------------------------
COMMON STOCK IN TREASURY, AT COST
Balance, beginning of year (336) (416) (233)
Purchases of stock (608) (38) (267)
Restricted stock granted, net 37 54 50
Treasury stock distributed under employee benefit plans 325 64 34
Treasury stock associated with acquisition 210 -- --
- ------------------------------------------------------------------------------------
Balance, end of year (372) (336) (416)
- ------------------------------------------------------------------------------------
COMMON STOCK ISSUABLE -- STOCK AWARDS
Balance, beginning of year 233 160 143
Deferred stock awards granted, net 294 89 18
Deferred stock distributed (1) (16) (1)
- ------------------------------------------------------------------------------------
Balance, end of year 526 233 160
- ------------------------------------------------------------------------------------
DEFERRED COMPENSATION -- STOCK AWARDS
Balance, beginning of year (151) (63) (47)
Deferred stock awards granted, net (293) (88) (17)
Restricted stock granted, net (38) (48) (40)
Amortization of deferred compensation, net 174 48 41
- ------------------------------------------------------------------------------------
Balance, end of year (308) (151) (63)
- ------------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, beginning of year (348) (336) (319)
Translation adjustments (40) (3) (76)
Income taxes applicable to translation adjustments 24 (9) 59
- ------------------------------------------------------------------------------------
Balance, end of year (364) (348) (336)
- ------------------------------------------------------------------------------------
SECURITIES VALUATION ALLOWANCE
Balance, beginning of year 19 69 109
Change in unrealized net gains, after applicable
income taxes and minority interest 38 (50) (40)
- ------------------------------------------------------------------------------------
Balance, end of year 57 19 69
- ------------------------------------------------------------------------------------
Total stockholders' equity, end of year $ 5,234 $ 4,984 $ 4,704
====================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
66
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS (in millions)
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 612 $ 215 $ 615
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for credit losses 5 31 25
Provision for severance-related costs -- 50 --
Provision for policyholder benefits 280 271 205
Deferred income taxes 91 (259) (141)
Depreciation and amortization of premises and equipment 146 134 128
Other, net (103) (60) (86)
- --------------------------------------------------------------------------------------------------------------------------
Earnings adjusted for noncash charges and credits 1,031 382 746
Net change in:
Trading assets (2,642) (1,375) 1,003
Trading liabilities (2,355) 5,829 11,220
Receivables and payables from securities transactions 1,179 (1,079) (516)
Other operating assets and liabilities, net (1,016) (35) (150)
Securities available for sale gains (75) (180) (72)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (3,878) 3,542 12,231
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits with banks (217) 1,194 (1,791)
Federal funds sold (745) 1,690 (2,183)
Securities purchased under resale agreements (4,770) (6,366) (127)
Securities borrowed (5,725) (1,588) (3,260)
Loans (2,914) (279) 3,225
Securities available for sale:
Purchases (5,910) (4,164) (5,830)
Maturities and other redemptions 3,191 3,875 2,947
Sales 1,571 1,871 2,201
Acquisitions of premises and equipment (196) (124) (292)
Other, net 93 (93) (68)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (15,622) (3,984) (5,178)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in:
Deposits 4,708 833 1,426
Securities sold under repurchase agreements 8,316 (678) (8,297)
Other short-term borrowings 3,497 (2,260) (393)
Issuances of long-term debt* 4,262 4,677 2,411
Repayments of long-term debt (1,308) (1,627) (1,615)
Issuances of preferred stock -- 221 342
Redemptions and repurchases of preferred stock (49) -- (205)
Purchases of treasury stock (608) (38) (267)
Cash dividends paid (378) (361) (322)
Other, net 258 34 23
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 18,698 801 (6,897)
- --------------------------------------------------------------------------------------------------------------------------
Net effect of exchange rate changes on cash 8 (7) 79
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (794) 352 235
Cash and due from banks, beginning of year 2,337 1,985 1,750
- --------------------------------------------------------------------------------------------------------------------------
Cash and due from banks, end of year $ 1,543 $ 2,337 $ 1,985
==========================================================================================================================
Interest paid $ 5,463 $ 5,078 $ 3,737
==========================================================================================================================
Income taxes paid, net $ 190 $ 217 $ 216
==========================================================================================================================
Noncash investing activities:
Conversions of loans to other real estate and assets acquired in credit workouts $ 24 $ 24 $ 73
Exchanges of Chilean government bonds for annuity contracts 76 88 91
Other** 203 -- 32
- --------------------------------------------------------------------------------------------------------------------------
Total noncash investing activities $ 303 $ 112 $ 196
==========================================================================================================================
Noncash financing activity: conversion of debt to preferred stock $ 1 $ 245 $ --
==========================================================================================================================
</TABLE>
* Includes $730 million related to mandatorily redeemable capital securities
of subsidiary trusts holding solely junior subordinated deferrable interest
debentures included in risk-based capital.
** 1996 amount related to treasury stock associated with acquisition.
The accompanying notes are an integral part of the financial statements.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
67
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Bankers Trust New York Corporation together with its subsidiaries (the
"Corporation" or the "Firm") is a global provider of a wide range of financial
services. The accounting policies of the Corporation conform with generally
accepted accounting principles and prevailing industry practices. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the balance sheet date, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from management's estimates. The following is a description of the
significant accounting policies of 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 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 and other OECD country sovereign bonds,
monitors their fair value and requests additional collateral when deemed
appropriate. The Corporation offsets resale and repurchase agreements which meet
the applicable netting criteria.
Securities borrowed that are cash collateralized 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 Securities; Securities Available for Sale
The Corporation designates securities as either trading or available for sale at
the date of acquisition.
Debt and marketable equity securities and money market instruments which
are classified as trading assets, as well as short trading positions which are
classified as trading liabilities are carried at their fair values with the
resulting gains and losses included in trading revenue.
Securities available for sale, including applicable hedges, are valued at
fair value with the resulting net unrealized gains or losses recorded in
stockholders' equity as securities valuation allowance. Realized gains and
losses, as well as the amortization of premiums and accretion of discounts, are
recorded in earnings. The specific identification method is used to determine
the cost of securities sold.
Fair value is generally based on quoted market prices or broker or dealer
price quotations.
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 fair values as either trading assets or
trading liabilities. Fair values for derivatives are based on quoted market
prices or 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. Unrealized gains and losses are
reported as assets and liabilities except for gains and losses arising from
contracts covered by qualifying master netting agreements which are reported on
a net basis. Gains and losses resulting from these positions are included in
trading revenue.
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 rate, currency and other market risks arising from
a number of categories of its assets and liabilities. Derivatives used to manage
such risks must be designated as a hedge at their inception and must remain
effective as a hedge throughout the hedge period. Revenue or expense pertaining
to management of interest rate exposure is predominantly recognized over the
life of the contract as an adjustment to interest revenue or expense. Realized
gains and losses on hedges of equities classified as other assets are included
in the carrying amounts of those assets and are ultimately recognized in income
when those assets are sold. Derivatives are also used to manage the risks
associated with securities available for sale. These derivatives are carried at
fair value with the resulting net unrealized gains and losses recorded in
stockholders' equity as securities valuation allowance. The discount or premium
on foreign exchange for ward 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 recorded
in stockholders' equity as cumulative translation adjustments.
Loans, Other Real Estate and
Other Nonperforming Assets
Loans generally are stated at their outstanding unpaid principal balances net of
any deferred fees on originated loans, or unamortized premiums or discounts on
purchased loans. Interest income is accrued on the unpaid principal balance.
Loan origination fees are deferred and recognized as an adjustment of the yield
(interest income) of the related loans.
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 as doubtful and all
partially charged-off loans are
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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68
<PAGE>
- --------------------------------------------------------------------------------
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 work-outs, 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 arising from the
Corporation's portfolio which comprises loans, credit-related commitments,
derivatives and other financial instruments. Whenever the Credit Audit
Department determines that the probability of loss is greater than 50 percent, a
charge-off of the amount deemed uncollectible is recommended to the Audit
Committee of the Board of Directors. Subsequent recoveries, if any, are credited
to the allowance.
Included in the allowance for credit losses is a valuation allowance for
impaired loans. 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. Impairment is measured based on one
of the following: 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 if the loan is collateral dependent.
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, evaluations of the quality of the portfolio by
the Credit Audit Department and by the bank regulatory authorities, and the
actual loss experience and the level of the allowance. Assessing the adequacy of
the allowance for credit losses is inherently subjective as it requires making
material estimates, including the amount and timing of future cash flows
expected to be received on impaired loans, that may be susceptible to
significant change. 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 entire portfolio.
Beginning December 31, 1996, in accordance with the American Institute of
Certified Public Accountants' Banks and Savings Institutions Audit and
Accounting Guide, the Corporation has allocated its total allowance for credit
losses to a portion reported as a reduction of loans and a portion related to
other credit-related items reported as other liabilities. Prior year amounts
have not been restated. Due to the inherent subjectivity in assessing the
adequacy of the allowance for credit losses discussed above, management expects
that the allocation of the total allowance for credit losses may be adjusted as
risk factors change.
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 subsidiaries, premiums are recognized as
revenue over the premium paying period of the related disability, annuity and
other life insurance policies and are recorded in noninterest revenue as
insurance premiums. 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 expense recorded in
noninterest expenses as provision for policyholder benefits.
Income Taxes
The Corporation recognizes the current and deferred tax consequences of all
transactions that have been recognized in the financial statements using the
provisions of the enacted tax laws. Deferred tax assets and liabilities are
recognized for the estimated future tax effects of temporary differences. The
amount of deferred tax assets is reduced, if necessary, to the amount that,
based on available evidence, will more likely than not be realized.
Stock-Based Compensation
The Corporation accounts for its stock option awards under the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Corporation makes pro forma disclosures of
net income and earnings per share as if the fair value based method of
accounting had been applied as required by Statement of Financial Accounting
Standards ("SFAS") 123, "Accounting for Stock-Based Compensation."
The Corporation records its obligations under outstanding deferred stock
awards in stockholders' equity as common stock issuable-stock awards. The
related deferred compensation is also
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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69
<PAGE>
- --------------------------------------------------------------------------------
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.
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--CHANGE IN ACCOUNTING PRINCIPLES
Loan Impairment
On January 1, 1995, the Corporation adopted SFAS 114, "Accounting by Creditors
for Impairment of a Loan." This statement, as amended by SFAS 118, "Accounting
for Impairment of a Loan--Income Recognition and Disclosures," requires the
creation of a valuation allowance for impaired loans based on one of the
following: 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 if the loan is collateral dependent. 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. Adoption of this standard resulted in an allocation of
a portion of the existing allowance for credit losses to a specific valuation
allowance for impaired loans.
Additionally, under SFAS 114, a loan is classified as in- substance
foreclosure when physical possession of the collateral has been taken regardless
of whether formal foreclosure proceedings have taken place. As a result, during
the first quarter of 1995, loans previously classified as other real estate but
for which the Corporation had not taken possession of the collateral were
transferred to cash basis loans. This reclassification did not impact the
Corporation's financial condition or results of operations.
NOTE 3--TRADING ASSETS AND TRADING LIABILITIES
The components of these accounts, which are carried at fair value, were as
follows:
(in millions) December 31, 1996 1995
- --------------------------------------------------------------------------------
TRADING ASSETS
U.S. government and agency securities $ 7,627 $10,630
Obligations of U.S. states and political subdivisions 295 393
Foreign government securities 8,823 9,681
Corporate debt securities 8,005 5,648
Equity securities 6,048 5,098
Swaps, options and other derivative contracts(1) 11,410 10,555
Bankers acceptances and certificates of deposit 2,542 1,572
Other 4,169 4,316
- --------------------------------------------------------------------------------
Total trading assets $48,919 $47,893
================================================================================
TRADING LIABILITIES
Securities sold, not yet purchased
U.S. government and agency securities $ 4,905 $ 7,987
Obligations of U.S. states and political subdivisions -- 7
Foreign government securities 2,747 3,098
Equity securities 4,151 3,262
Other 325 473
Swaps, options and other derivative contracts(1) 11,585 11,264
- --------------------------------------------------------------------------------
Total trading liabilities $23,713 $26,091
================================================================================
(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 Financial
Accounting Standards Board ("FASB") Interpretation No. 39 ("FIN 39"),
"Offsetting of Amounts Related to Certain Contracts."
Securities sold, not yet purchased are recorded as liabilities on the
balance sheet and have off-balance sheet 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.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
70
<PAGE>
- --------------------------------------------------------------------------------
NOTE 4--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:
<TABLE>
<CAPTION>
(in millions) December 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------
Gross Gross
Unrealized Holding Unrealized Holding
Fair ------------------ Amortized Fair ------------------ Amortized
Value Gains (Losses) Cost Value Gains (Losses) Cost
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities
U.S. government and agencies $ 332 $ -- $-- $ 332 $ 431 $ 2 $ (5) $ 434
States of the U.S. and
political subdivisions 1,261 51 (37) 1,247 1,387 66 (56) 1,377
Asset-backed 1,352 1 (1) 1,352 1,198 4 (6) 1,200
Foreign governments 1,455 33 (4) 1,426 1,669 14 (11) 1,666
Corporate debt 2,872 22 (26) 2,876 1,179 13 (17) 1,183
Mortgage-backed 12 -- -- 12 9 -- -- 9
Equity securities 636 138 (12) 510 410 83 (8) 335
- ----------------------------------------------------------------------------------------------------------------
Total securities available for
sale $7,920 $245 $(80) $7,755 $6,283 $182 $(103) $6,204
================================================================================================================
</TABLE>
(in millions) December 31, 1994
- --------------------------------------------------------------------------------
Gross
Unrealized Holding
Fair ------------------ Amortized
Value Gains (Losses) Cost
- --------------------------------------------------------------------------------
Debt securities
U.S. government and agencies $ 893 $ 8 $ (19) $ 904
States of the U.S. and
political subdivisions 2,249 75 (46) 2,220
Asset-backed 1,447 4 (4) 1,447
Foreign governments 1,469 37 (11) 1,443
Corporate debt 1,000 21 (14) 993
Mortgage-backed -- -- -- --
Equity securities 417 125 (7) 299
- --------------------------------------------------------------------------------
Total securities available for
sale $7,475 $270 $(101) $7,306
================================================================================
Except for securities of the Government of Chile, 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, 1996.
The Chilean securities are part of the portfolio of Consorcio having an
amortized cost and a fair value of $562 million and $573 million, respectively.
The components of securities available for sale gains as reported in the
consolidated statement of income follow:
(in millions) Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Debt securities--gross realized gains $ 39 $ 28 $ 43
Debt securities--gross realized losses (11) (27) (39)
Equity securities--net realized gains 47 179 68
- --------------------------------------------------------------------------------
Total securities available for sale gains $ 75 $ 180 $ 72
================================================================================
The following table shows the fair value, remaining maturities, approximate
weighted average yields (based on amortized cost) and total amortized cost by
maturity distribution of the debt components of the Corporation's securities
available for sale at December 31, 1996.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Maturity Distribution
--------------------------------------------------------------------------------------------------
After One After Five
Within But Within But Within After Mortgage
One Year Five Years Ten Years Ten Years Backed Total
- -----------------------------------------------------------------------------------------------------------------------------------
($ in millions) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government and agencies $ 266 5.98% $ 63 5.91% $ -- --% $ 3 6.60% $ -- --% $ 332 5.97%
States of the U.S. and political
subdivisions 75 2.39 312 4.48 443 5.69 431 6.05 -- -- 1,261 5.29
Asset-backed securities 173 5.53 699 6.11 371 5.98 109 6.14 -- -- 1,352 6.00
Foreign government securities 525 16.12 467 6.71 274 6.77 189 6.91 -- -- 1,455 10.16
Corporate debt 1,686 5.76 972 5.66 144 5.64 70 7.46 -- -- 2,872 5.76
Mortgage-backed -- -- -- -- -- -- -- -- 12 15.24 12 15.24
- -----------------------------------------------------------------------------------------------------------------------------------
Total fair value $2,725 $2,513 $1,232 $ 802 $ 12 $7,284
======================================= ====== ====== ====== ====== ======
Total amortized cost $2,717 $2,519 $1,214 $ 783 $ 12 $7,245
======================================= ====== ====== ====== ====== ======
</TABLE>
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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- --------------------------------------------------------------------------------
NOTE 5--LOANS
The following table summarizes the composition of loans at the end of each of
the last five years:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
($ in millions) December 31, 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
Domestic
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 3,422 21% $ 2,520 20% $ 2,218 18% $ 2,794 18% $ 3,727 21%
Financial institutions 1,631 10 1,778 14 2,221 17 3,210 21 4,544 26
Real estate
Construction 133 1 154 1 234 2 245 2 261 2
Mortgage 1,562 10 1,276 10 1,126 9 1,550 10 1,625 9
Other 1,382 9 1,442 11 1,044 8 1,780 12 1,312 8
- -----------------------------------------------------------------------------------------------------------------------------------
Total domestic 8,130 51 7,170 56 6,843 54 9,579 63 11,469 66
- -----------------------------------------------------------------------------------------------------------------------------------
International
Governments and official
institutions 237 1 227 2 184 2 456 3 1,316 8
Banks and other financial
institutions 3,482 22 1,543 13 2,994 24 1,935 12 1,076 6
Commercial and industrial 2,759 17 1,934 15 1,428 11 1,721 11 1,930 11
Real estate
Construction -- -- 2 -- 2 -- 2 -- 18 --
Mortgage 130 1 176 1 138 1 261 2 394 2
Other 1,290 8 1,701 13 1,014 8 1,346 9 1,212 7
- -----------------------------------------------------------------------------------------------------------------------------------
Total international 7,898 49 5,583 44 5,760 46 5,721 37 5,946 34
- -----------------------------------------------------------------------------------------------------------------------------------
Gross loans 16,028 100% 12,753 100% 12,603 100% 15,300 100% 17,415 100%
=== === === === ===
Less: unearned income 202 120 102 100 97
- -------------------------------------- ------- ------- ------- -------
Total loans $15,826 $12,633 $12,501 $15,200 $17,318
====================================== ======= ======= ======= =======
</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,
1996.
The following table shows certain maturity information for the
Corporation's loans at December 31, 1996, excluding 1-4 family mortgages,
installment loans and lease financing:
Remaining Maturity
- --------------------------------------------------------------------------------
Within After One After
One But Within Five
(in millions) Year Five Years Years Total
- --------------------------------------------------------------------------------
Domestic
Commercial and industrial $ 483 $ 2,035 $ 904 $ 3,422
Financial institutions 1,470 141 20 1,631
Real estate
Construction 10 123 -- 133
Mortgage 443 825 102 1,370
Other 1,028 106 19 1,153
- --------------------------------------------------------------------------------
Total domestic 3,434 3,230 1,045 7,709
International 5,349 1,864 357 7,570
- --------------------------------------------------------------------------------
Total $ 8,783 $ 5,094 $ 1,402 $15,279
================================================================================
Loans due after one year
With predetermined interest rates $ 1,753 $ 448
======================================================================
With floating or adjustable
interest rates $ 3,341 $ 954
======================================================================
Cash Basis Loans and Renegotiated Loans
The Corporation's cash basis loans and renegotiated loans are summarized as
follows:
(in millions) December 31, 1996 1995
- --------------------------------------------------------------------------------
Cash basis loans
Domestic $350 $570
International 102 174
- --------------------------------------------------------------------------------
Total cash basis loans $452 $744
================================================================================
Renegotiated loans
Domestic $ 37 $100
International -- --
- --------------------------------------------------------------------------------
Total renegotiated loans $ 37 $100
================================================================================
At December 31, 1996 and 1995, the Corporation had commitments to make
additional loans to borrowers on a cash basis or renegotiated status of $26
million and $27 million, respectively.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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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.
(in millions) Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Domestic loans
Gross amount of interest that would
have been recorded at original rate $38 $64 $52
Less, interest, net of reversals,
recognized in interest revenue 7 13 3
- --------------------------------------------------------------------------------
Reduction of interest revenue 31 51 49
- --------------------------------------------------------------------------------
International loans
Gross amount of interest that would
have been recorded at original rate 9 15 27
Less, interest, net of reversals,
recognized in interest revenue -- -- 4
- --------------------------------------------------------------------------------
Reduction of interest revenue 9 15 23
- --------------------------------------------------------------------------------
Total reduction of interest revenue $40 $66 $72
================================================================================
On January 1, 1995, the Corporation adopted SFAS 114. This statement, as
amended by SFAS 118, requires the creation of a valuation allowance for impaired
loans. 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. At December 31, 1996 and December 31, 1995, the
recorded investment in loans that was considered to be impaired under SFAS 114
was $489 million and $844 million, respectively, which consisted of total cash
basis loans and renegotiated loans. Included in these amounts were $227 million
and $458 million of loans which required a valuation allowance of $57 million
and $90 million at those same dates, respectively. The average recorded
investment in impaired loans during the years ended December 31, 1996 and
December 31, 1995 was approximately $633 million and $951 million, respectively.
For the years ended December 31, 1996 and December 31, 1995, the Corporation
recognized interest income on impaired loans of $7 million and $13 million,
respectively, using the cash basis method of income recognition described above
and in Note 1. Also as a result of the adoption of SFAS 114, $35 million of
in-substance foreclosed properties were transferred from other real estate to
cash basis loans for the year ended December 31, 1995.
NOTE 6--ALLOWANCE FOR CREDIT LOSSES
An analysis of the changes in the Corporation's allowance for credit losses
follows:
(in millions) Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Balance, beginning of year $ 992 $1,252 $1,324
- --------------------------------------------------------------------------------
Net charge-offs
Charge-offs 89 330 168
Recoveries 65 39 71
- --------------------------------------------------------------------------------
Total net charge-offs 24 291 97
Provision for credit losses 5 31 25
- --------------------------------------------------------------------------------
Balance, end of year (1) $ 973 $ 992 $1,252
================================================================================
(1) Allocation*:
Loans $ 773
Other liabilities 200
- --------------------------------------------------------
Balance, end of year $ 973
========================================================
* See Note 1 for discussion of allowance for credit losses.
NOTE 7--PREMISES AND EQUIPMENT; LEASES
An analysis of premises and equipment follows:
(in millions) December 31, 1996 1995
- --------------------------------------------------------------------------------
Land $ 99 $ 73
Buildings 425 321
Leasehold improvements 355 342
Furniture and equipment 1,083 974
Property leased under capital leases
Land and buildings -- 76
Equipment 3 3
Construction-in-progress 29 14
- --------------------------------------------------------------------------------
Total 1,994 1,803
Less accumulated depreciation and amortization 1,018 907
- --------------------------------------------------------------------------------
Net book value $ 976 $ 896
================================================================================
Included in accumulated depreciation and amortization was accumulated
amortization related to capital leases of $2 million and $28 million at December
31, 1996 and 1995, respectively.
The Corporation is a lessee under lease agreements covering real property
and equipment. Certain leases contain purchase or bargain renewal options. On
January 24, 1996, BTCo closed on the purchase of One Bankers Trust Plaza which,
at December 31, 1995, was classified as property leased under capital leases.
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- --------------------------------------------------------------------------------
The future minimum lease payments required under the Corporation's
noncancelable operating leases at the end of 1996 were as follows:
(in millions) December 31, 1996
- -------------------------------------------------------------------------------
1997 $ 67
1998 60
1999 57
2000 54
2001 42
2002 and later 164
- -------------------------------------------------------------------------------
Total minimum lease payments $444*
===============================================================================
* Net minimum lease payments were $432 million after deducting minimum
noncancelable sublease rentals of $12 million.
The following shows the net rental expense for all operating leases:
(in millions) Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Gross rental expense $84 $81 $87
Less sublease rental income 3 3 9
- --------------------------------------------------------------------------------
Net rental expense $81 $78 $78
================================================================================
NOTE 8--SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND OTHER SHORT-TERM
BORROWINGS
Short-term borrowings are borrowed funds generally with an original maturity of
one year or less. Debt instruments which contain a provision for early
redemption, exercisable at the option of the security holder, are classified on
the basis of the earliest possible redemption date.
Securities sold under repurchase agreements and federal funds purchased
generally mature in one day; commercial paper generally matures within 90 days.
The details of these borrowings for the years 1996, 1995 and 1994 are
presented below:
($ in millions) 1996 1995 1994
- -------------------------------------------------------------------------------
Securities sold under repurchase agreements
Balance at year end $23,000 $15,247 $15,617
Average amount outstanding 26,499 21,543 21,814
Maximum amount outstanding at
any month end 30,027 28,212 28,409
Average interest rate for the year 5.94% 5.44% 4.20%
Average interest rate on year-end balance 5.80% 6.23% 5.34%
Federal funds purchased
Balance at year end $ 5,475 $ 4,658 $ 3,463
Average amount outstanding 3,684 3,623 2,908
Maximum amount outstanding at
any month end 6,982 6,313 6,742
Average interest rate for the year 4.97% 5.47% 3.37%
Average interest rate on year-end balance 5.77% 5.07% 4.60%
Commercial paper
Balance at year end $ 8,080 $ 6,860 $ 8,009
Average amount outstanding 7,399 7,022 7,387
Maximum amount outstanding at
any month end 9,076 8,239 9,378
Average interest rate for the year 5.78% 6.25% 4.59%
Average interest rate on year-end balance 5.61% 5.81% 5.38%
Other
Balance at year end $ 5,840 $ 4,243 $ 6,750
Average amount outstanding 5,210 5,694 6,961
Maximum amount outstanding at
any month end 6,436 6,918 7,832
Average interest rate for the year 7.23% 6.95% 6.57%
Average interest rate on year-end balance 6.08% 7.45% 6.27%
===============================================================================
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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NOTE 9--LONG-TERM DEBT
In accordance with the Federal Reserve Board's Capital Adequacy Guidelines,
long-term debt included in risk-based capital must meet specific criteria.
Generally, qualifying debt must be unsecured, subordinated and have an original
weighted-average maturity of at least five years. Additionally, the outstanding
amount of long-term debt included in risk-based capital is reduced as these
issues approach maturity. That is, one-fifth of the original issue is amortized
each year during the last five years before maturity.
Long-term debt included in risk-based capital and other long-term debt are
summarized as follows, based on the contractual terms of each issue:
Long-term debt included in risk-based capital
Dec. 31, Dec. 31,
Subordinated Subordinated 1996 1995
(in millions) Fixed Rate Floating Rate Total Total
- -------------------------------------------------------------------------------
Parent Company
Due in 1996 $ -- $ -- $ -- $ 150
Due in 1997 199 -- 199 199
Due in 1998 -- -- -- --
Due in 1999 100 150 250 250
Due in 2000 200 -- 200 199
Due in 2001 210 -- 210 210
Due in 2002-2006 1,020 413 1,433 1,331
Thereafter 710 -- 710 414
- -------------------------------------------------------------------------------
Total $2,439 $ 563 $3,002 $2,753
- -------------------------------------------------------------------------------
BTCo
Due in 1996 $ -- $ -- $ -- $ --
Due in 1997 24 -- 24 25
Due in 1998 27 -- 27 28
Due in 1999 8 -- 8 7
Due in 2000 7 -- 7 7
Due in 2001 7 -- 7 6
Due in 2002-2006 26 -- 26 24
Thereafter -- -- -- --
- -------------------------------------------------------------------------------
Total $ 99 $ -- $ 99 $ 97
- -------------------------------------------------------------------------------
Total long-term debt $3,101 $2,850
- -------------------------------------------------------------------------------
Less: Amortization for risk-based capital purposes (525) (490)
- -------------------------------------------------------------------------------
Total long-term debt included in risk-based capital $2,576 $2,360
===============================================================================
Long-term debt not included in risk-based capital
Dec. 31, Dec. 31,
Senior Senior 1996 1995
(in millions) Fixed Rate Floating Rate Total Total
- --------------------------------------------------------------------------------
Parent Company
Due in 1996 $ -- $ -- $ -- $ 594
Due in 1997 -- 66 66 24
Due in 1998 100 420 520 542
Due in 1999 249 29 278 40
Due in 2000 -- 457 457 478
Due in 2001 248 563 811 16
Due in 2002-2006 -- 59 59 14
Thereafter -- -- -- --
- --------------------------------------------------------------------------------
Total $ 597 $1,594 $2,191 $1,708
- --------------------------------------------------------------------------------
BTCo
Due in 1996 $ -- $ -- $ -- $ 564
Due in 1997 21 1,590 1,611 1,099
Due in 1998 100 303 403 280
Due in 1999 21 119 140 92
Due in 2000 -- 987 987 1,464
Due in 2001 8 644 652 63
Due in 2002-2006 332 449 781 591
Thereafter 8 155 163 21
- --------------------------------------------------------------------------------
Total $ 490 $4,247 $4,737 $4,174
- --------------------------------------------------------------------------------
BT Securities Corporation
Senior/Junior Subordinated Notes due Feb. 1997 to
Nov. 1999 ($62 million at fixed rate at Dec. 1996) $ 518 $ 320
Senior Floating Rate Note due
Sept. 1998 to Mar. 1999 499 200
Bankers Trust (Delaware)
Zero Coupon Bank Notes due Dec. 1996 -- 42
BTC Mortgage Investors Trust (fixed rate) 63 --
- --------------------------------------------------------------------------------
Total long-term debt $8,008 $6,444
- --------------------------------------------------------------------------------
Add: Amortization for risk-based capital purposes 525 490
- --------------------------------------------------------------------------------
Total long-term debt not included in risk-based capital $8,533 $6,934
================================================================================
Based solely on the contractual terms of the debt issues, at December 31,
1996 and 1995 the Corporation's total fixed rate long-term debt had a weighted
average interest rate of 7.30 percent and 7.53 percent, respectively.
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 5.88 percent and 6.39
percent at December 31, 1996 and 1995, respectively.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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Mandatory convertible securities (equity commitment and equity contract
notes) 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
capital adequacy guidelines. In this regard, at December 31, 1996 and 1995, the
Parent Company had dedicated $448 million and $598 million, respectively of net
proceeds from such issuances.
At December 31, 1996 and 1995, certain subsidiaries of Bankers Trust
Company had outstanding $2.76 billion and $2.94 billion, respectively of
mandatory redeemable preference securities as included in the table above which
are not included in risk-based capital. Maturities at December 31, 1996 range
from March 1997 to October 2002 and maturities at December 31, 1995 range from
September 1996 to December 2003.
NOTE 10--MANDATORILY REDEEMABLE CAPITAL SECURITIES OF SUBSIDIARY
TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
INCLUDED IN RISK-BASED CAPITAL
Corporation-Obligated
BT Institutional Capital Trust A ("Trust A") and BT Institutional Capital Trust
B ("Trust B"), wholly-owned subsidiaries of the Corporation, have outstanding
$300 million 8.09% Capital Securities, Series A, ("Series A Securities") and
$200 million 7.75% Capital Securities, Series B ("Series B Securities"),
respectively (collectively, the "Capital Securities"). The Capital Securities
have a liquidation value of $1,000 per Capital Security. Series A Securities and
Series B Securities represent preferred undivided beneficial interests in the
assets of Trust A and Trust B, respectively. The Corporation is the holder of
all of the beneficial interests represented by common securities of Trust A and
Trust B ("Common Securities" and, collectively with the Capital Securities, the
"Trust Securities").
Trust A and Trust B exist for the sole purpose of issuing the Trust
Securities and investing the proceeds thereof in 8.09% Junior Subordinated
Deferrable Interest Debentures, Series A and 7.75% Junior Subordinated
Deferrable Interest Debentures, Series B (collectively, the "Junior Subordinated
Debentures") issued by the Corporation. The Junior Subordinated Debentures are
unsecured and subordinated to all senior indebtedness of the Corporation and
will be the sole assets of Trust A and Trust B. Payments under the Junior
Subordinated Debentures by the Corporation are the same as those for the Capital
Securities described below. The Corporation has guaranteed all of the
obligations of Trust A and Trust B under the Capital Securities, but only in
each case to the extent of funds held by Trust A and Trust B, respectively.
Holders of the Series A Securities and Series B Securities will be entitled
to receive preferential cumulative cash distributions accumulating from December
1, 1996 and payable semi-annually in arrears on the first day of June and
December of each year, commencing June 1, 1997, at the annual rate of 8.09% and
7.75%, respectively, of the liquidation amount of $1,000 per Capital Security.
The Capital Securities are subject to mandatory redemption upon repayment
of the Junior Subordinated Debentures at maturity on December 1, 2026. The
Junior Subordinated Debentures may be redeemed at the option of the Corporation
on or after December 1, 2006, or at any time upon the occurrence of certain
events.
BTCo-Obligated
BTC Capital Trust I (the "Trust"), a wholly-owned subsidiary of BTCo, has
outstanding $250 million Floating Rate Capital Securities, Series A (the
"Capital Securities"). The Capital Securities have a liquidation value of $1,000
per Capital Security. The Capital Securities represent preferred undivided
beneficial interests in the assets of the Trust. BTCo is the holder of all of
the beneficial interests represented by common securities of the Trust ("Common
Securities" and, collectively with the Capital Securities, the "Trust
Securities").
The Trust exists for the sole purpose of issuing the Trust Securities and
investing the proceeds thereof in Floating Rate Junior Subordinated Deferrable
Interest Debentures, Series A (the "Junior Subordinated Debentures") issued by
BTCo. The Junior Subordinated Debentures are unsecured and subordinated to all
senior indebtedness of BTCo and will be the sole assets of the Trust. Payments
under the Junior Subordinated Debentures by BTCo are the same as those for the
Capital Securities described below. BTCo has guaranteed all of the Trust's
obligations under the Capital Securities, but only in each case to the extent of
funds held by the Trust.
Holders of the Capital Securities will be entitled to receive preferential
cumulative cash distributions accumulating from December 30, 1996 and payable
quarterly in arrears on each March 30, June 30, September 30, and December 30,
commencing March 30, 1997, in respect of the liquidation amount of $1,000 per
Capital Security at a rate per annum equal to 3-Month LIBOR plus 0.75%.
The Capital Securities are subject to mandatory redemption upon repayment
of the Junior Subordinated Debentures at maturity on December 30, 2026. In
addition, the Junior Subordinated Debentures may be redeemed at the option of
BTCo on or after December 30, 2006, or at any time upon the occurrence of
certain events.
See Note 28 for details of mandatorily redeemable capital securities of
subsidiary trusts holding solely junior subordinated deferrable interest
debentures included in risk-based capital ("trust preferred capital securities")
issued subsequent to December 31, 1996.
NOTE 11--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.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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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 years ended December 31, 1996 and 1995, the
composite average dividend rates on the four series of BTOF Preferred were 5.64
percent and 6.14 percent, respectively. At December 31, 1996 and 1995, the
composite average dividend rates were 5.76 percent and 6.06 percent,
respectively.
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 $100,000 per share. The Exchange
Preferred Stock has terms identical to the BTOF Preferred, except that the
Parent Company can redeem the Exchange Preferred in whole or in part, the
dividend periods are generally 49 days and the maximum rate for any dividend
period under no circumstances will exceed 24 percent per annum.
See Note 28 for details regarding the redemption subsequent to December 31,
1996, of BTOF Series A through D Preferred Stock.
NOTE 12--PREFERRED STOCK
SERIES PREFERRED STOCK
The Parent Company is authorized to issue 10 million shares of Series Preferred
Stock, without par value. All shares of Series Preferred Stock constitute one
and the same class and have equal rank and priority over common stockholders as
to dividends and in the event of liquidation. Each series of Series Preferred
Stock has a liquidation preference per share (as indicated below), plus accrued
and unpaid dividends, as well as contingent voting rights. The Series Preferred
Stock outstandings were as follows:
($ in millions) December 31, 1996 1995
- --------------------------------------------------------------------------------
Series J, Outstanding: 447,225 shares $ 45 $ 45
Series Q, Outstanding: 64,771 shares 162 200
Series R, Outstanding: 52,533 shares 131 150
Series I, Outstanding: 1,000,000 shares 100 100
Series O, Outstanding: 592,031 shares 148 147
Series P, Outstanding: 98,795 shares 99 98
Series S, Outstanding: 50,000 shares 125 125
- --------------------------------------------------------------------------------
Total preferred stock $810 $865
================================================================================
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 13 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 amount ing to $44,722,500 liquidation value. On September
1, 1994, the Corporation redeemed its remaining outstanding 4,105,550 shares, or
$205,277,500 liquidation value, of the Series D Fixed/Adjustable Rate Cumulative
Preferred Stock.
At the option of the Parent Company, the Series J may be redeemed, in whole
or in part, on or after December 1, 1995 and prior to December 1, 1997 at
$103.00 per share and thereafter at $100.00 per share, plus 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 per centage 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 J are cumulative and payable quarterly on March 1,
June 1, September 1 and December 1 of each year. The Series J dividend rate is
fixed at 7.375 percent per annum prior to December 1, 1997. Thereafter, 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 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 September 1, 1997. The
Series J adjustable rate in no event will be less than 7 percent or greater than
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. The
dividend rate for the Series D was fixed at 8.72 percent per annum prior to
redemption and the dividend payment dates were identical to Series J.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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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 were
guaranteed on a subordinated basis by the Parent Company, were issued as part of
4 million Preferred Purchase Units ("Units"). Each Unit consisted 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 were entitled to receive 8.55
percent per annum with respect to each Unit, payable quarterly, which consisted
of the interest on the Notes and a contract fee in respect of the Purchase
Contracts. On March 1, 1995, the Notes matured and, in accordance with the
original terms of the Purchase Contracts, the holders of the Units were required
to purchase 4 million depositary shares, at $25 per share, each representing a
one-fourth interest in a share of the Parent Company's 8.55% Cumulative
Preferred Stock, Series I (Liquidation Preference--$100 per share) ("Series I").
Dividends on the Series I are cumulative and payable quarterly on March 1,
June 1, September 1 and December 1 of each year, commencing on June 1, 1995, at
a fixed rate of 8.55 percent of the liquidation preference per annum. Shares of
the Series I are not 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. 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.
See Note 28 for details regarding the redemption, subsequent to December
31, 1996, of 8.55% Cumulative Preferred Stock, Series I.
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 11 for a more detailed discussion of this agreement and Note 28
for details regarding the redemption, subsequent to December 31, 1996, of BTOF
Series A through D Preferred Stock.
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 were subordinated and
could 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. On March 1, 1995,
the Parent Company reset the interest rate on the 7 5/8% Convertible Capital
Securities to a rate of 6 1/8 percent per annum giving holders of this issue
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").
During 1995, holders of the Convertible Capital Securities converted their
securities for approximately 5.9 million depositary receipts, each evidencing a
depositary share representing a one-tenth interest in a share of the
Corporation's Series O for a total amount of approximately $147 million.
Dividends on the Series O are 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 are redeemable at the Parent Company's
option, in whole or in part, at $300 per share (or $30 per depositary share) on
or before June 1, 1998 and thereafter at $250 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.
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 were subordinated and
could 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. On May 15, 1995,
the Parent Company reset the interest rate on the 7.50% Convertible Capital
Securities to a rate of 6.00 percent per annum giving holders of this issue 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"). During 1995, holders of the Convertible Capital Securities converted their
securities for approximately 3.9 million depositary receipts, each evidencing a
depositary share representing a one-fortieth interest in a share of the
Corporation's Series P for a total amount of approximately $98 million.
Dividends on the Series P are 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 are redeemable at the Parent Company's
option, in whole or in part, at $1,200 per share (or $30 per depositary share)
on or before August 15, 1998 and thereafter at $1,000 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.
Adjustable Rate Cumulative Preferred Stock, Series Q
On March 28, 1994, the Parent Company issued $200 million, or 8 million
depositary shares at $25 per share, each representing a one-hundredth interest
in a share of Adjustable Rate Cumulative Preferred Stock, Series Q (Liquidation
Preference--$2,500 per share) ("Series Q"). During 1996, the Parent Company
repurchased approximately 1.5 million shares of Series Q. At the option of the
Parent Company, the Series Q may be redeemed, in whole or in
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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part, on or after March 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 Q are cumulative and payable quarterly on March 1,
June 1, September 1 and December 1 of each year. The initial dividend rate was
5.90 percent per annum for the dividend period ending on May 31, 1994.
Thereafter, 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 or more than 10 1/2 percent per annum.
Adjustable Rate Cumulative Preferred Stock, Series R
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"). During 1996, the Parent Company
repurchased approximately 750 thousand shares of 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 initial dividend rate was
6.42 percent per annum for the dividend period ending on November 30, 1994.
Thereafter, 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 or more than 10 1/2 percent per annum.
7.75% Cumulative Preferred Stock, Series S
On June 30, 1995, the Corporation issued $125 million, or 5 million depositary
shares at $25 per share, each representing a one-hundredth interest in a share
of the Corporation's 7 3/4% Cumulative Preferred Stock, Series S (Liquidation
Preference--$2,500 per share) ("Series S").
Dividends on the Series S are cumulative and payable quarterly on March 1,
June 1, September 1 and December 1 of each year, commencing with the date
succeeding original issuance. At the option of the Corporation, the Series S may
be redeemed, in whole or in part, on or after June 1, 2000, 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.
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 13--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
one-hundredth 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.
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 one-hundredth interest in a share of Series C Junior
Participating Preferred Stock (or a share of a class or series
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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 14--COMMON STOCK AND STOCK-BASED COMPENSATION PLANS
The purposes and number of shares of common stock issued, distributed from
treasury and purchased for treasury during 1996, 1995 and 1994 were as follows:
Year Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------
Common shares outstanding,
beginning of year 79,076,118 78,069,266 80,602,534
- -------------------------------------------------------------------------------
Shares issued or distributed under
Employee Benefit Plans:
1976 Stock Option Plan -- -- 3,000
1985 Stock Option and
Stock Award Plan
Stock options 674,441 260,993 144,769
Restricted stock awards, net -- -- (12,619)
Deferred stock awards 31,701 -- 15,829
1991 Stock Option and
Stock Award Plan
Stock options 1,654,567 367,728 274,864
Restricted stock awards, net (31,293) (84,539) (5,298)
Deferred stock awards -- 242,264 7,459
1994 Stock Option and
Stock Award Plan
Stock options 1,907,957 7,000 --
Restricted stock awards, net 541,910 813,901 661,400
Deferred stock awards 265 -- --
- -------------------------------------------------------------------------------
Total shares issued or distributed 4,779,548 1,607,347 1,089,404
Shares issued for acquisitions 2,881,476 -- --
Shares purchased for treasury (7,493,395) (600,495) (3,622,672)
- -------------------------------------------------------------------------------
Common shares outstanding,
end of year 79,243,747 79,076,118 78,069,266
===============================================================================
At December 31, 1996, common stock was reserved for issuance or
distribution as follows:
- --------------------------------------------------------------------------------
Dividend Reinvestment and Common Stock Purchase Plan 2,512,549
Employee Benefit Plans
PartnerShare (including ESOP shares) 2,274,330
1994 Stock Option and Stock Award Plan 11,067,567
1991 Stock Option and Stock Award Plan 4,822,563
1985 Stock Option and Stock Award Plan 1,537,435
- --------------------------------------------------------------------------------
Total 22,214,444
================================================================================
At the Annual Meeting of Stockholders on April 19, 1994, the stockholders
approved the 1994 Stock Option and Stock Award Plan (the "1994 Plan") which made
available for grant, until April 21, 1998, 15 million common shares. The 1994
Plan permits the granting of nonqualified and incentive stock options,
restricted stock, deferred stock and other stock-based awards (collectively, the
"Awards"). Awards are still outstanding under the 1991 Stock Option and Stock
Award Plan (the "1991 Plan") and the 1985 Stock Option and Stock Award Plan (the
"1985 Plan"). No further Awards will be granted under either the 1991 Plan, as
of April 19, 1994 or 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 15, 1997,
stockholders will vote on a proposed plan which, if adopted, would be called the
1997 Stock Option and Stock Award Plan (the "1997 Plan"). The provisions of this
proposed plan are generally similar to the 1994 Plan and would make 20 million
shares available for grant under its terms. The Board of Directors has
authorized a stock purchase program to satisfy the awards to be granted under
the proposed 1997 Plan and under prior Stock Option and Stock Award Plans. The
authorization includes the 20 million shares that are subject to the proposed
1997 Plan. The Corporation intends to satisfy awards granted under the 1997 Plan
through the issuance of treasury shares acquired in open market purchases.
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.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
80
<PAGE>
- --------------------------------------------------------------------------------
The following is a summary of stock option transactions which occurred
during 1994, 1995 and 1996:
Weighted-Average
Exercise Price Exercise Price
Options Per Option Per Option
- --------------------------------------------------------------------------------
December 31, 1993 6,091,934 $19.75 - $80.75 $58.77
Granted 2,448,000 67.0625 - 70.25 68.61
Exercised (422,633) 19.75 - 70.4375 52.29
Cancelled (314,653) 55.17
- ---------------------------------------
December 31, 1994 7,802,648 27.0625 - 80.75 62.34
=======================================
Granted 2,648,500 62.1875 - 69.0625 62.45
Exercised (635,721) 27.0625 - 68.625 51.56
Cancelled (816,636) 66.77
- ---------------------------------------
December 31, 1995 8,998,791 27.0625 - 80.75 62.74
=======================================
Granted 3,386,500 64.5625 - 83.3125 76.28
Exercised (4,236,965) 27.0625 - 70.4375 59.96
Cancelled (395,941) 66.50
- ---------------------------------------
December 31, 1996 7,752,385 27.0625 - 83.3125 69.60
======================================= ================
Exercisable at:
December 31, 1995 6,350,291 62.86
======================================= ================
December 31, 1996 4,382,385 64.46
======================================= ================
The weighted-average remaining contractual life for options outstanding at
December 31, 1996 was 8.1 years.
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 two to three years. 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 common stock of the
Corporation at a specified future date. The awards vest from one to three years
from the date of the award. For deferred stock awards, shares of stock are not
distributed until after a specified deferral period extending up to five years
from the vesting date. Prior to distribution, awards may earn amounts equivalent
to quarterly dividends declared by the Corporation and may also earn the
equivalent of the excess of quarterly earnings per common share over the cash
dividends. At December 31, 1996 and 1995, there were deferred stock awards
outstanding of 6,721,996 shares and 3,334,674 shares, respectively.
After providing for stock options granted, restricted stock awards and
deferred stock awards, there were 189,548 and 7,073,010 shares available for
future grant under the 1994 Plan at December 31, 1996 and 1995, respectively.
Compensation expense recognized for the restricted stock awards and deferred
stock awards was $174 million and $48 million in 1996 and 1995, respectively.
The weighted-average grant-date fair value of restricted stock awards and
deferred stock awards granted during 1996 was $82.86.
The Corporation applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of the Corporation's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Corporation had
accounted for its employee stock options under the fair value method of SFAS
123. The weighted average fair value of options granted during 1996 was $14.88.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively; risk-free interest rates of 6.77%
and 5.91%; dividend yield of 5.0% for both years; volatility factor of the
expected market price of the Corporation's common stock of 23% for both years;
and a weighted-average expected life of the option of 5 years.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
81
<PAGE>
- --------------------------------------------------------------------------------
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Corporation's pro forma information follows:
(in millions except for earnings per share information) 1996 1995
- --------------------------------------------------------------------------------
Net income:
As reported $ 612 $ 215
Pro forma $ 586 $ 205
Primary earnings per share:
As reported $6.78 $2.03
Pro forma $6.46 $1.90
Fully diluted earnings per share:
As reported $6.74 $2.02
Pro forma $6.42 $1.90
- --------------------------------------------------------------------------------
Because compensation expense associated with an award is recognized over
the vesting period, the initial impact on pro forma net income may not be
representative of compensation expense in future years, when the effect of the
amortization of multiple awards would be reflected in the income statement.
NOTE 15--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 $633 million at December
31, 1996 and 1995, respectively. For the years 1996 and 1995, the average
reserve balances of these banks amounted to $196 million and $199 million,
respectively.
Assets, principally trading assets and securities available for sale, of
approximately $6.304 billion at December 31, 1996 were pledged as collateral to
secure public and trust deposits, for borrowings, 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 Tier 1
Capital and Tier 2 Capital as defined by the Federal Reserve Bank risk-based
capital guidelines, the balance of the institutions allowance for loan and lease
losses not included in Tier 2 Capital, 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 1997
without approval of the regulatory authorities of $251 million of its retained
earnings at December 31, 1996, plus an additional amount equal to net profits,
as defined, for 1997 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.
Certain other subsidiaries are subject to various regulatory and other
restrictions which may limit cash dividends and advances to the Parent Company.
NOTE 16--REGULATORY CAPITAL
The Corporation and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. 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 risk-based capital 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. The Federal Reserve Board
also has a minimum Leverage Ratio which is used as a supplement to the
risk-based capital ratios in evaluating the capital adequacy of banks and bank
holding companies. The Leverage Ratio is calculated by dividing Tier 1 Capital
by adjusted quarterly average assets.
Failure to meet minimum capital requirements can initiate certain mandates,
and possibly additional discretionary actions by the regulators that, if
undertaken, could have a direct material effect on the consolidated financial
statements of the Corporation and BTCo.
Under the risk-based capital guidelines, there are two categories of
capital: core capital ("Tier 1 Capital") and supplemental capital ("Tier 2
Capital"), collectively referred to as Total Capital. Tier 1 Capital includes
common stockholders' equity, qualifying perpetual preferred stock, qualifying
trust preferred capital securities and minority interest in equity accounts of
consolidated subsidiaries. Tier 2 Capital includes perpetual preferred stock and
trust preferred capital securities (to the extent ineligible for Tier 1
Capital), hybrid capital instruments (i.e., perpetual debt and mandatory
convertible securities), limited amounts of subordinated debt, intermediate-term
preferred stock, and a portion of the allowance for credit losses.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
82
<PAGE>
- --------------------------------------------------------------------------------
In accordance with current Federal Reserve Board (FRB) guidelines, the
stockholder's equity and risk-weighted assets of BT Securities Corporation are
excluded from the calculation of the regulatory capital ratios. In computing
these ratios, 50 percent of BT Securities 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-weighted assets of certain foreign insurance subsidiaries of the
Corporation.
In addition, under the prompt corrective action provisions of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), five capital
categories were established for banks. Pursuant to that statute, the federal
bank regulatory agencies have specifically defined these categories by
determining that a bank is well capitalized 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.
The Federal Reserve Board has also adopted these same thresholds for the
Tier 1 Capital ratio and Total Capital ratio in defining a well-capitalized bank
holding company. The well-capitalized threshold for the Leverage ratio has been
established at 3.0 percent or 4.0 percent, depending on other regulatory
criteria.
Based on their respective regulatory capital ratios at December 31, 1996
and December 31, 1995, both the Corporation and BTCo are well capitalized. There
are no conditions or events that management believes have changed the
Corporation's and BTCo's well-capitalized status.
The Corporation's actual capital amounts and ratios are presented in the
table below.
<TABLE>
<CAPTION>
FRB
Minimum To Be Well
For Capitalized
Capital Under
Actual as of Actual as of Adequacy Regulatory
12/31/96 12/31/95 Purposes: Guidelines:
- ------------------------------------------------------------------------------------------------------------
($ in millions) Amount Ratio Amount Ratio Ratio Ratio
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (1)
Corporation (2) $8,330 13.7% $7,370 13.9% 8.0% 10.0%
BTCo 6,769 12.9% 5,926 12.8% 8.0% 10.0%
Tier 1 Capital (1)
Corporation (2) $5,326 8.7% $4,512 8.5% 4.0% 6.0%
BTCo 4,869 9.3% 4,394 9.5% 4.0% 6.0%
Leverage (3)(4)
Corporation (2) $5,326 5.5% $4,512 5.1% 3.0% 3.0-4.0%
BTCo 4,869 5.3% 4,394 5.1% 3.0% 5.0%
</TABLE>
(1) Ratios are calculated on Tier 1 Capital and Total Capital as a percentage
of risk-weighted assets.
(2) Capital and risk-weighted assets of BT Securities Corporation and certain
foreign insurance subsidiaries of the Corporation have been excluded in
accordance with current Federal Reserve Board guidelines.
(3) Ratio is calculated on Tier 1 Capital as a percentage of adjusted quarterly
average assets.
(4) Minimum capital adequacy levels for the Leverage ratio may be set 100 to 200
basis points higher depending upon other regulatory criteria.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
83
<PAGE>
- --------------------------------------------------------------------------------
NOTE 17--INTEREST REVENUE AND INTEREST EXPENSE
The following are the components of interest revenue and interest expense:
(in millions) Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
INTEREST REVENUE
Interest-bearing deposits with banks $ 214 $ 207 $ 124
Federal funds sold 119 104 31
Securities purchased under resale
agreements 1,312 828 384
Securities borrowed 816 738 295
Trading assets 2,404 2,676 2,930
Securities available for sale
Taxable 424 332 312
Exempt from federal income taxes 35 60 78
Loans 1,042 941 876
- --------------------------------------------------------------------------------
Total interest revenue 6,366 5,886 5,030
- --------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits
Domestic offices 384 376 268
Foreign offices 971 984 696
Trading liabilities 862 1,053 807
Securities sold under repurchase
agreements 1,574 1,173 917
Other short-term borrowings 987 1,033 894
Long-term debt 619 450 276
Mandatorily redeemable capital
securities of subsidiary trusts holding
solely junior subordinated deferrable
interest debentures included in
risk-based capital 3 -- --
- --------------------------------------------------------------------------------
Total interest expense 5,400 5,069 3,858
- --------------------------------------------------------------------------------
Net interest revenue $ 966 $ 817 $1,172
================================================================================
NOTE 18--TRADING REVENUE
The following are the components of trading revenue:
(in millions) Year Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------
Interest rate risk $ 445 $ 87 $ 278
Foreign exchange risk 178 36 (54)
Equity and commodity risk 223 218 241
- -------------------------------------------------------------------------------
Total trading revenue $ 846 $ 341 $ 465
===============================================================================
NOTE 19--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. Contributions to defined
contribution plans are based upon a percentage of salary.
Effective June 30, 1994, a foreign defined benefit plan was changed to a
defined contribution plan. As a result of this change, the Corporation
recognized a $7 million curtailment/settlement gain in other noninterest
revenue.
Pension expense for 1996, 1995 and 1994 included the following components:
(in millions) 1996 1995 1994
- -------------------------------------------------------------------------------
Principal defined benefit plans
(domestic and foreign)
Service cost--benefits earned $ 23 $ 17 $ 23
Interest cost on projected benefit
obligations 42 38 37
Actual return on plan assets (78) (151) 6
Net amortization and deferral 5 83 (73)
- -------------------------------------------------------------------------------
Total (8) (13) (7)
Defined contribution plans 24 20 10
Other plans 4 5 2
- -------------------------------------------------------------------------------
Pension expense $ 20 $ 12 $ 5
===============================================================================
The actuarial assumptions used for the principal domestic defined benefit
plan were as follows:
1996 1995 1994
- -------------------------------------------------------------------------------
Discount rate in determining expense 7.00% 8.75% 7.25%
Discount rate in determining benefit
obligations at year end 7.50% 7.00% 8.75%
Rate of increase in future compensation
levels for determining expense 5.00% 5.00% 5.00%
Rate of increase in future compensation
levels for determining benefit
obligations at year end 5.00% 5.00% 5.00%
Expected long-term rate of return
on assets 9.00% 9.00% 9.00%
At year end 1996, the effect of changing the discount rate from 7.00% to
7.50% was to decrease the projected benefit obligation, accumulated benefit
obligation and vested benefit obligation by $43 million, $34 million and $34
million, respectively.
At year end 1995, the effect of changing the discount rate from 8.75% to
7.00% was to increase the projected benefit obligation, accumulated benefit
obligation and vested benefit obligation by $96 million, $73 million and $70
million, respectively.
Effective January 1, 1994, several plan changes were implemented,
principally a change in early retirement benefits for certain vested employees.
The effect of the plan changes was to increase the projected benefit obligation,
accumulated benefit obligation and vested benefit obligation by $13 million, $9
million and $8 million, respectively.
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.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
84
<PAGE>
- --------------------------------------------------------------------------------
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, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
(in millions) Benefits Exceed Assets Benefits Exceed Assets
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligations:
Vested benefit obligations $(465) $ (20) $(445) $ (22)
==========================================================================================
Accumulated benefit
obligations $(482) $ (20) $(460) $ (22)
==========================================================================================
Projected benefit obligations $(565) $ (21) $(544) $ (23)
Plan assets at fair value 863 1 795 1
- ------------------------------------------------------------------------------------------
Funded status 298 (20) 251 (22)
Unrecognized net (assets)
obligations (23) 1 (28) 1
Unrecognized prior service cost 15 -- 17 --
Unrecognized net (gain) loss (129) 3 (92) 4
Additional minimum liability -- (4) -- (5)
- ------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 161 $ (20) $ 148 $ (22)
==========================================================================================
</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.
The Corporation's postretirement benefits expense for the year ended
December 31, 1996 was $10 million. This consisted of $9 million of interest cost
on accumulated postretirement benefit obligations and $1 million of service cost
attributable to service during the year. For the year ended December 31, 1995
postretirement benefits expense was $9 million. This consisted of $8 million of
interest cost on accumulated postretirement benefit obligations and $1 million
of service cost attributable to service during the year. For the year ended
December 31, 1994 postretirement benefits expense was $10 million. This
consisted of $9 million of interest cost on accumulated postretirement benefit
obligations and $1 million of service cost attributable to service during the
year.
The actuarial assumptions used for the Corporation's postretirement benefit
plans were as follows:
December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------
Retiree Retiree Retiree Retiree
Health Life Health Life
($ in millions) Care Insurance Care Insurance
- -------------------------------------------------------------------------------
Health care cost trend rate:
First year 10.00% N/A 11.00% N/A
===============================================================================
Ultimate rate after 5 years
(1996) and 6 years (1995)
(based on roughly
equal annual decreases) 5.50% N/A 5.50% N/A
Discount rate in determining
expense 7.00% 7.00% 8.75% 8.75%
===============================================================================
Discount rate in determining
benefit obligations at year-end 7.50% 7.50% 7.00% 7.00%
===============================================================================
Rate of increase in future
compensation levels for
determining benefit
obligation at both beginning
and end of the year N/A 5.00% N/A 5.00%
===============================================================================
Expected long-term rate of
return on plan assets N/A 9.00% N/A 9.00%
Effect of a one-percentage-point
increase in the health care
cost trend rates on the
accumulated postretirement
benefit obligation $ 9 N/A $ 6 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 $ 1 N/A $ 1 N/A
===============================================================================
N/A Not applicable.
At year end 1996, the effect of changing the discount rate from 7.00% to
7.50% was to decrease the accumulated postretirement benefit obligation for the
retiree health care plan and the retiree life insurance plan by $2 million and
$1 million, respectively.
At year end 1995, the effect of changing the discount rate from 8.75% to
7.00% was to increase the accumulated postretirement benefit obligation for the
retiree health care plan and the retiree life insurance plan by $2 million and
$1 million, respectively.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
85
<PAGE>
- --------------------------------------------------------------------------------
The following table sets forth the funded status and amounts recognized in
the Corporation's balance sheet:
December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------
Retiree Retiree Retiree Retiree
Health Life Health Life
($ in millions) Care Insurance Care Insurance
- -------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $ (80) $ (6) $ (62) $ (5)
Fully eligible plan participants (17) -- (16) --
Other active plan participants (21) (6) (18) (5)
- -------------------------------------------------------------------------------
(118) (12) (96) (10)
Plan assets at fair value -- 4 -- 5
- -------------------------------------------------------------------------------
Funded status (118) (8) (96) (5)
Unrecognized prior service cost 7 -- 8 --
Unrecognized net (gain) loss (4) 3 (23) 1
- -------------------------------------------------------------------------------
Accrued postretirement
benefit cost $(115) $ (5) $(111) $ (4)
================================================================================
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"). The Profit-Driven Contribution was 4.75 percent, 1.69 percent
and 4.73 percent for 1996, 1995 and 1994, respectively. The sum of the Fixed
Contribution and the Profit-Driven Contribution amounted to $41 million, $29
million and $41 million for the years 1996, 1995 and 1994, respectively.
The Corporation also has a profit sharing plan (called the "Share and
Discretionary Cash Scheme") covering its employees in the United Kingdom. The
Corporation's contributions to this plan range from zero 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
contribution for 1996, 1995 and 1994 was 8.72 percent, 3.11 percent and 8.69
percent, respectively. The amount of expense recognized for the Share and
Discretionary Cash Scheme was $7 million, $2 million and $8 million for 1996,
1995 and 1994, respectively.
NOTE 20--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 follow:
(in millions) Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Domestic $ 88 $ (89) $ 139
Foreign 784 400 730
- --------------------------------------------------------------------------------
Total $ 872 $ 311 $ 869
================================================================================
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 $1.3 billion at December 31, 1996. Federal taxes which would have
approximated $270 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 follows:
(in millions) Year Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------
Income taxes applicable to:
Income before income taxes* $ 260 $ 96 $ 254
Capital surplus (26) 3 (5)
Cumulative translation adjustments (24) 9 (59)
Securities valuation allowance 32 (26) (16)
- -------------------------------------------------------------------------------
Total $ 242 $ 82 $ 174
===============================================================================
* Includes income tax expense related to securities available for sale
transactions of $30 million, $74 million and $26 million in 1996, 1995 and
1994, respectively.
The components of consolidated income taxes follow:
(in millions) Year Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------
Current
Federal $ 6 $ 5 $ 5
Foreign 124 317 294
State and local 21 19 16
- -------------------------------------------------------------------------------
Total current 151 341 315
- -------------------------------------------------------------------------------
Deferred
Federal (37) (123) (102)
Foreign 125 (141) (61)
State and local 3 5 22
- -------------------------------------------------------------------------------
Total deferred 91 (259) (141)
- -------------------------------------------------------------------------------
Total $ 242 $ 82 $ 174
===============================================================================
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
86
<PAGE>
- --------------------------------------------------------------------------------
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:
Year Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------
U.S. federal statutory income tax rate 35% 35% 35%
State and local income taxes 2 5 2
Tax-exempt income (3) (8) (6)
Foreign subsidiary earnings (2) 3 (1)
Other items, net (2) (4) (1)
- ------------------------------------------------------------------------------
Effective income tax rate 30% 31% 29%
==============================================================================
The following is an analysis of the Corporation's net deferred tax assets:
(in millions) December 31, 1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets $1,116 $1,087
Valuation allowance 227 227
- --------------------------------------------------------------------------------
Deferred tax assets net of valuation allowance 889 860
Deferred tax liabilities 511 392
- --------------------------------------------------------------------------------
Net deferred tax assets $ 378 $ 468
================================================================================
At December 31, 1996, the Corporation's deferred tax assets were primarily
related to credit losses ($440 million), foreign tax credit carryforwards ($135
million) that will expire in 1999, 2000 and 2001, and a net operating loss
carryforward ($30 million) which expires in 2011. Deferred tax liabilities were
primarily related to certain trading activities ($119 million) and lease
financing activities ($176 million).
At December 31, 1995, the Corporation's deferred tax assets were primarily
related to credit losses ($533 million), foreign tax credit carryforwards ($140
million) that will expire in 1999 and 2000, and a net operating loss
carryforward ($41 million) which expires in 2009. Deferred tax liabilities were
primarily related to certain trading activities ($62 million) and lease
financing activities ($155 million).
NOTE 21--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 this amount 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 market price. At no time during the three-year period ended December 31,
1996 did the Corporation have outstanding any securities which were convertible
into 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) Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Net income applicable to
common stock $ 561 $ 164 $ 587
================================================================================
Average number of common shares
outstanding 78.478 78.458 79.012
Average common and common
equivalent shares outstanding--
primary 82.766 80.923 81.825
Average common and common
equivalent shares outstanding--
assuming full dilution 83.259 81.095 81.865
================================================================================
NOTE 22--INTERNATIONAL OPERATIONS
Management views the operation of the Corporation on an organizational unit
basis, as disclosed in the Management Discussion and Analysis on page 37.
However, 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 the following: interest revenue and interest
expense are apportioned to geographic areas based on the geographic distribution
of average interest earning assets. The geographic location of the assets is
determined by the domicile of the customer, or for interest earning securities,
by the domicile of the issuer. For the year ended December 31, 1996, trading
gains and losses are allocated based on the geographic distribution of average
trading assets as determined by the domicile of the issuer. For the years ended
December 31, 1995 and 1994, trading gains and losses are allocated based on the
location of the office recording the gains/losses. All other noninterest revenue
is allocated based on the geographic location of the office recording the
income. Noninterest expense is basically apportioned geographically based on the
geographical distribution of operating income (net interest revenue plus
noninterest revenue). Corporate overhead expenses are allocated based upon
average assets by geographic region. International offices are assessed a cost
of funds charge
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
87
<PAGE>
- --------------------------------------------------------------------------------
based on a short-term funding rate. Allocation of the provision for credit
losses is based on the geographical distribution of net charges to the allowance
for credit losses and management's assessment of the risks associated with the
domestic and international portfolios. International taxes are calculated based
on the foreign tax rate for each foreign office.
Earning assets are allocated by the domicile of the customer. All other
assets are allocated based on the location of the office recording the assets.
Subject to the above limitations, estimates and assumptions, the following
tables present information attributable to international operations ($ in
millions):
<TABLE>
<CAPTION>
Income
Total Total Total before Net
assets revenue(1) expenses(1) taxes income
- -------------------------------------------------------------------------------------------
1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International operations
Asia $ 9,633 $ 613 $ 516 $ 97 $ 71
Australia/New Zealand 10,489 1,031 834 197 144
Western Hemisphere 14,634 1,275 1,193 82 60
Europe 14,359 965 941 24 18
United Kingdom 25,451 1,027 1,027 -- --
Middle East/Africa 692 40 35 5 4
Intersegment eliminations (12,759) (591) (591) -- --
- -------------------------------------------------------------------------------------------
Total international 62,499 4,360 3,955 405 297
Domestic operations 57,736 5,205 4,738 467 315
- -------------------------------------------------------------------------------------------
Total $120,235 $ 9,565 $ 8,693 $ 872 $ 612
===========================================================================================
International as a percentage
of total 52% 46% 45% 46% 49%
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Income
Total Total Total before Net
assets revenue(1) expenses(1)(2) taxes(2) income(2)
- -------------------------------------------------------------------------------------------------
1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International operations
Asia $ 7,565 $ 710 $ 609 $ 101 $ 70
Australia/New Zealand 7,658 803 657 146 101
Western Hemisphere 10,245 1,201 1,138 63 43
Europe 8,001 818 764 54 37
United Kingdom 28,850 599 807 (208) (144)
Middle East/Africa 302 15 17 (2) (1)
Intersegment eliminations (11,119) (751) (751) -- --
- -------------------------------------------------------------------------------------------------
Total international 51,502 3,395 3,241 154 106
Domestic operations 52,500 4,914 4,757 157 109
- -------------------------------------------------------------------------------------------------
Total $ 104,002 $ 8,309 $ 7,998 $ 311 $ 215
=================================================================================================
International as a percentage
of total 50% 41% 41% 50% 49%
=================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Income
Total Total Total before Net
assets revenue(1) expenses(1) taxes income
- -------------------------------------------------------------------------------------------
1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International operations
Asia $ 7,867 $ 434 $ 423 $ 11 $ 8
Australia/New Zealand 8,086 733 526 207 151
Western Hemisphere 8,775 896 793 103 75
Europe 6,746 581 544 37 27
United Kingdom 25,645 1,546 1,402 144 105
Middle East/Africa 123 16 13 3 2
Intersegment eliminations (21,109) (913) (913) -- --
- -------------------------------------------------------------------------------------------
Total international 36,133 3,293 2,788 505 368
Domestic operations 60,883 4,210 3,846 364 247
- -------------------------------------------------------------------------------------------
Total $ 97,016 $ 7,503 $ 6,634 $ 869 $ 615
===========================================================================================
International as a percentage
of total 37% 44% 42% 58% 60%
===========================================================================================
</TABLE>
(1) Total revenue includes interest revenue and noninterest revenue. Total
expenses includes interest expense, noninterest expenses and provision for
credit losses.
(2) 1995 balances have been restated to reflect the change in methodology for
allocating operating and corporate overhead expenses. Changes had no
material impact on 1994 balances.
NOTE 23--DERIVATIVE FINANCIAL INSTRUMENTS AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK
In the normal course of business, the Corporation is a party to a variety of
derivative and off-balance sheet financial instruments to meet the needs of its
customers, to manage its exposure to interest rate and other risks, and to take
trading positions. These financial instruments consist of derivatives (such as
swaps and options), when-issued securities, securities lending indemnifications,
and credit-related arrangements and involve varying degrees of credit risk and
market risk.
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 a 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 derivative and off-balance
sheet portfolios by limiting the total amount of arrangements outstanding with
individual customers; by monitoring the size and maturity structure of the
portfolios; by obtaining collateral based on management's credit assessment of
the customer; and by applying a uniform credit process for all credit exposures.
Collateral held generally includes cash and U.S. government and federal agency
securities. In order to reduce derivatives-related credit risk, the Corporation
enters into master netting agreements which incorporate the right of setoff to
provide for the net settlement of covered contracts with the same customer in
the event of default or other cancellation of the agreement. In addition,
management evaluates these portfolios periodically to determine whether the
allowance for credit losses is adequate to absorb potential losses in such
portfolios.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
88
<PAGE>
- --------------------------------------------------------------------------------
For a further discussion of derivative financial instruments (including
leveraged derivative transactions) the related market and credit risks, and
controls used to monitor such risks, which is not included as part of these
audited financial statements, see "Risk Management" on page 47, "Derivatives" on
page 50, "Summary of Credit Loss Experience" on page 54 and "Nonperforming
Assets" on page 57. For the risk-weighted amounts under the risk-based capital
guidelines of the Corporation's derivative and off-balance sheet exposures,
which also are not included as part of these audited financial statements, see
"Capital Resources" on page 45.
Trading Derivative Financial Instruments
The Corporation actively manages trading positions in a variety of derivative
contracts. Many of the Corporation's trading positions are established as a
result of providing derivative products to meet customers' demands. To
anticipate customer demand for such transactions, the Corporation also carries
an inventory of capital markets instruments and maintains its access to market
liquidity by quoting bid and offer prices to, and trading with, other market
makers. These two activities are essential to provide customers with capital
market products at competitive prices. All positions are reported at fair value
and changes in fair values are reflected in trading revenue as they occur.
As required by SFAS 119, "Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments," the amounts disclosed below represent
the end-of-period fair values of trading derivatives and their average aggregate
fair values during the year. These amounts are presented gross before the impact
of master netting agreements and collateral. The gross fair values of trading
derivatives do not represent the amount of market or credit risk of derivatives
in the trading portfolio. Rather, they indicate the extent of involvement in the
over-the-counter (OTC) markets for interest rate, foreign exchange rate, equity
and commodity price derivatives, and exchange traded options during the year.
Any measurement of risk is meaningful only when 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 risk analyses. The accounting impact of
netting agreements, which is applied on a cross-product basis in accordance with
the terms of each master agreement and which is calculated based on the criteria
prescribed by FIN 39, is provided below in order to display how these amounts
are reflected in trading assets and trading liabilities in the consolidated
balance sheet.
Contracts with positive fair values are recorded as assets and contracts
with negative fair values are recorded as liabilities after application of
master netting agreements. The following table reflects the gross fair values
and balance sheet amounts of trading derivative financial instruments:
<TABLE>
<CAPTION>
At December 31, 1996 Average during 1996
-------------------- ---------------------
(in millions) Assets (Liabilities) Assets (Liabilities)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 16,582 $(15,394) $ 14,880 $(14,345)
Interest Rate Contracts
Forwards 84 (86) 63 (61)
Options purchased 1,149 1,118
Options written (1,252) (1,323)
Foreign Exchange Rate Contracts
Spot and Forwards 9,855 (10,935) 7,754 (9,118)
Options purchased 917 986
Options written (953) (983)
Equity-related contracts 2,696 (2,941) 2,128 (2,374)
Commodity-related and other
contracts 679 (690) 585 (594)
Exchange-Traded Options
Interest Rate 10 (12) 19 (10)
Foreign Exchange -- -- -- (2)
Equity 251 (135) 181 (82)
- -------------------------------------------------------------------------------------
Total Gross Fair Values 32,223 (32,398) 27,714 (28,892)
- -------------------------------------------------------------------------------------
Impact of Netting Agreements (20,813) 20,813 (17,314) 17,314
- -------------------------------------------------------------------------------------
$ 11,410(1) $ 10,400
======== ========
$(11,585)(1) $(11,578)
======== ========
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995 Average during 1995
-------------------- ---------------------
(in millions) Assets (Liabilities) Assets (Liabilities)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 15,858 $(15,471) $ 15,901 $(15,288)
Interest Rate Contracts
Forwards 83 (81) 114 (116)
Options purchased 1,426 1,139
Options written (1,312) (1,727)
Foreign Exchange Rate Contracts
Spot and Forwards 7,931 (8,937) 12,041 (11,795)
Options purchased 999 1,462
Options written (941) (1,269)
Equity-related contracts 2,011 (2,359) 1,549 (1,756)
Commodity-related and other
contracts 541 (531) 607 (472)
Exchange-Traded Options
Interest Rate 33 (16) 106 (62)
Foreign Exchange -- -- 1 (11)
Equity 137 (80) 131 (69)
Commodity -- -- 7 (5)
- --------------------------------------------------------------------------------------
Total Gross Fair Values 29,019 (29,728) 33,058 (32,570)
- --------------------------------------------------------------------------------------
Impact of Netting Agreements (18,464) 18,464 (19,389) 19,389
- --------------------------------------------------------------------------------------
$ 10,555(1) $ 13,669
======== ========
$(11,264)(1) $(13,181)
======== ========
</TABLE>
(1) As reflected on the balance sheet in "Trading Assets" and "Trading
Liabilities."
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
89
<PAGE>
- --------------------------------------------------------------------------------
Derivative contracts are generally either privately-negotiated OTC
contracts or standard contracts transacted through regulated exchanges. For
information as to the credit risk of OTC trading derivatives, which is not
included as part of these audited financial statements, see "Derivatives" on
page 50. Fair values of futures contracts are not included above due to cash
margining requirements of regulated exchanges. Monthly averages are used in the
table above.
End-User Derivative Financial Instruments
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 certain liabilities and assets such as
interest-bearing deposits, short-term borrowings and long-term debt, as well as
securities available for sale, loans, investments in non-marketable equity
instruments and net investments in foreign entities. Revenue or expense
pertaining to management of interest rate exposure is predominantly recognized
over the life of the contract as an adjustment to interest revenue or expense.
When the Corporation purchases assets and issues liabilities at fixed
interest rates it subjects itself to fair value fluctuations as market interest
rates change. These fluctuations in fair value are managed by entering into
interest rate contracts which change the fixed rate instrument into a variable
rate instrument.
When the Corporation purchases foreign currency denominated assets, issues
foreign currency denominated debt or has foreign net investments, it subjects
itself to changes in value as exchange rates move. These fluctuations are
managed by entering into currency swaps and forwards.
The Corporation's investments in nonmarketable and restricted equity
instruments classified in other assets are subject to changes in market values.
These changes are managed by entering into equity swaps and options.
The fair values and other information related to end-user derivatives are
disclosed in Note 25.
Notional Amounts of Trading and End-User Derivative
Financial Instruments
Notional amounts indicate the extent of the Corporation's involvement in the
various types and uses of derivative financial instruments and do not measure
the Corporation's exposure to credit or market risks and do not necessarily
represent the amounts exchanged by the parties to the instruments. The amounts
exchanged are based on the contractual notional amounts and the other terms of
the instruments. Notional amounts are not included in the consolidated balance
sheet and generally exceed the future cash requirements relating to the
instruments. The leveraging effects of leveraged derivative transactions are
reflected in the table below.
<TABLE>
<CAPTION>
Notional Amounts
(in millions) December 31, 1996 December 31, 1995
- ------------------------------------------------------------------------------------
End End
Trading User(1) Trading User(1)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate contracts
Swaps $ 589,739 $ 58,375 $ 540,124 $ 59,104
Futures 102,386 -- 118,822 --
Forwards 67,183 3,325 74,247 2,213
Options purchased
Exchange traded 41,106 -- 52,020 --
OTC 93,734 1,014 97,461 104
Options written
Exchange traded 42,300 -- 41,833 --
OTC 96,843 -- 111,706 --
- ------------------------------------------------------------------------------------
Total $1,033,291 $ 62,714 $1,036,213 $ 61,421
====================================================================================
Foreign exchange rate contracts
Spot, forwards, futures $ 539,805 $ 2,358 $ 475,435 $ 1,990
Swaps 60,200 2,480 59,360 1,557
OTC options purchased 23,118 -- 22,345 --
OTC options written 24,994 -- 23,791 --
- ------------------------------------------------------------------------------------
Total $ 648,117 $ 4,838 $ 580,931 $ 3,547
====================================================================================
Equity derivative contracts
Swaps $ 6,165 $ 224 $ 5,681 $ 22
Futures and forwards 2,932 -- 2,766 --
Options purchased
Exchange traded 3,097 -- 2,726 --
OTC 13,556 1 12,801 69
Options written
Exchange traded 2,648 -- 6,808 --
OTC 14,420 -- 11,334 --
- ------------------------------------------------------------------------------------
Total $ 42,818 $ 225 $ 42,116 $ 91
====================================================================================
Commodity and other contracts(2)
Swaps $ 3,168 $-- $ 4,003 $ --
Futures 792 -- 1,622 --
Forwards 2,304 -- 2,098 --
Options purchased
Exchange traded 663 -- 1,755 --
OTC 1,879 -- 5,040 --
Options written
Exchange traded 604 -- 2,207 --
OTC 1,956 -- 5,213 --
- ------------------------------------------------------------------------------------
Total $ 11,366 $-- $ 21,938 $ --
====================================================================================
</TABLE>
(1) These are hedges of securities available for sale, loans, other assets,
interest-bearing deposits, other short-term borrowings, long-term debt and
net investments in foreign subsidiaries. These are transacted with
derivatives traders within the Corporation who are intermediaries to
external markets.
(2) Excluded from the notional amounts above were benefit-responsive contracts
reflecting actuarial-related risk, minimal market risk and no credit risk,
for which the notional values totaled $11.5 billion and $12.1 billion at
December 31, 1996 and 1995, respectively.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
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<PAGE>
- --------------------------------------------------------------------------------
SWAPS
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 at a specified future date. Equity swap
contracts typically involve the payment of an amount equal to the total return
of a U.S. or international equity index, basket of equities, or an individual
equity over a fixed time period in exchange for receiving a floating interest
rate, both based upon the same notional amount.
FUTURES AND FORWARDS
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. Futures contracts are traded on regulated
U.S. and international exchanges. The Corporation intends to close out most open
positions in futures contracts prior to maturity, therefore future cash receipts
or payments are generally limited to the change in fair value of the underlying
instruments. Since futures contracts generally entail daily net cash margining
with regulated exchanges, the credit risk is generally minimized to a one-day
receivable. Included in this category of contracts are spot foreign currency
contracts, cash-settled index contracts, and forward rate agreements
(agreements to exchange amounts at a specified future date for interest rate
differentials between an agreed interest rate and a reference rate, computed on
a notional amount).
OPTIONS
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 at or
before a specified date 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 initial 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").
The Corporation is subject to credit risk as a purchaser of an option
contract, and is subject to market risk to the extent of the purchase price of
the option. The Corporation is subject to market risk on its written option
contracts, but not to credit risk, except as noted below, since the customer has
already performed according to the terms of the contract by paying a cash
premium up front. However, for SFAS 105 purposes, credit risk arises to the
extent that the option contract requires or permits settlement in the underlying
instrument, and that instrument is subject to credit risk. Such amounts related
to certain written put option contracts on debt securities and certain forward
contracts to purchase debt securities were $2.677 billion and $4.469 billion at
December 31, 1996 and 1995, respectively. The underlying debt securities were
primarily obligations of the U.S. and foreign central and local governments and
U.S. federal agencies.
Financial Instruments with Off-Balance Sheet
Credit Risk
As required by SFAS 105, off-balance sheet credit risk amounts are determined
without consideration of the value of any related collateral and reflect the
total potential loss on commitments to purchase when-issued securities for all
obligors (including governments); securities lending indemnifications; and
undrawn commitments, standby letters of credit and similar arrangements.
SECURITIES AND MONEY MARKET ACTIVITIES
(in millions) December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Contract Credit Risk Contract Credit Risk
Amount Amount Amount Amount
- --------------------------------------------------------------------------------
When-issued securities
and other
Commitments to sell $ 1,440 $ 2 $ 6,682 $ 1
Commitments to
purchase (1) 2,511 2,524 3,509 3,511
Securities lending
indemnifications 37,799 37,799 28,761 28,761
- --------------------------------------------------------------------------------
(1) Includes $1.1 billion and $.6 billion of forward-dated money market assets
at December 31, 1996 and 1995, respectively.
When-issued securities normally begin trading when the U.S. Treasury or
some other issuer of securities announces a forth-coming issue. (In some cases,
trading may begin in anticipation of such an announcement.) Such transactions
are contingent upon the actual issuance of the security. Since the exact price
and terms of the security are unknown before the issue date, trading prior to
that date is on a "yield" basis. On the issue date the exact terms and price of
the security become known and when-issued trading continues until settlement
date, when the securities are delivered and the issuer is paid. On settlement
date, the securities purchased by the Corporation are reported on the balance
sheet.
Securities lending indemnifications represent the market value of
customers' securities lent to third parties. The Corporation indemnifies
customers to the extent of the replacement cost and/or the market value of the
securities in the event of a failure by a third party to return the securities
lent. The market value of collateral, primarily cash, received for customers'
securities lent was in excess of the contract amounts and was approximately $39
billion at December 31, 1996 and $30 billion at December 31, 1995.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
91
<PAGE>
- --------------------------------------------------------------------------------
CREDIT-RELATED ARRANGEMENTS
(in millions) December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Contract Credit Risk Contract Credit Risk
Amount Amount Amount Amount
- --------------------------------------------------------------------------------
Commitments to extend
credit(1) $12,736 $12,736 $ 9,370 $ 9,370
Standby letters of credit and
similar arrangements(2) 3,974 3,974 4,562 4,562
- --------------------------------------------------------------------------------
(1) Includes participations to other entities of approximately $2 billion at
December 31, 1996 and 1995. Of the non-participated amount, approximately
$2 billion and $3 billion expire in one year or less at December 31, 1996
and 1995, respectively. Additionally, both the contract amount and the
credit risk amount include commitments to enter into securities resale
agreements of $2.0 billion and $.8 billion at December 31, 1996 and 1995,
respectively.
(2) Includes participations to other entities of approximately $1 billion at
December 31, 1996 and 1995.
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. Included in the amounts above
are unused commitments to extend credit that are related to loans held for
trading purposes. 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, is disclosed
on pages 58 through 60.
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 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, 1996, $2.747
billion will expire within one year, $1.058 billion from one to four years and
$169 million after four years.
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. Fees received are generally recognized as revenue over
the life of the commitment.
NOTE 24--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 34
percent and 36 percent of total credit risk at December 31, 1996 and 1995,
respectively. The Organization for Economic Cooperation and Development (OECD)
is an international organization of countries which are committed to
market-oriented economic policies, including the promotion of private enterprise
and free market prices, liberal trade policies, and the absence of exchange
controls. The OECD consists of 29 industrialized countries that are located
primarily in Western Europe and North America, as well as Australia, Japan, New
Zealand and South Korea. For risk-based capital purposes, domestic and foreign
bank regulators generally assign OECD country central governments, their
agencies and their central banks a credit risk weighting of zero percent, which
means that no credit risk capital is required to support their financial
instruments. OECD country banks are assigned the next lowest credit risk
weighting (20 percent) by these regulators. The largest counterparty
concentration was the U.S. government and its related entities, which comprised
approximately 51 percent of the OECD country governments category. Within all
other counterparties, the amount collateralized by cash and U.S. government
securities represented approximately 26 percent of total credit risk.
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, including derivatives, at December 31, 1996 and 1995. The
increase in the OECD country banks category compared to 1995 was predominantly
related to short-term, liquid transactions with European and U.S. banks.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
92
<PAGE>
- --------------------------------------------------------------------------------
CREDIT RISK
================================================================================
On-Balance Off-Balance
(in millions) Sheet Sheet Total
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
Significant concentrations (1)
OECD country banks (2) $ 34,689 $ 4,040 $ 38,729
OECD country governments 16,072 3,194 19,266
- --------------------------------------------------------------------------------
Total significant concentrations 50,761 7,234 57,995
All other (3)(4) 58,213 52,463 110,676
- --------------------------------------------------------------------------------
Total $108,974 $ 59,697 $168,671
================================================================================
1995
- --------------------------------------------------------------------------------
Significant concentrations (1)
OECD country banks (2) $ 21,553 $ 3,894 $ 25,447
OECD country governments 19,862 6,567 26,429
- --------------------------------------------------------------------------------
Total significant concentrations 41,415 10,461 51,876
All other (3)(4) 52,023 40,210 92,233
- --------------------------------------------------------------------------------
Total $ 93,438 $ 50,671 $144,109
================================================================================
(1) For these purposes, Poland has been excluded from the OECD categories at
December 31, 1996 and the Czech Republic and Mexico were excluded at
December 31, 1995.
(2) Included in the on-balance sheet component of this category was
approximately $4 billion and $5 billion at December 31, 1996 and 1995,
respectively, that was collateralized by U.S. government securities.
(3) 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 $8 billion and $10 billion at December 31,
1996 and 1995, respectively, that was collateralized by cash and U.S.
government securities. Included in the off-balance sheet component of this
category at December 31, 1996 was approximately $37 billion that was
collateralized by cash and U.S. government securities and approximately
$11 billion of unused commitments to extend credit, approximately $5
billion of which expire in one year or less. The corresponding amounts for
December 31, 1995 were $28 billion, $6 billion and $3 billion,
respectively.
(4) Includes:
CREDIT RISK
================================================================================
On-Balance Off-Balance
(in millions) Sheet Sheet Total
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
Real estate $2,002 $ 394 $2,396
Highly leveraged 1,663 1,003 2,666
1995
- --------------------------------------------------------------------------------
Real estate $1,802 $ 443 $2,245
Highly leveraged 1,173 802 1,975
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 58
through 60.
NOTE 25--FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "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 would 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 do
not represent management's estimation of the underlying value of the
Corporation.
SFAS 119 amended SFAS 107 disclosure requirements as of December 31, 1994.
The amendments, among others, require that the disclosures distinguish between
financial instruments held for trading purposes, measured at fair value with
gains and losses recognized in earnings, and financial instruments held or
issued for purposes other than trading. The fair value of derivative financial
instruments must be disclosed separately from nonderivative financial
instruments. Additionally, the fair value of derivative financial instruments
may not be netted with the fair value of other derivative financial instruments,
except as allowed by FIN 39.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
93
<PAGE>
- --------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -------------------------------------------------------------------------------------------------------------------------------
Underlying Effect of Total Fair Value Over
(in millions) December 31, 1996 Book Value Fair Value End-User Derivative Fair Value (Under) Book Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL ASSETS, INCLUDING HEDGES
Cash and due from banks $ 1,543 $ 1,543 $ -- $ 1,543 $ --
Interest-bearing deposits with banks 2,210 2,212 -- 2,212 2
Federal funds sold 1,599 1,599 -- 1,599 --
Securities purchased under resale agreements 17,986 17,988 -- 17,988 2
Securities borrowed 16,676 16,676 -- 16,676 --
Trading assets (see Notes 3 and 23) 48,919 48,919 -- 48,919 --
Securities available for sale (see Note 4) 7,920 7,985 (65) 7,920 --
Loans (excluding leases), commitments to
extend credit and standby letters of credit 15,561 15,386 (23) 15,363 (198)
Allowance for credit losses (773) -- -- -- 773
Due from customers on acceptances 597 597 -- 597 --
Accounts receivable and accrued interest 3,003 3,003 -- 3,003 --
Other financial assets 1,940 2,018 (3) 2,015 75
FINANCIAL LIABILITIES, INCLUDING HEDGES
Noninterest-bearing deposits 3,613 3,613 -- 3,613 --
Interest-bearing deposits 26,702 26,729 (31) 26,698 (4)
Trading liabilities (see Notes 3 and 23) 23,713 23,713 -- 23,713 --
Securities sold under repurchase agreements 23,000 23,002 -- 23,002 2
Other short-term borrowings 19,395 19,402 -- 19,402 7
Acceptances outstanding 597 597 -- 597 --
Other financial liabilities 5,218 5,218 -- 5,218 --
Allowance for credit losses 200 -- -- -- (200)
Long-term debt* 11,839 12,037 (113) 11,924 85
Net investments in foreign subsidiaries -- -- 1 1 1
- -------------------------------------------------------------------------------------------------------------------------------
(in millions) December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS, INCLUDING HEDGES
Cash and due from banks $ 2,337 $ 2,337 $ -- $ 2,337 $ --
Interest-bearing deposits with banks 2,023 2,027 -- 2,027 4
Federal funds sold 854 854 -- 854 --
Securities purchased under resale agreements 13,206 13,207 -- 13,207 1
Securities borrowed 10,951 10,951 -- 10,951 --
Trading assets (see Notes 3 and 23) 47,893 47,893 -- 47,893 --
Securities available for sale (see Note 4) 6,283 6,376 (93) 6,283 --
Loans (excluding leases), commitments to
extend credit and standby letters of credit 12,352 12,093 (5) 12,088 (264)
Allowance for credit losses (992) -- -- -- 992
Due from customers on acceptances 500 500 -- 500 --
Accounts receivable and accrued interest 4,220 4,220 -- 4,220 --
Other financial assets 1,775 1,949 (14) 1,935 160
FINANCIAL LIABILITIES, INCLUDING HEDGES
Noninterest-bearing deposits 3,292 3,292 -- 3,292 --
Interest-bearing deposits 22,416 22,440 (59) 22,381 (35)
Trading liabilities (see Notes 3 and 23) 26,091 26,091 -- 26,091 --
Securities sold under repurchase agreements 15,247 15,253 -- 15,253 6
Other short-term borrowings 15,761 15,779 (1) 15,778 17
Acceptances outstanding 500 500 -- 500 --
Other financial liabilities 4,166 4,166 -- 4,166 --
Long-term debt 9,294 9,631 (280) 9,351 57
Net investments in foreign subsidiaries -- -- (16) (16) (16)
===============================================================================================================================
</TABLE>
* 1996 includes trust preferred capital securities.
A discussion of the nature, objectives and strategies for using end-user
derivatives can be found in Note 23.
The following table provides the gross unrealized gains and losses for
end-user derivatives. Gross unrealized gains and losses for hedges of
securities available for sale are recognized in the financial statements with
the offset as an adjustment to securities valuation allowance in
stockholders' equity. Gross unrealized gains and losses for hedges of loans,
other assets, interest-bearing deposits, other short-term borrowings,
long-term debt and net investments in foreign subsidiaries are not yet
recognized in the financial statements.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
----------------------------------------
94
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Net
Securities Interest- Other Long- investments
available Other bearing short-term term in foreign
(in millions) December 31, 1996 for sale Loans assets deposits borrowings debt(1) subsidiaries Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE SWAPS
Pay Variable
Unrealized Gain $ 1 $ -- $ -- $ 62 $ 7 $ 198 $ -- $ 268
Unrealized (Loss) -- (14) -- (23) (6) (93) -- (136)
- -----------------------------------------------------------------------------------------------------------------------------------
Pay Variable Net 1 (14) -- 39 1 105 -- 132
- -----------------------------------------------------------------------------------------------------------------------------------
Pay Fixed
Unrealized Gain 3 -- -- 13 -- 1 -- 17
Unrealized (Loss) (50) (9) -- (45) (1) (28) -- (133)
- -----------------------------------------------------------------------------------------------------------------------------------
Pay Fixed Net (47) (9) -- (32) (1) (27) -- (116)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Unrealized Gain 4 -- -- 75 7 199 -- 285
- -----------------------------------------------------------------------------------------------------------------------------------
Total Unrealized (Loss) (50) (23) -- (68) (7) (121) -- (269)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Net $ (46) $(23) $ -- $ 7 $ -- $ 78 $ -- $ 16
===================================================================================================================================
FORWARD RATE AGREEMENTS
Unrealized Gain $ -- $ -- $ -- $ 1 $ -- $ -- $ -- $ 1
Unrealized (Loss) -- -- -- (1) -- -- -- (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Net $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
===================================================================================================================================
CURRENCY SWAPS AND FORWARDS
Unrealized Gain $ -- $ -- $ 1 $ 27 $ -- $ 53 $ 42 $ 123
Unrealized (Loss) -- -- -- (3) -- (18) (41) (62)
- -----------------------------------------------------------------------------------------------------------------------------------
Net $ -- $ -- $ 1 $ 24 $ -- $ 35 $ 1 $ 61
===================================================================================================================================
OTHER CONTRACTS (2)
Unrealized Gain $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Unrealized (Loss) (19) -- (4) -- -- -- -- (23)
- -----------------------------------------------------------------------------------------------------------------------------------
Net $(19) $ -- $ (4) $ -- $ -- $ -- $ -- $ (23)
===================================================================================================================================
Total Unrealized Gain $ 4 $ -- $ 1 $ 103 $ 7 $ 252 $ 42 $ 409
Total Unrealized (Loss) (69) (23) (4) (72) (7) (139) (41) (355)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Net $(65) $(23) $ (3) $ 31 $ -- $ 113 $ 1 $ 54
===================================================================================================================================
(in millions) December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS
Pay Variable
Unrealized Gain $ -- $ -- $ -- $ 132 $ 4 $ 339 $ -- $ 475
Unrealized (Loss) -- (5) -- (7) (1) (24) -- (37)
- -----------------------------------------------------------------------------------------------------------------------------------
Pay Variable Net -- (5) -- 125 3 315 -- 438
- -----------------------------------------------------------------------------------------------------------------------------------
Pay Fixed
Unrealized Gain -- -- -- 11 -- 14 -- 25
Unrealized (Loss) (88) -- -- (82) (1) (21) -- (192)
- -----------------------------------------------------------------------------------------------------------------------------------
Pay Fixed Net (88) -- -- (71) (1) (7) -- (167)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Unrealized Gain -- -- -- 143 4 353 -- 500
- -----------------------------------------------------------------------------------------------------------------------------------
Total Unrealized (Loss) (88) (5) -- (89) (2) (45) -- (229)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Net $(88) $ (5) $ -- $ 54 $ 2 $ 308 $ -- $ 271
===================================================================================================================================
FORWARD RATE AGREEMENTS
Unrealized Gain $ -- $ -- $ -- $ 1 $ -- $ -- $ -- $ 1
Unrealized (Loss) -- -- -- (1) -- -- -- (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Net $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
===================================================================================================================================
CURRENCY SWAPS AND FORWARDS
Unrealized Gain $ -- $ -- $ 1 $ 17 $ -- $ 20 $ 14 $ 52
Unrealized (Loss) -- -- -- (12) (1) (48) (30) (91)
- -----------------------------------------------------------------------------------------------------------------------------------
Net $ -- $ -- $ 1 $ 5 $ (1) $ (28) $(16) $ (39)
===================================================================================================================================
OTHER CONTRACTS (2)
Unrealized Gain $ -- $ -- $ 1 $ -- $ -- $ -- $ -- $ 1
Unrealized (Loss) (5) -- (16) -- -- -- -- (21)
- -----------------------------------------------------------------------------------------------------------------------------------
Net $ (5) $ -- $(15) $ -- $ -- $ -- $ -- $ (20)
===================================================================================================================================
Total Unrealized Gain $ -- $ -- $ 2 $ 161 $ 4 $ 373 $ 14 $ 554
Total Unrealized (Loss) (93) (5) (16) (102) (3) (93) (30) (342)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Net $(93) $ (5) $(14) $ 59 $ 1 $ 280 $(16) $ 212
===================================================================================================================================
</TABLE>
(1) 1996 includes trust preferred capital securities.
(2) Other contracts are principally equity swaps and collars.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
----------------------------------------
95
<PAGE>
- --------------------------------------------------------------------------------
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, 1996 and December 31, 1995 were as follows:
December 31, 1996 Interest Foreign Total
(in millions) Rate Currency Equity Notional
Notional Amount Maturing in: Risk Risk* Risk Amount
- ---------------------------------------------------------------------------
1997 $41,168 $3,271 $ 20 $44,459
1998-1999 10,540 750 101 11,391
2000-2001 4,490 689 104 5,283
2002 and thereafter 6,516 128 -- 6,644
- ---------------------------------------------------------------------------
Total $62,714 $4,838 $225 $67,777
===========================================================================
December 31, 1995 Interest Foreign Total
(in millions) Rate Currency Equity Notional
Notional Amount Maturing in: Risk Risk* Risk Amount
- ---------------------------------------------------------------------------
1996 $41,825 $ 667 $91 $42,583
1997-1998 10,218 2,305 -- 12,523
1999-2000 4,821 466 -- 5,287
2001 and thereafter 4,557 109 -- 4,666
- ---------------------------------------------------------------------------
Total $61,421 $3,547 $91 $65,059
===========================================================================
* Currency swaps and currency forwards are primarily based upon Australian
dollar/U.S. dollar and Japanese yen/U.S. dollar contracts.
For pay variable and pay fixed interest rate swaps entered into as an end
user, the weighted average receive rate and pay rate (interest rates were based
on the weighted averages of both U.S. and non-U.S. currencies) by maturity and
corresponding notional amounts at December 31, 1996 and December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Paying Variable Paying Fixed
December 31, 1996 --------------------------- ---------------------------
($ in millions) Notional Receive Pay Notional Receive Pay Total
Notional Amount Maturing In: Amount Rate Rate Amount Rate Rate Notional
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 $33,275 5.59% 5.52% $4,056 5.23% 5.71% $37,331
1998-1999 7,957 5.96 5.52 2,095 4.82 5.82 10,052
2000-2001 3,614 6.84 5.63 867 4.11 5.67 4,481
2002 and thereafter 5,579 6.79 5.65 932 5.61 7.14 6,511
- -------------------------------------------------------------------------------------------------------------
Total $50,425 $7,950 $58,375
=============================================================================================================
</TABLE>
All rates were those in effect at December 31, 1996. Variable rates are
primarily based on LIBOR and may change significantly, affecting future cash
flows.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Paying Variable Paying Fixed
December 31, 1995 --------------------------- --------------------------
($ in millions) Notional Receive Pay Notional Receive Pay Total
Notional Amount Maturing In: Amount Rate Rate Amount Rate Rate Notional
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $30,770 5.97% 5.87% $ 8,742 6.00% 6.21% $39,512
1997-1998 6,558 5.99 5.84 3,657 5.33 5.76 10,215
1999-2000 3,448 6.57 6.34 1,373 3.86 4.99 4,821
2001 and thereafter 3,927 6.64 5.93 629 5.91 7.34 4,556
- -------------------------------------------------------------------------------------------------------------
Total $44,703 $14,401 $59,104
=============================================================================================================
</TABLE>
All rates were those in effect at December 31, 1995. Variable rates are
primarily based on LIBOR and may change significantly, affecting future cash
flows.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
----------------------------------------
96
<PAGE>
- --------------------------------------------------------------------------------
The effect of these end-user derivatives was a net decrease in revenue of $29
million for the year ended December 31, 1996 and a net increase in revenue of
$22 million for the year ended December 31, 1995.
The Corporation has reviewed its other categories of off-balance sheet
instruments (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, 1996 and 1995 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 assets (including derivatives), trading
liabilities and securities available for sale are carried at their fair values.
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) and cash and cash margins with brokers. 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 at both December 31, 1996 and 1995.
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.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
----------------------------------------
97
<PAGE>
- --------------------------------------------------------------------------------
NOTE 26--CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS
Condensed Statement of Income
(in millions) Year Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------
REVENUE
Dividends
Banks $ 48 $ 75 $ 320
Nonbanks 196 86 264
Interest from subsidiaries 503 551 367
Other interest 157 150 209
Trading -- 44 (81)
Securities available for sale gains (losses) (7) 114 17
Other 18 85 (17)
- -------------------------------------------------------------------------------
Total revenue 915 1,105 1,079
- -------------------------------------------------------------------------------
EXPENSES
Interest to subsidiaries 109 71 40
Other interest 643 714 566
Other 33 -- 20
- -------------------------------------------------------------------------------
Total expenses 785 785 626
- -------------------------------------------------------------------------------
Income before income taxes and
equity in undistributed income of
subsidiaries and affiliates 130 320 453
Income taxes (benefit) (99) 25 (99)
- -------------------------------------------------------------------------------
Income before equity in undistributed
income of subsidiaries and affiliates 229 295 552
Equity in undistributed (loss) income
of subsidiaries and affiliates 383 (80) 63
- -------------------------------------------------------------------------------
NET INCOME $ 612 $ 215 $ 615
===============================================================================
Condensed Balance Sheet
(in millions) December 31, 1996 1995
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 24 $ 8
Interest-bearing deposits with bank subsidiaries 3,297 2,540
Securities purchased under resale agreements
with nonbank subsidiary 701 2,213
Securities purchased under resale agreements
with third party -- 48
Trading assets 2,809 1,475
Securities available for sale 1,577 1,301
Loans 245 24
Investments in subsidiaries and affiliates
Banks 4,716 4,641
Nonbanks 1,635 946
Receivables from subsidiaries and affiliates
Banks 1,584 1,418
Nonbanks 4,999 3,190
Accounts receivable and accrued interest 370 348
Other assets 255 148
- --------------------------------------------------------------------------------
Total assets $22,212 $18,300
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Trading liabilities $ 478 $ 348
Commercial paper 5,723 5,306
Other short-term borrowings 1,905 960
Payables to subsidiaries and affiliates
Banks 652 170
Nonbanks 2,702 1,794
Other liabilities 330 278
Long-term debt 5,188 4,460
- --------------------------------------------------------------------------------
Total liabilities 16,978 13,316
- --------------------------------------------------------------------------------
Total stockholders' equity 5,234 4,984
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $22,212 $18,300
================================================================================
Condensed Statement of Cash Flows
(in millions) Year Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 612 $ 215 $ 615
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Equity in undistributed loss (income)
of subsidiaries and affiliates (383) 80 (63)
Deferred income taxes (29) 3 (59)
Net change in trading assets (1,334) 104 342
Net change in trading liabilities 130 220 (42)
Securities available for sale (gains) losses 7 (114) (17)
Other, net (323) 282 107
- -------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (1,320) 790 883
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits with bank subsidiaries (757) (1,031) (847)
Securities purchased under resale agreements
with nonbank subsidiary (1,512) (1,109) (784)
Securities purchased under resale agreements
with third party 48 (48) --
Short-term notes receivable from subsidiaries
and affiliates 2,557 1,591 745
Securities available for sale:
Purchases (746) (388) (2,304)
Maturities and other redemptions 229 360 396
Sales 260 876 501
Increases in long-term notes receivable
from subsidiaries (2,015) (484) (2,133)
Decreases in long-term notes receivable
from subsidiaries 871 1,379 640
Capital contributed to subsidiaries and affiliates (867) (290) (152)
Return of capital from subsidiaries and affiliates 700 -- 2
Other, net (223) 22 34
- -------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (1,455) 878 (3,902)
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in:
Commercial paper and other short-term
borrowings 1,363 (3,304) 3,327
Short-term notes payable to subsidiaries 878 1,012 133
Issuance of long-term notes payable to subsidiaries 512 -- --
Issuance of long-term debt 1,680 1,496 421
Repayments of long-term debt (864) (791) (370)
Issuance of preferred stock -- 221 342
Redemption/repurchase of preferred stock (49) -- (205)
Purchases of treasury stock (608) (38) (267)
Cash dividends paid (378) (361) (322)
Other, net 257 33 22
- -------------------------------------------------------------------------------
Net cash (used in) provided by financing activities 2,791 (1,732) 3,081
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN CASH AND DUE FROM BANKS 16 (64) 62
Cash and due from banks, beginning of year 8 72 10
- -------------------------------------------------------------------------------
Cash and due from banks, end of year $ 24 $ 8 $ 72
===============================================================================
Interest paid $ 737 $ 772 $ 587
===============================================================================
Income taxes paid $ 19 $ 9 $ 7
===============================================================================
Noncash financing activity:
Conversion of debt to preferred stock $ 1 $ 245 $ --
===============================================================================
Noncash investing activity:
Treasury stock associated with acquisition $ 203 $ -- $ --
===============================================================================
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
----------------------------------------
98
<PAGE>
- --------------------------------------------------------------------------------
NOTE 27--BANKERS TRUST COMPANY CONSOLIDATED
SUMMARIZED FINANCIAL INFORMATION
Consolidated Statement of Income
(in millions) Year Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------
NET INTEREST REVENUE
Interest revenue $ 4,124 $ 3,656 $ 2,900
Interest expense 3,346 3,069 2,271
- -------------------------------------------------------------------------------
NET INTEREST REVENUE 778 587 629
Provision for credit losses (9) (31) (3)
- -------------------------------------------------------------------------------
NET INTEREST REVENUE AFTER PROVISION
FOR CREDIT LOSSES 787 618 632
- -------------------------------------------------------------------------------
NONINTEREST REVENUE
Trading 670 279 786
Fiduciary and funds management 720 642 698
Fees and commissions 562 484 541
Securities available for sale gains (losses) 23 (4) 13
Other 295 163 213
- -------------------------------------------------------------------------------
Total noninterest revenue 2,270 1,564 2,251
- -------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries 729 683 656
Incentive compensation and employee
benefits 716 524 563
Occupancy, net 142 141 134
Furniture and equipment 155 146 149
Provision for severance related costs -- 43 --
Other 856 736 823
- -------------------------------------------------------------------------------
Total noninterest expenses 2,598 2,273 2,325
- -------------------------------------------------------------------------------
Income (Loss) before income taxes 459 (91) 558
Income taxes (benefit) 115 (53) 166
- -------------------------------------------------------------------------------
NET INCOME (LOSS) $ 344 $ (38) $ 392
===============================================================================
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.
(in millions) Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Interest revenue $174 $129 $ 97
Interest expense 249 276 185
Noninterest revenue 112 65 18
Noninterest expenses 228 203 289
(in millions) December 31, 1996 1995
- --------------------------------------------------------------------------------
Interest-earning assets $1,395 $1,357
Noninterest-earning assets 618 554
Interest-bearing liabilities 5,040 4,778
Noninterest-bearing liabilities 729 495
Consolidated Balance Sheet
($ in millions, except par values) December 31, 1996 1995
- -------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 1,544 $ 2,305
Interest-bearing deposits with banks 2,494 1,982
Federal funds sold 1,789 854
Securities purchased under resale agreements 12,389 8,566
Securities borrowed 8,275 6,031
Trading assets 38,272 35,142
Securities available for sale 4,239 3,280
Loans -- 11,393
Allowance for credit losses -- (941)
Loans, net of allowance for credit losses of $723 at
December 31, 1996 13,018 --
Premises and equipment, net 914 834
Due from customers on acceptances 597 500
Accounts receivable and accrued interest 2,200 3,790
Other assets 2,412 2,141
- -------------------------------------------------------------------------------
Total assets $ 88,143 $ 75,877
===============================================================================
LIABILITIES
Noninterest-bearing deposits
Domestic offices $ 2,791 $ 2,815
Foreign offices 1,029 645
Interest-bearing deposits
Domestic offices 9,196 4,615
Foreign offices 20,556 20,018
- -------------------------------------------------------------------------------
Total deposits 33,572 28,093
Trading liabilities 19,172 19,087
Securities sold under repurchase agreements 10,095 7,275
Other short-term borrowings 10,391 8,342
Acceptances outstanding 597 500
Accounts payable and accrued expenses 1,993 1,810
Other liabilities, including allowance for credit losses
of $200 at December 31, 1996 1,212 1,006
Long-term debt not included in risk-based capital 4,828 4,248
Long-term debt included in risk-based capital 1,162 1,180
Mandatorily redeemable capital securities of
subsidiary trust holding solely junior subordinated
deferrable interest debentures included in
risk-based capital 243 --
- -------------------------------------------------------------------------------
Total liabilities 83,265 71,541
- -------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY
Floating rate non-cumulative preferred stock--
Series A, $1 million par value
Authorized, issued and outstanding:
1996, 600 shares; 1995, 500 shares 600 500
Common stock, $10 par value
Authorized, issued and outstanding:
1996, 100,166,667 shares; 1995, 85,166,667 shares 1,001 852
Capital surplus 540 528
Retained earnings 3,133 2,822
Cumulative translation adjustments (382) (365)
Securities valuation allowance (14) (1)
- -------------------------------------------------------------------------------
Total stockholder's equity 4,878 4,336
- -------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 88,143 $ 75,877
===============================================================================
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 114 effective
January 1, 1995.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
----------------------------------------
99
<PAGE>
- --------------------------------------------------------------------------------
NOTE 28--SUBSEQUENT EVENTS
Mandatorily Redeemable Capital Securities of
Subsidiary Trusts Holding Solely Junior Subordinated
Deferrable Interest Debentures Included in
Risk-Based Capital
Subsequent to December 31, 1996, BTCapital Trust A ("Trust A"), BTPreferred
Capital Trust I ("Trust I") and BT Preferred Capital Trust II ("Trust II"),
wholly-owned subsidiaries of the Corporation issued $250 million 7.90% Capital
Securities, Series A1, ("Series A1 Securities"), $250 million 8 1/8% Preferred
Securities, Series I ("Series I Securities") and $250 million 7.875% Preferred
Securities, Series II ("Series II Securities"), respectively. The Series A1
Securities and the Series II Securities have a liquidation value of $1,000 per
Series A1 Security and Series II Security, respectively. The Series I Securities
have a liquidation value of $25 per Series I Security. Series A1 Securities,
Series I Securities and Series II Securities represent preferred undivided
beneficial interests in the assets of Trust A, Trust I and Trust II,
respectively. The Corporation is the holder of all of the beneficial interests
represented by common securities of Trust A, Trust I and Trust II ("Common
Securities" and, collectively with the Series A1 Securities, Series I Securities
and Series II Securities, the "Trust Securities").
Trust A, Trust I and Trust II exist for the sole purpose of issuing the Trust
Securities and investing the proceeds thereof in 7.90% Junior Subordinated
Deferrable Interest Debentures, Series A1, 8 1/8% Junior Subordinated Deferrable
Interest Debentures, Series I and 7.875% Junior Subordinated Deferrable Interest
Debentures, Series II (the "Series A1 Debentures," the "Series I Debentures" and
the "Series II Debentures" and collectively, the "Junior Subordinated
Debentures") issued by the Corporation. The Junior Subordinated Debentures are
unsecured and subordinated to all senior indebtedness of the Corporation and
will be the sole assets of Trust A, Trust I and Trust II. Payments under the
Junior Subordinated Debentures by the Corporation are the same as those for the
Series A1 Securities, Series I Securities and Series II Securities described
below, respectively. The Corporation has guaranteed the obligations of Trust A,
Trust I and Trust II under the Series A1 Securities, Series I Securities and
Series II Securities, but only in each case to the extent of funds held by Trust
A, Trust I and Trust II, respectively.
Holders of the Series A1 Securities will be entitled to receive preferential
cumulative cash distributions accumulating from January 16, 1997 and payable
semi-annually in arrears on the fifteenth day of January and July of each year,
commencing July 15, 1997, at the annual rate of 7.90% of the liquidation amount
of $1,000 per Series A1Security. The Series A1 Securities are subject to
mandatory redemption upon repayment of the Series A1 Debentures at maturity on
January 15, 2027. The maturity date may be shortened under certain circumstances
to a date not earlier than January 15, 2017. In addition, the Series A1
Debentures may be redeemed at the option of the Corporation on or after January
15, 2007.
Holders of the Series I Securities will be entitled to receive preferential
cumulative cash distributions accumulating from February 5, 1997 and payable
quarterly in arrears on the last day of March, June, September and December of
each year, commencing March 31, 1997, at the annual rate of 8 1/8% of the
liquidation amount of $25 per Series I Security. The Series I Securities are
subject to mandatory redemption upon repayment of the Series I Debentures at
maturity on February 1, 2037. The maturity date may be shortened under certain
circumstances to a date not earlier than February 1, 2002. In addition, the
Series I Debentures may be redeemed at the option of the Corporation on or after
February 1, 2002.
Holders of the Series II Securities will be entitled to receive preferential
cumulative cash distributions accumulating from February 25, 1997, and payable
semi-annually in arrears on the twenty fifth day of February and August of each
year, commencing August 25, 1997, at the annual rate of 7.875% of the
liquidation amount of $1,000 per Series II Security. The Series II Securities
are subject to mandatory redemption upon repayment of the Series II Debentures
at maturity on February 25, 2027. The maturity date may be shortened under
certain circumstances to a date not earlier than February 25, 2012. In addition,
the Series II Debentures may be redeemed at the option of the Corporation on or
after February 25, 2007.
In addition, the Corporation issued approximately $750 million in long-term
debt subsequent to December 31, 1996.
Redemption of Preferred Stock of Subsidiary
On February 27, 1997, BT Overseas Finance N.V. ("BTOF") redeemed all 625 shares
of its BTOF Auction Rate Cumulative Preferred Stock Series C. The shares were
redeemed at a price of $100,000 per share, plus accrued and unpaid dividends on
such shares to the redemption date. Dividends on these shares will cease to
accumulate on the redemption date.
On March 6, 1997, BTOF redeemed all 625 shares of its BTOF Auction Rate
Cumulative Preferred Stock Series D. The shares were redeemed at a price of
$100,000 per share plus, accrued and unpaid dividends on such shares to the
redemption date. Dividends on these shares will cease to accumulate on the
redemption date.
On February 21, 1997, BTOF announced that it will redeem all 625 outstanding
shares of its BTOF Auction Rate Cumulative Preferred Stock, Series A on March
13, 1997. The shares will be redeemed at a redemption price of $100,000 per
share plus accrued and unpaid dividends to the redemption date. Dividends on
these shares will cease to accumulate on the redemption date, unless BTOF fails
to pay the redemption price.
On February 28, 1997, BTOF announced that it will redeem all 625 outstanding
shares of its BTOF Auction Rate Cumulative Preferred Stock, Series B on March
20, 1997. The shares will be redeemed at a redemption price of $100,000 per
share plus accrued and unpaid dividends to the redemption date. Dividends on
these shares will cease to accumulate on the redemption date, unless BTOF fails
to pay the redemption price.
Preferred Stock Redemption
On March 1, 1997, the Parent Company exercised its right of redemption on 1
million shares of the 8.55% Cumulative Preferred Stock, Series I at $100 per
share plus an amount equal to accrued and unpaid dividends to the date of
redemption.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
----------------------------------------
100
<PAGE>
================================================================================
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 include 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 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 LLP, independent auditors, whose appointment by the Board of Directors was
approved by the stockholders. Management has made available to Ernst & Young LLP
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 LLP are valid and appropriate. In
addition, Ernst & Young LLP, 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, 1996, the Corporation's internal
control structure was adequate to accomplish the objectives discussed herein.
Frank N. Newman
Chairman of the Board,
Chief Executive Officer and President
Richard H. Daniel
Executive Vice President,
Chief Financial Officer and
Controller
March 6, 1997
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
----------------------------------------
101
<PAGE>
================================================================================
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, 1996 and
1995, 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, 1996. 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 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
January 23, 1997
except for Note 28, as to
which the date is March 6, 1997
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
----------------------------------------
102
<PAGE>
================================================================================
SUPPLEMENTAL FINANCIAL DATA
================================================================================
The statistical data on pages 103 through 108 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.
CONDENSED QUARTERLY CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
1996
----------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest revenue $1,648 $1,669 $1,459 $1,590
Interest expense 1,386 1,421 1,216 1,377
- -------------------------------------------------------------------------------------
Net interest revenue 262 248 243 213
Provision for credit losses -- -- -- 5
- -------------------------------------------------------------------------------------
Net interest revenue after provision
for credit losses 262 248 243 208
- -------------------------------------------------------------------------------------
Total noninterest revenue 840 811 798 750
Total noninterest expenses 893 809 825 761
- -------------------------------------------------------------------------------------
Income (loss) before income taxes 209 250 216 197
Income taxes (benefit) 62 74 65 59
- -------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 147 $ 176 $ 151 $ 138
=====================================================================================
Net income (loss) applicable to
common stock $ 133 $ 168 $ 137 $ 123
=====================================================================================
EARNINGS (LOSS)
PER COMMON SHARE:
Primary $ 1.59 $ 1.99 $ 1.67 $ 1.52
Fully diluted $ 1.58 $ 1.98 $ 1.66 $ 1.51
=====================================================================================
Cash dividends declared per
common share $ 1.00 $ 1.00 $ 1.00 $ 1.00
=====================================================================================
STOCKHOLDER DATA
- -------------------------------------------------------------------------------------
Market price (1)
High $ 90 7/8 $ 83 1/2 $ 77 7/8 $ 72 3/8
Low 78 68 1/4 65 1/2 61
End of quarter 86 1/4 78 5/8 73 7/8 70 7/8
- -------------------------------------------------------------------------------------
<CAPTION>
1995
-----------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest revenue $1,457 $1,556 $1,520 $ 1,353
Interest expense 1,248 1,352 1,298 1,171
- -------------------------------------------------------------------------------------
Net interest revenue 209 204 222 182
Provision for credit losses 10 7 -- 14
- -------------------------------------------------------------------------------------
Net interest revenue after provision
for credit losses 199 197 222 168
- -------------------------------------------------------------------------------------
Total noninterest revenue 739 755 587 342
Total noninterest expenses 758 728 678 734
- -------------------------------------------------------------------------------------
Income (loss) before income taxes 180 224 131 (224)
Income taxes (benefit) 54 69 40 (67)
- -------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 126 $ 155 $ 91 $ (157)
=====================================================================================
Net income (loss) applicable to
common stock $ 111 $ 139 $ 79 $ (165)
=====================================================================================
EARNINGS (LOSS)
PER COMMON SHARE:
Primary $ 1.36 $ 1.72 $ .98 $ (2.11)
Fully diluted $ 1.36 $ 1.71 $ .98 $ (2.11)
=====================================================================================
Cash dividends declared per
common share $ 1.00 $ 1.00 $ 1.00 $ 1.00
=====================================================================================
STOCKHOLDER DATA
- -------------------------------------------------------------------------------------
Market price (1)
High $ 71 $ 72 $ 64 3/4 $ 64 7/8
Low 60 1/4 60 3/4 52 49 3/4
End of quarter 66 1/2 70 1/4 62 52 1/4
- -------------------------------------------------------------------------------------
</TABLE>
(1) Based on the Composite Tape. Market prices at January 31, 1997 for common
stock were as follows: High, $85 7/8; Low, $84 7/8; Close, $85.
DIVIDENDS
Cash dividends on common stock were paid quarterly in 1996 on the 25th of
January, April, July and October.
NUMBER OF SECURITY HOLDERS
At January 31, 1997, the approximate number of holders of record of common stock
was 23,068.
STOCK LISTINGS
The principal markets on which the common stock is traded are the New York Stock
Exchange (Symbol: BT) and the London Stock Exchange.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
103
<PAGE>
AVERAGE BALANCES, INTEREST AND AVERAGE RATES
The following table shows the major consolidated assets and liabilities,
together with their respective interest amounts and rates earned or paid by the
Corporation. Cash basis and renegotiated loans are included in the averages to
determine an effective yield on all loans. The average balances are principally
daily averages.
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995
-------------------------------------- -----------------------------------------
Average Average Average Average
($ in millions) Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits with banks
(primarily in foreign offices) $ 2,786 $ 214 7.68% $ 2,777 $ 207 7.45%
Federal funds sold
(in domestic offices) 2,172 119 5.48% 1,726 104 6.03%
Securities purchased under resale
agreements
In domestic offices 14,338 798 5.57% 10,389 597 5.75%
In foreign offices 7,444 514 6.90% 5,732 231 4.03%
- ------------------------------------------------------------------ -----------------------
Total securities purchased
under resale agreements 21,782 1,312 6.02% 16,121 828 5.14%
Securities borrowed
In domestic offices 13,106 669 5.10% 10,394 597 5.74%
In foreign offices 2,241 147 6.56% 2,245 141 6.28%
- ------------------------------------------------------------------ -----------------------
Total securities borrowed 15,347 816 5.32% 12,639 738 5.84%
Trading Assets
In domestic offices (1) 14,334 1,158 8.08% 14,555 1,370 9.41%
In foreign offices 16,140 1,251 7.75% 16,058 1,320 8.22%
- ------------------------------------------------------------------ -----------------------
Total trading assets (1) 30,474 2,409 7.91% 30,613 2,690 8.79%
Securities available for sale
In domestic offices
Taxable 2,674 195 7.29% 1,891 165 8.73%
Exempt from federal
income taxes (1) 1,029 29 2.82% 1,340 51 3.81%
In foreign offices
Taxable 3,151 229 7.27% 2,899 167 5.76%
Exempt from federal
income taxes (1) 142 16 11.27% 320 35 10.94%
- ------------------------------------------------------------------ -----------------------
Total securities available for sale (1) 6,996 469 6.70% 6,450 418 6.48%
Loans
In domestic offices
Commercial and industrial 2,894 221 7.64% 2,178 160 7.35%
Financial institutions 942 64 6.79% 620 51 8.23%
Secured by real estate 1,409 97 6.88% 1,398 95 6.80%
Other (1) 2,124 120 5.65% 2,293 131 5.71%
- ------------------------------------------------------------------ -----------------------
Total in domestic offices (1) 7,369 502 6.81% 6,489 437 6.73%
In foreign offices 6,253 517 8.27% 5,263 487 9.25%
- ------------------------------------------------------------------ -----------------------
Total loans, excluding fees (1) 13,622 1,019 7.48% 11,752 924 7.86%
Loan fees 24 18
- ------------------------------------------------------------------ -----------------------
Total loans, including fees (1) 13,622 1,043 7.66% 11,752 942 8.02%
- ------------------------------------------------------------------ -----------------------
TOTAL INTEREST-EARNING
ASSETS(1) 93,179 $6,382 6.85% 82,078 $5,927 7.22%
====== ======
Cash and due from banks 1,325 1,767
Noninterest-earning trading assets 17,062 18,999
Due from customers on acceptances 554 434
All other assets 8,215 7,567
Allowance for credit losses (986) (1,196)
- ---------------------------------------------------- ---------
TOTAL ASSETS $ 119,349 $ 109,649
==================================================== =========
% of assets attributable to foreign offices 59% 54%
<CAPTION>
- ------------------------------------------------------------------------------------
1994
-----------------------------------------
Average Average
($ in millions) Balance Interest Rate
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-bearing deposits with banks
(primarily in foreign offices) $ 1,523 $ 124 8.14%
Federal funds sold
(in domestic offices) 634 31 4.89%
Securities purchased under resale
agreements
In domestic offices 8,402 253 3.01%
In foreign offices 2,393 131 5.47%
- ------------------------------------------------------------------
Total securities purchased
under resale agreements 10,795 384 3.56%
Securities borrowed
In domestic offices 5,613 241 4.29%
In foreign offices 1,870 54 2.89%
- ------------------------------------------------------------------
Total securities borrowed 7,483 295 3.94%
Trading Assets
In domestic offices (1) 20,739 1,911 9.21%
In foreign offices 15,787 1,054 6.68%
- ------------------------------------------------------------------
Total trading assets (1) 36,526 2,965 8.12%
Securities available for sale
In domestic offices
Taxable 2,043 134 6.56%
Exempt from federal
income taxes (1) 1,374 75 5.46%
In foreign offices
Taxable 3,042 178 5.85%
Exempt from federal
income taxes (1) 410 49 11.95%
- ------------------------------------------------------------------
Total securities available for sale (1) 6,869 436 6.35%
Loans
In domestic offices
Commercial and industrial 2,123 141 6.64%
Financial institutions 920 49 5.33%
Secured by real estate 1,503 82 5.46%
Other (1) 2,311 147 6.36%
- ------------------------------------------------------------------
Total in domestic offices (1) 6,857 419 6.11%
In foreign offices 5,613 444 7.91%
- ------------------------------------------------------------------
Total loans, excluding fees (1) 12,470 863 6.92%
Loan fees 15
- ------------------------------------------------------------------
Total loans, including fees (1) 12,470 878 7.04%
- ------------------------------------------------------------------
TOTAL INTEREST-EARNING
ASSETS(1) 76,300 $5,113 6.70%
======
Cash and due from banks 1,912
Noninterest-earning trading assets 19,992
Due from customers on acceptances 348
All other assets 7,618
Allowance for credit losses (1,342)
- ----------------------------------------------------
TOTAL ASSETS $ 104,828
====================================================
% of assets attributable to foreign offices 51%
</TABLE>
(1) Interest and average rates are presented on a fully taxable basis. The
applicable combined federal, state and local incremental tax rate used to
determine the amounts of the tax equivalent adjustments to interest revenue
(which recognize the income tax savings on tax-exempt assets) was 42
percent for 1996, 1995 and 1994.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
104
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995
------------------------------------- --------------------------------------
Average Average Average Average
($ in millions) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits
In domestic offices
Time deposits $ 3,088 $ 180 5.83% $ 1,384 $ 99 7.15%
Other 3,824 204 5.33% 4,338 277 6.39%
- ----------------------------------------------------------------------- -----------------------
Total in domestic offices 6,912 384 5.56% 5,722 376 6.57%
In foreign offices
Deposits from banks in
foreign countries 7,045 401 5.69% 7,432 496 6.67%
Other time and savings deposits 7,802 466 5.97% 7,370 408 5.54%
Other 2,039 104 5.10% 1,513 80 5.29%
- ----------------------------------------------------------------------- -----------------------
Total in foreign offices 16,886 971 5.75% 16,315 984 6.03%
- ----------------------------------------------------------------------- -----------------------
Total interest-bearing deposits 23,798 1,355 5.69% 22,037 1,360 6.17%
Trading liabilities
In domestic offices 7,808 595 7.62% 6,293 622 9.88%
In foreign offices 3,576 267 7.47% 4,922 431 8.76%
- ----------------------------------------------------------------------- -----------------------
Total trading liabilities 11,384 862 7.57% 11,215 1,053 9.39%
Securities sold under
repurchase agreements
In domestic offices 18,644 1,025 5.50% 16,951 987 5.82%
In foreign offices 7,855 549 6.99% 4,592 186 4.05%
- ----------------------------------------------------------------------- -----------------------
Total securities sold under
repurchase agreements 26,499 1,574 5.94% 21,543 1,173 5.44%
Other short-term borrowings
In domestic offices 11,098 620 5.59% 11,943 707 5.92%
In foreign offices 5,195 367 7.06% 4,396 326 7.42%
- ----------------------------------------------------------------------- -----------------------
Total other short-term borrowings 16,293 987 6.06% 16,339 1,033 6.32%
Long-term debt
In domestic offices 6,549 397 6.06% 5,120 333 6.50%
In foreign offices 3,907 222 5.68% 2,596 117 4.51%
- ----------------------------------------------------------------------- -----------------------
Total long-term debt 10,456 619 5.92% 7,716 450 5.83%
- ----------------------------------------------------------------------- -----------------------
Mandatorily redeemable capital
securities of subsidiary trusts
holding solely junior subordinated
deferrable interest debentures 42 3 7.14% -- -- --
- ----------------------------------------------------------------------- -----------------------
TOTAL INTEREST-BEARING
LIABILITIES $ 88,472 $ 5,400 6.10% 78,850 $ 5,069 6.43%
======== ========
Noninterest-bearing deposits
In domestic offices 2,661 2,921
In foreign offices 600 509
- -------------------------------------------------------- --------
Total noninterest-bearing deposits 3,261 3,430
Noninterest-bearing trading liabilities 15,444 16,200
Acceptances outstanding 555 441
All other liabilities 6,171 5,628
Preferred stock of subsidiary 250 250
Stockholders' Equity
Preferred stock 853 726
Common stockholders' equity 4,343 4,124
- -------------------------------------------------------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $119,349 $109,649
======================================================== ========
% of liabilities attributable
to foreign offices 61% 54%
Rate spread .75% .79%
Net interest margin (net interest
revenue to total interest-
earning assets)
In domestic offices 55,087 506 .92% $ 46,876 $ 371 .79%
In foreign offices 38,092 476 1.25% 35,202 487 1.38%
- ----------------------------------------------------------------------- -----------------------
Total $ 93,179 $ 982 1.05% $ 82,078 $ 858 1.05%
======================================================================= =======================
<CAPTION>
- ---------------------------------------------------------------------------------------
1994
---------------------------------------
Average Average
($ in millions) Balance Interest Rate
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits
In domestic offices
Time deposits $ 700 $ 50 7.14%
Other 5,519 218 3.95%
- ------------------------------------------------------------------------
Total in domestic offices 6,219 268 4.31%
In foreign offices
Deposits from banks in
foreign countries 5,248 296 5.64%
Other time and savings deposits 6,027 345 5.72%
Other 1,221 55 4.50%
- ------------------------------------------------------------------------
Total in foreign offices 12,496 696 5.57%
- ------------------------------------------------------------------------
Total interest-bearing deposits 18,715 964 5.15%
Trading liabilities
In domestic offices 4,453 486 10.91%
In foreign offices 5,682 321 5.65%
- ------------------------------------------------------------------------
Total trading liabilities 10,135 807 7.96%
Securities sold under
repurchase agreements
In domestic offices 20,009 797 3.98%
In foreign offices 1,805 120 6.65%
- ------------------------------------------------------------------------
Total securities sold under
repurchase agreements 21,814 917 4.20%
Other short-term borrowings
In domestic offices 12,768 582 4.56%
In foreign offices 4,488 312 6.95%
- ------------------------------------------------------------------------
Total other short-term borrowings 17,256 894 5.18%
Long-term debt
In domestic offices 4,985 243 4.87%
In foreign offices 843 33 3.91%
- ------------------------------------------------------------------------
Total long-term debt 5,828 276 4.74%
- ------------------------------------------------------------------------
Mandatorily redeemable capital
securities of subsidiary trusts
holding solely junior subordinated
deferrable interest debentures -- -- --
- ------------------------------------------------------------------------
TOTAL INTEREST-BEARING
LIABILITIES 73,748 $ 3,858 5.23%
========
Noninterest-bearing deposits
In domestic offices 3,210
In foreign offices 587
- -------------------------------------------------------
Total noninterest-bearing deposits 3,797
Noninterest-bearing trading liabilities 15,680
Acceptances outstanding 363
All other liabilities 6,247
Preferred stock of subsidiary 250
Stockholders' Equity
Preferred stock 388
Common stockholders' equity 4,355
- -------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $104,828
=======================================================
% of liabilities attributable
to foreign offices 42%
Rate spread 1.47%
Net interest margin (net interest
revenue to total interest-
earning assets)
In domestic offices $ 45,722 $ 728 1.59%
In foreign offices 30,578 527 1.72%
- ------------------------------------------------------------------------
Total $ 76,300 $ 1,255 1.64%
========================================================================
</TABLE>
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
105
<PAGE>
- --------------------------------------------------------------------------------
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>
- -------------------------------------------------------------------------------------------------------------------
1996/95
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) due to change in:
- ------------------------------------------------------------------------------------------------------------------
Average Average
(in millions) Balance Rate Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSOLIDATED
INTEREST REVENUE
Interest-bearing deposits with banks $ 1 $ 6 $ 7
Federal funds sold 25 (10) 15
Securities purchased under resale agreements 324 160 484
Securities borrowed 148 (70) 78
Trading assets (12) (269) (281)
Securities available for sale 36 15 51
Loans 145 (44) 101
- -------------------------------------------------------------------------------------------------------------------
Total interest revenue 667 (212) 455
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits 104 (109) (5)
Trading liabilities 16 (207) (191)
Securities sold under repurchase agreements 287 114 401
Other short-term borrowings (3) (43) (46)
Long-term debt 162 7 169
Mandatorily redeemable capital securities of subsidiary trusts holding
solely junior subordinated deferrable interest debentures 3 -- 3
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 569 (238) 331
- -------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue $ 98 $ 26 $ 124
===================================================================================================================
DOMESTIC OFFICES
INTEREST REVENUE
Interest-bearing deposits with banks $ (15) $ (6) $ (21)
Federal funds sold 25 (10) 15
Securities purchased under resale agreements 220 (19) 201
Securities borrowed 144 (72) 72
Trading assets (21) (191) (212)
Securities available for sale 30 (22) 8
Loans 62 7 69
- -------------------------------------------------------------------------------------------------------------------
Total interest revenue 445 (313) 132
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits 71 (63) 8
Trading liabilities 132 (159) (27)
Securities sold under repurchase agreements 95 (57) 38
Other short-term borrowings (48) (39) (87)
Long-term debt 88 (24) 64
Mandatorily redeemable capital securities of subsidiary trusts holding
solely junior subordinated deferrable interest debentures 3 -- 3
Funds provided to foreign offices (352) 287 (65)
Funds provided by foreign offices 601 (386) 215
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 590 (441) 149
- -------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue $ (145) $ 128 $ (17)
===================================================================================================================
FOREIGN OFFICES
INTEREST REVENUE
Interest-bearing deposits with banks $ 2 $ 26 $ 28
Securities purchased under resale agreements 84 199 283
Securities borrowed -- 6 6
Trading assets 7 (76) (69)
Securities available for sale 5 38 43
Loans 86 (54) 32
- -------------------------------------------------------------------------------------------------------------------
Total interest revenue 184 139 323
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits 34 (47) (13)
Trading liabilities (107) (57) (164)
Securities sold under repurchase agreements 180 183 363
Other short-term borrowings 57 (16) 41
Long-term debt 69 36 105
Funds provided by domestic offices 352 (287) 65
Funds provided to domestic offices (601) 386 (215)
- -------------------------------------------------------------------------------------------------------------------
Total interest expense (16) 198 182
- -------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue $ 200 $ (59) $ 141
===================================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1995/94
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) due to change in:
- ------------------------------------------------------------------------------------------------------------------
Average Average
(in millions) Balance Rate Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSOLIDATED
INTEREST REVENUE
Interest-bearing deposits with banks $ 94 $ (11) $ 83
Federal funds sold 64 9 73
Securities purchased under resale agreements 234 210 444
Securities borrowed 261 182 443
Trading assets (506) 231 (275)
Securities available for sale (27) 9 (18)
Loans (53) 117 64
- ------------------------------------------------------------------------------------------------------------------
Total interest revenue 67 747 814
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits 187 209 396
Trading liabilities 92 154 246
Securities sold under repurchase agreements (12) 268 256
Other short-term borrowings (50) 189 139
Long-term debt 101 73 174
Mandatorily redeemable capital securities of subsidiary trusts holding
solely junior subordinated deferrable interest debentures -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total interest expense 318 893 1,211
- ------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue $ (251) $ (146) $ (397)
==================================================================================================================
DOMESTIC OFFICES
INTEREST REVENUE
Interest-bearing deposits with banks $ 17 $ 15 $ 32
Federal funds sold 64 9 73
Securities purchased under resale agreements 71 273 344
Securities borrowed 255 101 356
Trading assets (581) 40 (541)
Securities available for sale (12) 19 7
Loans (24) 46 22
- ------------------------------------------------------------------------------------------------------------------
Total interest revenue (210) 503 293
- ------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits (23) 131 108
Trading liabilities 185 (49) 136
Securities sold under repurchase agreements (136) 326 190
Other short-term borrowings (40) 165 125
Long-term debt 7 83 90
Mandatorily redeemable capital securities of subsidiary trusts holding
solely junior subordinated deferrable interest debentures -- -- --
Funds provided to foreign offices 7 22 29
Funds provided by foreign offices 127 (26) 101
- ------------------------------------------------------------------------------------------------------------------
Total interest expense 127 652 779
- ------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue $ (337) $ (149) $ (486)
==================================================================================================================
FOREIGN OFFICES
INTEREST REVENUE
Interest-bearing deposits with banks $ 71 $ (20) $ 51
Securities purchased under resale agreements 142 (42) 100
Securities borrowed 13 74 87
Trading assets 18 248 266
Securities available for sale (15) (10) (25)
Loans (29) 71 42
- ------------------------------------------------------------------------------------------------------------------
Total interest revenue 200 321 521
- ------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits 227 61 288
Trading liabilities (48) 158 110
Securities sold under repurchase agreements 128 (62) 66
Other short-term borrowings (6) 20 14
Long-term debt 78 6 84
Funds provided by domestic offices (7) (22) (29)
Funds provided to domestic offices (127) 26 (101)
- ------------------------------------------------------------------------------------------------------------------
Total interest expense 245 187 432
- ------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue $ (45) $ 134 $ 89
==================================================================================================================
</TABLE>
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
106
<PAGE>
- --------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY
Interest rate sensitivity data for the Corporation at December 31, 1996 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.
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
Within months months one year After
three but within but within but within five
(in millions) December 31, 1996 months six months one year five years years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits with banks $ 2,000 $ 123 $ 87 $ -- $ --
Federal funds sold 1,599 -- -- -- --
Securities purchased under resale agreements 17,429 482 75 -- --
Securities borrowed 16,676 -- -- -- --
Trading assets 31,234 -- -- -- --
Securities available for sale 1,355 583 1,922 2,102 1,958
Gross loans 11,566 1,313 682 1,755 510
Noninterest-earning assets and allowance for credit losses -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total 81,859 2,501 2,766 3,857 2,468
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES, PREFERRED STOCK OF SUBSIDIARY AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits 20,479 2,245 2,341 907 730
Trading liabilities 7,966 -- -- -- --
Securities sold under repurchase agreements 22,734 216 50 -- --
Other short-term borrowings 16,644 1,884 437 68 362
Long-term debt 3,516 1,581 244 3,727 2,041
Mandatorily redeemable capital securities of subsidiary
trusts holding solely junior subordinated deferrable
interest debentures -- -- -- -- 730
Preferred stock of subsidiary 250 -- -- -- --
Preferred stock 145 -- -- 665 --
Noninterest-bearing liabilities, including allowance for
credit losses, and common stockholders' equity -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total 71,734 5,926 3,072 5,367 3,863
- -----------------------------------------------------------------------------------------------------------------------------------
Effect of off-balance sheet hedging instruments (16,891) 3,577 2,691 7,552 3,071
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP $ (6,766) $ 152 $ 2,385 $ 6,042 $ 1,676
- -----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE INTEREST RATE SENSITIVITY GAP $ (6,766) $ (6,614) $ (4,229) $ 1,813 $ 3,489
===================================================================================================================================
<CAPTION>
- -----------------------------------------------------------------------------------------
Non-
interest-
bearing
(in millions) December 31, 1996 funds Total
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Interest-bearing deposits with banks $ -- $ 2,210
Federal funds sold -- 1,599
Securities purchased under resale agreements -- 17,986
Securities borrowed -- 16,676
Trading assets 17,685 48,919
Securities available for sale -- 7,920
Gross loans -- 15,826
Noninterest-earning assets and allowance for credit losses 9,099 9,099
- -----------------------------------------------------------------------------------------
Total 26,784 120,235
- -----------------------------------------------------------------------------------------
LIABILITIES, PREFERRED STOCK OF SUBSIDIARY AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits -- 26,702
Trading liabilities 15,747 23,713
Securities sold under repurchase agreements -- 23,000
Other short-term borrowings -- 19,395
Long-term debt -- 11,109
Mandatorily redeemable capital securities of subsidiary
trusts holding solely junior subordinated deferrable
interest debentures -- 730
Preferred stock of subsidiary -- 250
Preferred stock -- 810
Noninterest-bearing liabilities, including allowance for
credit losses, and common stockholders' equity 14,526 14,526
- -----------------------------------------------------------------------------------------
Total 30,273 120,235
- -----------------------------------------------------------------------------------------
Effect of off-balance sheet hedging instruments -- --
- -----------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP $ (3,489) $ --
- -----------------------------------------------------------------------------------------
CUMULATIVE INTEREST RATE SENSITIVITY GAP $ -- $ --
=========================================================================================
</TABLE>
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
107
<PAGE>
- --------------------------------------------------------------------------------
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, 1996
were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
(in millions) Domestic Foreign Total
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Certificates of deposit of $100,000 or more
3 months or less $ 630 $ 2,142 $ 2,772
Over 3 through 6 months 927 426 1,353
Over 6 through 12 months 2,501 138 2,639
Over 12 months 149 12 161
- ------------------------------------------------------------------------------------
Total 4,207 2,718 6,925
- ------------------------------------------------------------------------------------
Other time deposits of $100,000 or more
3 months or less 156 9,612 9,768
Over 3 through 6 months 6 1,272 1,278
Over 6 through 12 months 2 953 955
Over 12 months -- 69 69
- ------------------------------------------------------------------------------------
Total 164 11,906 12,070
- ------------------------------------------------------------------------------------
Other 5,557 2,150 7,707
- ------------------------------------------------------------------------------------
Total interest-bearing deposits $9,928 $16,774 $26,702
====================================================================================
</TABLE>
Deposits by foreign depositors in domestic offices amounted to $1.2 billion,
$1.0 billion and $1.0 billion at December 31, 1996, 1995 and 1994,
respectively.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
108
<PAGE>
================================================================================
DESCRIPTION OF BUSINESS*
================================================================================
BANKERS TRUST NEW YORK CORPORATION
Bankers Trust New York Corporation is a registered bank holding company which
was incorporated in 1965. The Parent Company, which accounted for 4 percent of
consolidated assets at December 31, 1996, 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, including BTCo. There are various legal limitations governing the
extent to which certain of the Parent Company's subsidiaries may extend credit,
pay dividends or otherwise supply funds to, or engage in transactions with, the
Parent Company or certain of its other subsidiaries. The rights of the Parent
Company to participate in any distribution of assets of any subsidiary upon its
dissolution, winding-up, 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, trading liabilities, federal funds purchased,
securities sold under repurchase agreements and commercial paper, as well as
short-term borrowings and accounts payable.
ORGANIZATIONAL UNITS
The Corporation delivers a wide range of financial products and services
worldwide principally through eight broad Organizational Units. Five units are
organized around specific products and services: Investment Banking, Risk
Management Services, Trading & Sales, Investment Management, and Client
Processing Services. Three additional units are organized to deliver these same
types of financial products and services with the unique local expertise
necessary to operate successfully in Australia/New Zealand, Asia and Latin
America. See page 37 for a description of these Organizational Units.
Insurance Activities
The Corporation has a wholly-owned Chilean subsidiary, known as Consorcio.
Consorcio underwrites pension-related life and disability insurance, and sells
pension-related life annuities.
BANKERS TRUST COMPANY
The Parent Company's principal banking subsidiary is Bankers Trust Company,
which, along with its subsidiaries ("BTCo"), accounted for 71 percent of the
Corporation's consolidated assets at December 31, 1996. 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 19 percent of the Corporation's consolidated
assets at December 31, 1996. 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. In addition, BT Securities acts as agent for BTCo in the origination
and sale of loans.
BANKERS TRUST (DELAWARE)
Bankers Trust (Delaware) is a state bank chartered under the laws of Delaware,
which, along with its subsidiaries, accounted for 1 percent of the
Corporation's consolidated assets at December 31, 1996. 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
BT Securities entered into a settlement agreement with the Securities and
Exchange Commission (the "SEC") and the Commodity Futures Trading Commission
(the "CFTC") concerning all investigations of the Corporation and its
subsidiaries by those agencies with respect to the conduct of its business in
privately negotiated over-the-counter derivatives (the "Derivatives"). As part
of that settlement entered into on December 22, 1994, the SEC and the CFTC
agreed not to pursue further Bankers Trust related entities concerning
Derivatives matters prior to the settlement date (although they did reserve the
right to pursue individuals), and BT Securities paid $10 million in civil
penalties and agreed to and has retained independent consultants to examine its
conduct of the Derivatives business. The report of the independent consultants
was delivered on June 30, 1996, and the Corporation has adopted and implemented
the recommendations in the report.
In December of 1994, the Corporation, BTCo and BT Securities also entered
into a Written Agreement with the Federal Reserve Bank of New York and a
Memorandum of Understanding with the New York State Banking Department
concerning the Corporation's leveraged derivative transaction business, each of
which called for an independent counsel review and the establishment of a
Compliance Committee of the Board of Directors of the Corporation to monitor
compliance with the Written Agreement and the Memorandum of Understanding. On
December 9, 1996, the Federal Reserve Board announced the termination of the
Written Agreement and the New York State Banking Department notified the
Corporation and BTCo that it had terminated the Memorandum of Understanding.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
109
<PAGE>
- --------------------------------------------------------------------------------
Details with respect to the foregoing are set forth in the Corporation's
Current Reports on Form 8-K dated December 4, 1994, December 22, 1994, January
19, 1995 and December 9, 1996 which have been filed with the SEC.
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 and
information and is restricted in its acquisitions, certain of which are subject
to approval by the Federal Reserve Board. In addition, the Parent Company may 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 15 in 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
securities affiliate of a bank, 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 other
subsidiary bank or savings association of the parent holding company 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 categories, 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, 1996,
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 Note 16 in Notes to Financial Statements 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
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
110
<PAGE>
- --------------------------------------------------------------------------------
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.
PROPERTIES
BTCo owns a 42-story office building located at 280 Park Avenue, a 10-story
office building at 4 Albany Street and a 39-story building known as One Bankers
Trust Plaza, all in Manhattan, and 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 seven stories of a 37-story building
at 14-16 Wall Street 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. 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 such actions and
proceedings would be material.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
111
<PAGE>
================================================================================
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.
- --------------------------------------------------------------------------------
FRANK N. NEWMAN, 54
Chairman of the Board and Chief Executive Officer and President
Chairman of the Board and Chief Executive Officer of the Parent Company and BTCo
since 1996. President of the Parent Company and BTCo since 1995. Mr. Newman,
former Deputy Secretary of the United States Treasury, joined the Treasury in
1993 after six years with BankAmerica Corporation where he was the chief
financial officer and vice chairman of the board.
MARK BIELER, 51
Executive Vice President
Executive Vice President of the Parent Company since 1987 and Senior Managing
Director of BTCo since 1996; Managing Director of BTCo 1992-1996; Executive Vice
President of BTCo 1987-1992; Senior Vice President and head of the Human
Resources Department in 1985. He is in charge of the Human Resources Department.
RICHARD H. DANIEL, 50
Executive Vice President, Chief Financial Officer and Controller
Executive Vice President, Chief Financial Officer (Principal Financial Officer)
and Controller of the Parent Company and Senior Managing Director, Chief
Financial Officer (Principal Financial Officer) and Controller of BTCo since
1996. Mr. Daniel formerly held the positions of chief financial officer of
Federal Home Loan Mortgage Corporation from 1994 to 1996, and executive vice
president and director of financial analysis and planning at BankAmerica
Corporation from 1987 to 1994.
JOSEPH A. MANGANELLO, JR., 61
Executive Vice President and Chief Credit Officer
Executive Vice President and Chief Credit Officer of the Parent Company since
1988; Senior Managing Director of BTCo since 1996; Managing Director of BTCo
1992-1996 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 Department.
I. DAVID MARSHALL, 50
Executive Vice President and Chief Information Officer
Executive Vice President and Chief Information Officer of the Parent Company
since October 1996 and Senior Managing Director and Chief Information Officer of
BTCo since October 1996. Mr. Marshall formerly held the positions of executive
vice president and chief information officer of Canadian Imperial Bank of
Commerce from June 1995 to October 1996; group executive for Information Systems
& Operations and a member of the Executive Committee at Unitel Communications,
Inc., the operating arm of AT&T in Canada from 1993 to 1995; and from 1977 to
1993 he served with the Canadian Government consecutively as assistant auditor
general; assistant deputy minister, Information Technology for Revenue Canada
and assistant deputy minister, Information Technology for Employment and
Immigration Canada.
GEORGE J. VOJTA, 61
Vice Chairman
Vice Chairman and Director of the Parent Company and BTCo since January 1992;
Executive Vice President 1984-1992. He is a member of various operating
committees that oversee the Private Bank, Asset-Based Lending and Portfolio. He
is head of BTCo's Client Processing Services business.
MELVIN A. YELLIN, 54
Executive Vice President and General Counsel
Executive Vice President and General Counsel of the Parent Company and Senior
Managing Director and General Counsel of BTCo since 1996; Senior Vice President
(Chief Legal Officer) of the Parent Company and Managing Director (Chief Legal
Officer) of BTCo since 1995; Managing Director and Deputy General Counsel of
BTCo 1992-1995. Vice President and Counsel 1981-1992. He is in charge of the
Legal Department.
YVES C. DE BALMANN, 50
Senior Vice President
Senior Vice President of the Parent Company since 1995 and Senior Managing
Director of BTCo since 1996; Managing Director of BTCo 1988-1996. He is co-head
of BTCo's Investment Banking business and head of BTCo's Risk Management
Services business.
R. KELLY DOHERTY, 38
Senior Vice President
Senior Vice President of the Parent Company since 1995 and Senior Managing
Director of BTCo since 1996; Managing Director of BTCo 1988-1996. He is head of
BTCo's Trading and Sales and Latin America Merchant Bank.
ROBERT A. FERGUSON, 51
Senior Vice President
Senior Vice President of the Parent Company since 1995 and Senior Managing
Director of BTCo since 1996; Managing Director of BTCo 1985-1996. He is head of
Bankers Trust Australia Ltd.
RODNEY A. MCLAUCHLAN, 43
Senior Vice President
Senior Vice President of the Parent Company since 1992 and Senior Managing
Director of BT Securities since 1996; Managing Director of BT Securities
1995-1996; Managing Director of BTCo 1987-1995. He is co-head of BTCo's
Investment Banking business and chairs the European and Asian Advisory Boards
and the Client Committee.
TIMOTHY S. RATTRAY, 43
Senior Vice President
Senior Vice President of the Parent Company since 1992 and Senior Managing
Director of BTCo since 1996; Managing Director of BTCo 1986-1996. He is head of
Asia Merchant Banking and is chairman of Bankers Trust Asia.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
112
<PAGE>
- --------------------------------------------------------------------------------
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, 1996
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.)
130 Liberty Street
New York, NY 10006
(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
6 1/8% Convertible Capital Securities American Stock Exchange
7 5/8% Cumulative Preferred Stock, Series O American Stock Exchange
Depositary Shares representing a one-tenth interest in a share of 7 5/8%
Cumulative Preferred Stock, Series O ($250 Liquidation Preference) American Stock Exchange
7.50% Cumulative Preferred Stock, Series P American Stock Exchange
Depositary Shares representing a one-fortieth interest in a share of 7.50%
Cumulative Preferred Stock, Series P ($1,000 Liquidation Preference) American Stock Exchange
Adjustable Rate Cumulative Preferred Stock, Series Q New York Stock Exchange
Depositary Shares representing a one-hundredth interest in a share of Adjustable
Rate Cumulative Preferred Stock, Series Q ($2,500 Liquidation Preference) New York Stock Exchange
Adjustable Rate Cumulative Preferred Stock, Series R New York Stock Exchange
Depositary Shares representing a one-hundredth interest in a share of Adjustable
Rate Cumulative Preferred Stock, Series R ($2,500 Liquidation Preference) New York Stock Exchange
7 3/4% Cumulative Preferred Stock, Series S ($2,500 Liquidation Preference) New York Stock Exchange
Depository Shares representing a one-hundredth interest in a share of 7 3/4%
Cumulative Preferred Stock, Series S ($2,500 Liquidation Preference) New York Stock Exchange
</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 February 28, 1997: Common Stock, $1 par value,
$7,033,840,654.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of February 28, 1997: Common Stock, $1 par value,
78,112,085 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders
are incorporated by reference into Part III.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
113
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K CROSS-REFERENCE INDEX
PART I
Item No. Pages
1. BUSINESS
Description of Business 109
Supplemental Financial Data
International Operations 87
Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates and
Interest Differential 104
Investment Portfolio 71
Loan Portfolio 57-62, 68-70, 72, 73
Summary of Credit Loss Experience 54-56, 73
Deposits 108
Return on Equity and Assets 36
Short-Term Borrowings 74
2. PROPERTIES 111
3. LEGAL PROCEEDINGS 111
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS *
- EXECUTIVE OFFICERS OF THE REGISTRANT 112
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 82, 103
6. SELECTED FINANCIAL DATA 36
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 37
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Bankers Trust New York Corporation and
Subsidiaries (Consolidated) 64-67
Notes to Financial Statements 68
Report of Independent Auditors 102
Selected Quarterly Financial Data 103
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE *
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, 1996.
PART IV
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 111 **
(iii)(A) Management Contracts and
Compensation Plans **
12. Statements Re Computation of Ratios **
21. Subsidiaries of the Registrant **
23. Consent of Experts **
24. Power of Attorney **
27. Financial Data Schedule
99. Additional Exhibits
(i) Preferred Share Purchase Rights **
(ii) Written Agreement dated December 4,
1994 among Bankers Trust New York
Corporation, Bankers Trust Company,
BT Securities Corporation and the
Federal Reserve Bank of New York. **
(iii) BT Securities offers of settlement to the
Securities and Exchange Commission (the "SEC")
and the Commodity Futures Trading Commission
(the "CFTC"), the SEC's Order Instituting
Proceedings and its Findings and Order and
the CFTC's Complaint and its Opinion and Order. **
(b) Reports on Form 8-K-The Corporation filed five
reports on Form 8-K during the quarter ended
December 31, 1996.
--The report dated October 3, 1996, filed the Corporation's
opinion of counsel delivered in connection with the issuance of
the Corporation's 6 3/4% Notes due October 3, 2001.
--The report dated October 17, 1996, filed the Corporation's
Press Release dated October 17, 1996, which announced earnings
for the quarter ended September 30, 1996.
--The report dated October 22, 1996, filed the Corporation's
opinion of counsel delivered in connection with the issuance of
the Corporation's 7 1/4% Subordinated Notes due October 15,
2011.
--The report dated November 19, 1996, filed the Corporation's
announcement appointing the accounting firm of KPMG Peat
Marwick LLP as its independent auditors for the fiscal year
ending December 31, 1997, and chose not to renew the engagement
of Ernst & Young LLP, who is currently serving as the
Corporation's independent auditors.
--The report dated December 9, 1996 filed the Press Release
announcing that the Federal Reserve Board has terminated the
December 4, 1994 Written Agreement by and among Bankers Trust
New York Corporation, Bankers Trust Company, and BT Securities
Corporation, and the Federal Reserve Bank of New York. In
addition, the New York State Banking Department notified
Bankers Trust New York Corporation and Bankers Trust Company
that it has terminated the Memorandum of Understanding entered
into with the New York State Banking Department on December 21,
1994.
- --------------------------------------------------------------------------------
*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, One Bankers Trust Plaza, 130 Liberty Street, Mail Stop 2310, New
York, NY 10006.
***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 1996 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.
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
114
<PAGE>
- --------------------------------------------------------------------------------
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 6, 1997.
Bankers Trust New York Corporation
By /s/ 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 6, 1997.
FRANK N. NEWMAN* Chairman of the Board,
- ------------------------------ Chief Executive Officer,
(Frank N. Newman) President and Director
(Principal Executive
Officer)
RICHARD H. DANIEL* Executive Vice President,
- ------------------------------ Chief Financial Officer
(Richard H. Daniel) and Controller (Principal
Financial Officer)
GEOFFREY M. FLETCHER* Senior Vice President
- ------------------------------ (Principal Accounting
(Geoffrey M. Fletcher) Officer)
GEORGE B. BEITZEL* Director
- ------------------------------
(George B. Beitzel)
PHILLIP A. GRIFFITHS* Director
- ------------------------------
(Phillip A. Griffiths)
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)
N. J. NICHOLAS JR.* Director
- ------------------------------
(N. J. Nicholas Jr.)
RUSSELL E. PALMER* Director
- ------------------------------
(Russell E. Palmer)
DONALD L. STAHELI* Director
- ------------------------------
(Donald L. Staheli)
PATRICIA CARRY STEWART* Director
- ------------------------------
(Patricia Carry Stewart)
GEORGE J. VOJTA* Vice Chairman
- ------------------------------ and Director
(George J. Vojta)
PAUL A. VOLCKER* Director
- ------------------------------
(Paul A. Volcker)
*By /s/ JAMES T. BYRNE, JR.
---------------------------------------
(James T. Byrne, Jr., Attorney-in-Fact)
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
---------------------------------------
115
<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, 1996
BANKERS TRUST NEW YORK CORPORATION
116
<PAGE>
BANKERS TRUST NEW YORK CORPORATION
EXHIBIT INDEX TO FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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)
Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant filed with the State of New
York on March 25, 1994 (3)
Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant filed with the State of New
York on August 22, 1994 (4)
Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant filed with the State of New
York on June 29, 1995 (5)
By-laws as in effect January 21, 1997 121
4. Instruments Defining the Rights of Security Holders, Including Indentures
(ii) Long-Term Debt Indentures 114
10. Material Contracts
(ii) (D) Leases for Principal Premises Described on Page 111
Lease Agreement relating to the seven stories of a 37-story
building located at 14-16 Wall Street (7)
Lease Agreement relating to the eight-story building located
in Jersey City, New Jersey (8)
Lease Agreement relating to the eight-story building located
in London, England (9)
Lease Agreement relating to the three-story building in
Nashville, Tennessee (10)
Synopsis of the Agreement for Sub-Lease and the Sub-Lease
relating to the 42-story building located in Sydney,
Australia (11)
(iii) (A) Management Contracts and Compensation Plans
(1) Employment Contract for Richard H. Daniel (12)
(2) Partnership for One-hundred Plan - Plan Document,
as amended 133
(3) Severance Agreement with Timothy T. Yates (13)
(4) Severance Agreement with Charles S. Sanford, Jr. (13)
(5) Employment Agreement for David Marshall (14)
(6) Consulting Agreement with Paul Volcker (14)
(7) BT Investments (Australia) Limited Group Notional
Equity Participation Plan, as amended (14)
(8) Employment Contract for Frank N. Newman (21)
(9) Severance agreement with Eugene B. Shanks (21)
1994 Stock Option and Stock Award Plan (15)
1991 Stock Option and Stock Award Plan (16)
1985 Stock Option and Stock Award Plan (17)
January, 1989 amendments thereto (11)
Additional Capital Accumulation Plan (18)
The Supplemental Executive Retirement Plan (9)
117
<PAGE>
Deferred Compensation Plan for Directors (6)
January, 1989 amendments to the Deferred Compensation
Plan for Directors and The Supplemental Executive
Retirement Plan (15)
12. Statements Re Computation of Ratios
Computation of Consolidated Ratios of Earnings to Fixed Charges 135
Computation of Consolidated Ratios of Earnings to Combined Fixed
Charges and Preferred Stock Dividends Requirements 136
21. Subsidiaries of the Registrant 138
23. Consent of Experts 139
24. Power of Attorney 140
27. Financial Data Schedule 142
99. Additional Exhibits
(i) Rights Agreement dated as of February 22, 1988 describing
the terms of the Preferred Share Purchase Rights (9)
(ii) Written Agreement dated December 4, 1994, among Bankers
Trust New York Corporation, Bankers Trust Company, BT
Securities Corporation and the Federal Reserve Bank of New
York (20)
(iii) (1) Offer of Settlement of BT Securities Corporation before
the Securities and Exchange Commission, dated December
21, 1994 (19)
(2) Offer of Settlement of Respondent BT Securities
Corporation before the Commodity Futures Trading
Commission, dated December 21, 1994 (19)
(3) Order Instituting Proceedings Pursuant to Section 8A of
the Securities Act of 1933 and Sections 15(b) and 21c
of the Securities Act of 1934, and Findings and Order
Imposing Remedial Sanctions. In re BT Securities
Corporation, Securities Act of 1933 Release No. 7124
(Dec. 22, 1994) (19)
(4) Complaint Pursuant to Sections 6(c) and 6(d) of the
Commodity Exchange Act and Opinion and Order Accepting
Offer of Settlement, Making Findings and Imposing
Remedial Sanctions, in re BT Securities Corporation,
CFTC Docket No. 95-2 (Dec. 22, 1994) (19)
(NOTE: FOOTNOTE REFERENCES FOR THIS INDEX APPEAR ON THE NEXT PAGE.)
118
<PAGE>
BANKERS TRUST NEW YORK CORPORATION
EXHIBIT INDEX TO FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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 8-K dated March 21, 1994, file number 1-5920.
(4) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 8-K dated August 12, 1994, file number 1-5920.
(5) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 8-K dated June 29, 1995, file number 1-5920.
(6) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 8-K dated November 10, 1995, 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, 1986, 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, 1983, file number
1-5920.
(9) 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.
(10) 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.
(11) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1993, file number
1-5920.
(12) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-Q dated May 15, 1996, file number 1-5920.
(13) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-Q dated August 14, 1996, file number 1-5920.
(14) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-Q dated November 14, 1996, file number 1-5920.
(15) This document is incorporated by reference from Bankers Trust New York
Corporation's Registration Statement on Form S-8 (No. 33-54971) as filed on
August 9, 1994.
(16) This document is incorporated by reference from Bankers Trust New York
Corporation's Registration Statement on Form (No. 33-41014) as filed on
June 10, 1991.
(17) 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.
(18) 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.
(19) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 8-K dated December 22, 1994, file number 1-5920.
119
<PAGE>
(20) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1994, file number
1-5920.
(21) This document is incorporated by reference from Bankers Trust New York
Corporation's Form 10-K for the year ended December 31, 1995, file number
1-5920.
120
EXHIBIT 3
BY-LAWS
JANUARY 21, 1997
[GRAPHIC OMITTED]
Bankers Trust New York Corporation
(Incorporated under the New York Business Corporation Law)
<PAGE>
BANKERS TRUST NEW YORK
CORPORATION
---------------------------------------------
BY-LAWS
---------------------------------------------
ARTICLE I
SHAREHOLDERS
SECTION 1.01 Annual Meetings. The annual meetings of shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on the third Tuesday in April of
each year, if not a legal holiday, and if a legal holiday then on the next
succeeding business day, at such hour as shall be designated by the Board of
Directors. If no other hour shall be so designated such meeting shall be held at
3 P.M.
SECTION 1.02 Special Meetings. Special meetings of the shareholders, except
those regulated otherwise by statute, may be called at any time by the Board of
Directors, or by any person or committee expressly so authorized by the Board of
Directors and by no other person or persons.
SECTION 1.03 Place of Meetings. Meetings of shareholders shall be held at such
place within or without the State of New York as shall be determined from time
to time by the Board of Directors or, in the case of special meetings, by such
person or persons as may be authorized to call a meeting. The place in which
each meeting is to be held shall be specified in the notice of such meeting.
SECTION 1.04 Notice of Meetings. A copy of the written notice of the place, date
and hour of each meeting of shareholders shall be given personally or by mail,
not less than ten nor more than fifty days before the date of the meeting, to
each shareholder entitled to vote at such meeting. Notice of a special meeting
shall indicate that it is being issued by or at the direction of the person or
persons calling the meeting and shall also state the purpose or purposes for
which the meeting is called. Notice of any meeting at which is proposed to take
action which would entitle shareholders to receive payment for their shares
pursuant to statutory provisions must include a statement of that purpose and to
that effect. If mailed, such notices of the annual and each special meeting are
given when deposited in the United States mail, postage prepaid, directed to the
shareholder at
<PAGE>
his address as it appears in the record of shareholders unless he shall have
filed with the Secretary of the corporation a written request that notices
intended for him shall be mailed to some other address, in which case it shall
be directed to him at such other address.
SECTION 1.05 Record Date. For the purpose of determining the shareholders
entitled to notice of or to vote any meeting of shareholders or any adjournment
thereof, or to express consent to or dissent from any proposal without a
meeting, or for the purpose of determining shareholders entitled to receive
payment of any dividend or the allotment of any rights, or for the purpose of
any other action, the Board of Directors may fix, in advance, a date as the
record date for any such determination of shareholders. Such date shall not be
more than fifty nor less than ten days before the date of such meeting, nor more
than fifty days prior to any other action.
SECTION 1.06 Quorum. The presence, in person or by proxy, of the holders of a
majority of the shares entitled to vote thereat shall constitute a quorum at a
meeting of shareholders for the transaction of business, except as otherwise
provided by statute, by the Certificate of Incorporation or by the By-Laws. The
shareholders present in person or by proxy and entitled to vote at any meeting,
despite the absence of a quorum, shall have power to adjourn the meeting from
time to time, to a designated time and place, without notice other than by
announcement at the meeting, and at any adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment the Board of Directors fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice.
SECTION 1.07 Notice of Shareholder Business at Annual Meeting. At an annual
meeting of shareholders, only such business shall be conducted as shall have
been brought before the meeting (a) by or at the direction of the Board of
Directors or (b) by any shareholder of the corporation who complies with the
notice procedures set forth in this Section 1.07. For business to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than thirty days nor
more than fifty days prior to the meeting; provided, however, that in the event
that less than forty days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be received not later than the close of business on the tenth day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. A shareholder's notice to the Secretary shall
set forth as to each matter the shareholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the corporation's books, of
the shareholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the shareholder and (d) any
material interest
2
<PAGE>
of the shareholder in such business. Notwithstanding anything in these By-Laws
to the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 1.07 and Section 2.03.
The Chairman of an annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this Section 1.07 and Section 2.03, and
if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01 Number and Qualifications. The business of the corporation shall be
managed by its Board of Directors. The number of directors constituting the
entire Board of Directors shall be not less than five nor more than twenty-five,
as shall be fixed from time to time by vote of a majority of the entire Board of
Directors. Unless and until otherwise so fixed, the number of directors
constituting the entire Board shall be five. Each director shall be at least 21
years of age. No person who shall have attained age 72 shall be eligible to be
elected or re-elected as a director. Directors need not be shareholders. No
Officer-Director who shall have attained age 65, or earlier relinquishes his
responsibilities and title, shall be eligible to serve as a director.
SECTION 2.02 Election. At each annual meeting of shareholders, directors shall
be elected by a plurality of the votes to hold office until the next annual
meeting. Subject to the provisions of the statute, of the Certificate of
Incorporation and of the By-Laws, each director shall hold office until the
expiration of the term for which elected, and until his successor has been
elected and qualified.
SECTION 2.03 Nomination and Notification of Nomination. Subject to the rights of
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board of Directors or to any committee appointed by
the Board of Directors or by any shareholder entitled to vote in the election of
directors generally. However, any shareholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Secretary of the corporation
not later than (i) with respect to an election to be held at an annual meeting
of shareholders ninety days in advance of such meeting, and (ii) with respect to
an election to be held at a special meeting of shareholders for the election of
directors, the close of business on the seventh day following the date on which
notice of such meeting is first given to shareholders. Each
3
<PAGE>
such notice shall set forth: (a) the name and address of the shareholder who
intends to make the nomination and of the person or persons to be nominated; (b)
a representation that the shareholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (d) such other information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as a director of the corporation if
so elected. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the corporation that information required to be set forth in a shareholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in the By-Laws. The Chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by these By-Laws, and if
he should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
SECTION 2.04 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such places and times as may be fixed from time to time
by resolution of the Board and a regular meeting for the purpose of organization
and transaction of other business shall be held each year after the adjournment
of the annual meeting of shareholders.
SECTION 2.05 Special Meetings. The Chairman of the Board, the Chief Executive
Officer, the President, the Senior Vice Chairman or any Vice Chairman may, and
at the request of three directors shall, call a special meeting of the Board of
Directors, two days' notice of which shall be given in person or by mail,
telegraph, radio, telephone or cable. Notice of a special meeting need not be
given to any director who submits a signed waiver of notice whether before or
after the meeting, or who attends the meeting without protesting, prior thereto
or at its commencement, the lack of notice to him.
SECTION 2.06 Place of Meeting. The directors may hold their meetings, have one
or more offices, and keep the books of the corporation (except as may be
provided by law) at any place, either within or without the State of New York,
as they may from time to time determine.
SECTION 2.07 Quorum and Vote. At all meetings of the Board of Directors the
presence of one-third of the entire Board, but not less than two directors,
shall constitute a quorum for the transaction of business. Any one or more
members of the Board of Directors or of any committee thereof may participate in
a meeting of the Board of
4
<PAGE>
Directors or a committee thereof by means of a conference telephone or similar
communications equipment which allows all persons participating in the meeting
to hear each other at the same time. Participation by such means shall
constitute presence in person at such a meeting. The vote of a majority of the
directors present at the time of the vote, if a quorum is present at such time,
shall be the act of the Board of Directors, except as may be otherwise provided
by statute or the By-Laws.
SECTION 2.08 Vacancies. Newly created directorships resulting from increase in
the number of directors and vacancies in the Board of Directors, whether caused
by resignation, death, removal or otherwise, may be filled by vote of a majority
of the directors then in office, although less than a quorum exists.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
SECTION 3.01 Designation and Authority. The Board of Directors, by resolution
adopted by a majority of the entire Board, may designate from among its members
an Executive Committee and other committees, each consisting of three or more
directors. Each such committee, to the extent provided in the resolution or the
By-Laws, shall have all the authority of the Board, except that no such
committee shall have authority as to:
(i) the submission to shareholders of any action as to which shareholders'
authorization is required by law.
(ii) the filling of vacancies in the Board of Directors or any committee.
(iii) the fixing of compensation of directors for serving on the Board or
on any committee.
(iv) the amendment or appeal of the By-Laws, or the adoption of new
By-Laws.
(v) the amendment or repeal of any resolution of the Board which by its
terms shall not be so amendable or repealable.
The Board may designate one or more directors as alternate members of any such
committee, who may replace any absent member or members at any meeting of such
committee. Each such committee shall serve at the pleasure of the Board of
Directors.
SECTION 3.02 Procedure. Except as may be otherwise provided by statute, by the
By-Laws or by resolution of the Board of Directors, each committee may make
rules for
5
<PAGE>
the call and conduct of its meetings. Each committee shall keep a record of its
acts and proceedings and shall report the same from time to time to the Board of
Directors.
ARTICLE IV
OFFICERS
SECTION 4.01 Titles and General. The Board of Directors shall elect from among
their number a Chairman of the Board and a Chief Executive Officer, and shall
also elect a President, a Senior Vice Chairman, one or more Vice Chairmen, one
or more Executive Vice Presidents, one or more Senior Vice Presidents, one or
more Vice Presidents, a Secretary, a Controller, a Treasurer, a General Counsel,
a General Auditor, and a General Credit Auditor, who need not be directors. The
officers of the corporation may also include such other officers or assistant
officers as shall from time to time be elected or appointed by the Board. The
Chairman of the Board or the Chief Executive Officer or, in their absence, the
President, the Senior Vice Chairman or any Vice Chairman, may from time to time
appoint assistant officers. All officers elected or appointed by the Board of
Directors shall hold their respective offices during the pleasure of the Board
of Directors, and all assistant officers shall hold office at the pleasure of
the Board or the Chairman of the Board or the Chief Executive Officer or, in
their absence, the President, the Senior Vice Chairman or any Vice Chairman. The
Board of Directors may require any and all officers and employees to give
security for the faithful performance of their duties.
SECTION 4.02 Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the shareholders and of the Board of Directors. Subject to the
Board of Directors, he shall exercise all the powers and perform all the duties
usual to such office and shall have such other powers as may be prescribed by
the Board of Directors or the Executive Committee or vested in him by the
By-Laws.
SECTION 4.03 Chief Executive Officer. The Board of Directors shall designate the
Chief Executive Officer of the corporation, which person may also hold the
additional title of Chairman of the Board, President, Senior Vice Chairman or
Vice Chairman. Subject to the Board of Directors, he shall exercise all the
powers and perform all the duties usual to such office and shall have such other
powers as may be prescribed by the Board of Directors or the Executive Committee
or vested in him by the By-Laws.
SECTION 4.04 Chairman of the Board, President, Senior Vice Chairman, Vice
Chairmen and Vice Presidents. The Chairman of the Board or, in his absence or
incapacity the President or, in his absence or incapacity, the Senior Vice
Chairman, the Vice Chairmen, the Executive Vice Presidents, or in their absence,
the Senior Vice Presidents, in the order established by the Board of Directors
shall, in the absence or incapacity of the Chief Executive Officer perform the
duties of the Chief Executive Officer. The President, the Senior Vice Chairman,
the Vice Chairmen, the Executive Vice
6
<PAGE>
Presidents, the Senior Vice Presidents, and the Vice Presidents shall also
perform such other duties and have such other powers as may be prescribed or
assigned to them, respectively, from time to time by the Board of Directors, the
Executive Committee, the Chief Executive Officer, or the By-Laws.
SECTION 4.05 Controller. The Controller shall perform all the duties customary
to that office and except as may be otherwise provided by the Board of Directors
shall have the general supervision of the books of account of the corporation
and shall also perform such other duties and have such powers as may be
prescribed or assigned to him from time to time by the Board of Directors, the
Executive Committee, the Chief Executive Officer, or the By-Laws.
SECTION 4.06 Secretary. The Secretary shall keep the minutes of the meetings of
the Board of Directors and of the shareholders and shall have the custody of the
seal of the corporation. He shall perform all other duties usual to that office,
and shall also perform such other duties and have such powers as may be
prescribed or assigned to him from time to time by the Board of Directors, the
Executive Committee, the Chairman of the Board, the Chief Executive Officer, or
the By-Laws.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 5.01 The corporation shall, to the fullest extent permitted by Section
721 of the New York Business Corporation Law, indemnify any person who is or was
made, or threatened to be made, a party to an action or proceeding, whether
civil or criminal, whether involving any actual or alleged breach of duty,
neglect or error, any accountability, or any actual or alleged misstatement,
misleading statement or other act or omission and whether brought or threatened
in any court or administrative or legislative body or agency, including an
action by or in the right of the corporation to procure a judgment in its favor
and an action by or in the right of any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, which any director or officer of the corporation is
serving or served in any capacity at the request of the corporation by reason of
the fact that he, his testator or intestate, is or was a director or officer of
the corporation, or is serving or served such other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, amounts paid in settlement, and costs, charges and
expenses, including attorneys' fees, or any appeal therein; provided, however,
that no indemnification shall be provided to any such person if a judgment or
other final adjudication adverse to the director or officer establishes that (i)
his acts were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
7
<PAGE>
SECTION 5.02 The corporation may indemnify any other person to whom the
corporation is permitted to provide indemnification or the advancement of
expenses by applicable law, whether pursuant to rights granted pursuant to, or
provided by, the New York Business Corporation Law or other rights created by
(i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an
agreement providing for such indemnification, it being expressly intended that
these By-Laws authorize the creation of other rights in any such manner.
SECTION 5.03 The corporation shall, from time to time, reimburse or advance to
any person referred to in Section 5.01 the funds necessary for payment of
expenses, including attorneys' fees, incurred in connection with any action or
proceeding referred to in Section 5.01, upon receipt of a written undertaking by
or on behalf of such person to repay such amount(s) if a judgment or other final
adjudication adverse to the director or officer establishes that (i) his acts
were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 5.04 Any director or officer of the corporation serving (i) another
corporation, of which a majority of the shares entitled to vote in the election
of its directors is held by the corporation, or (ii) any employee benefit plan
of the corporation or any corporation referred to in clause (i), in any capacity
shall be deemed to be doing so at the request of the corporation. In all other
cases, the provisions of this Article V will apply (i) only if the person
serving another corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise so served at the specific request of the
corporation, evidenced by a written communication signed by the Chairman of the
Board, the Chief Executive Officer, the President, the Senior Vice Chairman or
any Vice Chairman, and (ii) only if and to the extent that, after making such
efforts as the Chairman of the Board, the Chief Executive Officer, or the
President shall deem adequate in the circumstances, such person shall be unable
to obtain indemnification from such other enterprise or its insurer.
SECTION 5.05 Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article V may
elect to have the right to indemnification (or advancement of expenses)
interpreted on the basis of the applicable law in effect at the time of the
occurrence of the event or events giving rise to the action or proceeding, to
the extent permitted by law, or on the basis of the applicable law in effect at
the time indemnification is sought.
SECTION 5.06 The right to be indemnified or to the reimbursement or advancement
of expenses pursuant to this Article V (i) is a contract right pursuant to which
the person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the corporation and the director or
officer, (ii) is intended to be
8
<PAGE>
retroactive and shall be available with respect to events occurring prior to the
adoption hereof, and (iii) shall continue to exist after the rescission or
restrictive modification hereof with respect to events occurring prior thereto.
SECTION 5.07 If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the corporation
within thirty days after a written claim has been received by the corporation,
the claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled also to be paid the expenses of prosecuting such
claim. Neither the failure of the corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the claimant is proper in the
circumstances, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel, or its shareholders) that the
claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses, shall be a defense to the action or create a
presumption that the claimant is not so entitled.
SECTION 5.08 A person who has been successful, on the merits or otherwise, in
the defense of a civil or criminal action or proceeding of the character
described in Section 5.01 shall be entitled to indemnification only as provided
in Sections 5.01 and 5.03, notwithstanding any provision of the New York
Business Corporation Law to the contrary.
ARTICLE VI
SEAL
SECTION 6.01 Corporate Seal. The corporate seal shall contain the name of the
corporation and the year and state of its incorporation. The seal may be altered
from time to time at the discretion of the Board of Directors.
ARTICLE VII
SHARE CERTIFICATES
SECTION 7.01 Form. The certificates for shares of the corporation shall be in
such form as shall be approved by the Board of Directors and shall be signed by
the Chairman of the Board, the Chief Executive Officer, the President, the
Senior Vice Chairman or any Vice Chairman and the Secretary or an Assistant
Secretary, and shall be sealed with the seal of the corporation or a facsimile
thereof. The signatures of the officers upon the
9
<PAGE>
certificate may be facsimiles if the certificate is countersigned by a transfer
agent or registered by a registrar other than the corporation itself or its
employees.
ARTICLE VIII
CHECKS
SECTION 8.01 Signatures. All checks, drafts and other orders for the payment of
money shall be signed by such officer or officers or agent or agents as the
Board of Directors may designate from time to time.
ARTICLE IX
AMENDMENT
SECTION 9.01 Amendment of By-Laws. The By-Laws may be amended, repealed or added
to by vote of the holders of the shares at the time entitled to vote in the
election of any directors. The Board of Directors may also amend, repeal or add
to the By-Laws, but any By-Laws adopted by the Board of Directors may be amended
or repealed by the shareholders entitled to vote thereon as provided herein. If
any By-Law regulating an impending election of directors is adopted, amended or
repealed by the Board, there shall be set forth in the notice of the next
meeting of shareholders for the election of directors the By-Laws so adopted,
amended or repealed, together with concise statement of the changes made.
ARTICLE X
SECTION 10.01 Construction. The masculine gender, when appearing in these
By-Laws, shall be deemed to include the feminine gender.
10
<PAGE>
I, Lea Lahtinen, [Assistant] Secretary of Bankers Trust New York Corporation,
New York, New York, hereby certify that the foregoing is a complete, true and
correct copy of the By-Laws of Bankers Trust New York Corporation, and that the
same are in full force and effect at this date.
/s/ Lea Lahtinen
------------------------------------
[ASSISTANT] SECRETARY
DATED: January 27, 1997
11
EXHIBIT 10(iii)(A)(2)
Bankers Trust New York Corporation
Partnership for One-hundred Plan
Plan Document
I. Purpose of the Plan
The purpose of the Partnership for One hundred Plan (the "Plan") is to provide
key employees of Bankers Trust New York Corporation and its subsidiaries (the
"Corporation") with an incentive to exert their efforts to increase Bankers
Trust New York Corporation share price.
II. Administration of the Plan
The Plan is to be administered by the Human Resources Committee of the
Corporation's Board of Directors (the "Committee"). The Committee may amend,
suspend or terminate the Plan at any time. The Committee also shall interpret
the provisions of the Plan and may selectively accelerate the payout of the
value of any employee's award.
III. Eligible Employees
Participants in the Plan will include approximately 35 senior executives of the
Corporation.
IV. Plan Provisions(1)
Upon receiving an award under the Plan, participants will be granted a number of
units whose value will be based on the Corporation's common stock price. The
units granted will vest as follows:
o In general, vesting is to occur at the rate of one-third (1/3) per year on
each of the third, fourth and fifth anniversaries of the grant date.
o If the stock price trades at $100.00 at any time on or before December 31,
1997, one-fourth (1/4) of the value of the award will vest on December 31,
1997. The remaining three-quarters (3/4) will vest equally on the third,
fourth and fifth anniversaries of the grant date.
V. Unit Values(1)
Unit values will be set according to a formula which will be based on the
Corporation's common stock price. Units will be valued at $4.00 for each $1.00
that the average of the December 13, 1996 high and low trading prices of the
Corporation's common stock as reported on the New York Stock Exchange Composite
trading tape exceeds $75.00.
VI. Supplemental Stock Option Grants
- --------
(1) As amended by the Human Resources Committee on December 17, 1996.
<PAGE>
In view of the lost opportunity for further upside benefit from the awards as
originally granted, the Corporation intends to grant each participant a number
of shares in April 1997, subject to shareholder approval. The number of shares
underlying each option, will be determined and communicated to participants in
April 1997.
VII. Transferability Restrictions
Benefits under this agreement are not assignable, pledgeable or otherwise
transferable.
VIII. Distributions from the Plan(1)
a) All distributions from the plan are to be made in cash only. In general,
payouts of awards are to be made within three business days of the respective
vesting dates and in percentages described in Section IV and Section X.
b) Distributions which occur after the stock price trades at $100.00 will be
paid with interest at the rate of prime plus one percent from the date the stock
price first trades at $100.00 until paid.
IX. Change of Control
In the event of a change in control (as defined in the 1994 Stock Option and
Stock Award Plan) the value of all awards under the Plan, will be immediately
paid to the respective participants. Payouts that are made due to a change in
control will be based on a thirty day moving average price of BTNY stock as of
the last trading date prior to the change of control.(2)
X. Termination Provisions
a) Retirement, Death and Total Disability - Units will vest to the extent
unvested as of the off-payroll date and be paid in accordance with Section
VIII.
b) Resignation - The value of the unvested portion of the award, if any, as of
the off-payroll date will be forfeited.
c) Termination for Cause - All units, vested and unvested, are forfeited.
d) Other Terminations - Units will vest to the extent unvested and paid in
accordance with Section VIII.
XI. Employee Taxes
Participating employees are responsible for all taxes due as required.
XII. Effective Date
The effective date of the Plan is January 1, 1996.
- ----------
(2) As amended by the Human Resources Committee on January 16, 1996.
EXHIBIT 12(a)
BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
(dollars in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
1. Income before
income taxes and
cumulative effects
of accounting
changes $ 906 $1,550 $ 869 $ 311 $ 872
2. Add: Fixed charges
excluding
capitalized
interest
(Line 10) 3,099 3,148 3,884 5,095 5,426
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 40 30 45 28 30
------ ------ ------ ------ ------
4. Earnings including
interest on deposits 3,965 4,668 4,708 5,378 6,268
5. Less: Interest on
deposits 1,119 1,013 965 1,360 1,355
------ ------ ------ ------ ------
6. Earnings excluding
interest on deposits $2,846 $3,655 $3,743 $4,018 $4,913
====== ====== ====== ====== ======
Fixed Charges:
7. Interest Expense $3,072 $3,122 $3,858 $5,069 $5,400
8. Estimated interest
component of net
rental expense 27 26 26 26 26
9. Amortization of debt
issuance expense -- -- -- -- --
------ ------ ------ ------ ------
10. Total fixed charges
including interest on
deposits and excluding
capitalized interest 3,099 3,148 3,884 5,095 5,426
11. Add: Capitalized
interest -- -- -- -- --
------ ------ ------ ------ ------
12. Total fixed charges 3,099 3,148 3,884 5,095 5,426
13. Less: Interest on
deposits
(Line 5) 1,119 1,013 965 1,360 1,355
------ ------ ------ ------ ------
14. Fixed charges excluding
interest on deposits $1,980 $2,135 $2,919 $3,735 $4,071
====== ====== ====== ====== ======
Consolidated Ratios of Earnings
to Fixed Charges:
Including interest on
deposits
(Line 4/Line 12) 1.28 1.48 1.21 1.06 1.16
====== ====== ====== ====== ======
Excluding interest on
deposits
(Line 6/Line 14) 1.44 1.71 1.28 1.08 1.21
====== ====== ====== ====== ======
</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)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
1. Income before
income taxes and
cumulative effect
of accounting
changes $ 906 $1,550 $ 869 $ 311 $ 872
2. Add: Fixed charges
excluding
capitalized
interest
(Line 13) 3,099 3,148 3,884 5,095 5,426
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 40 30 45 28 30
------ ------ ------ ------ ------
4. Earnings including
interest on deposits 3,965 4,668 4,708 5,378 6,268
5. Less: Interest on
deposits 1,119 1,013 965 1,360 1,355
------ ------ ------ ------ ------
6. Earnings excluding
interest on deposits $2,846 $3,655 $3,743 $4,018 $4,913
====== ====== ====== ====== ======
Preferred Stock Dividend Requirements:
7. Preferred stock dividend
requirements $ 30 $ 23 $ 28 $ 51 $ 51
8. Ratio of income from
continuing operations
before income taxes to
income from continuing
operations after income
taxes 142% 145% 141% 145% 142%
------ ------ ------ ------ ------
9. Preferred stock dividend
requirements on a pretax
basis $ 43 $ 33 $ 39 $ 74 $ 72
====== ====== ====== ====== ======
Fixed Charges:
10. Interest Expense $3,072 $3,122 $3,858 $5,069 $5,400
11. Estimated interest
component of net
rental expense 27 26 26 26 26
12. Amortization of debt
issuance expense -- -- -- -- --
------ ------ ------ ------ ------
13. Total fixed charges
including interest on
deposits and excluding
capitalized interest 3,099 3,148 3,884 5,095 5,426
14. Add: Capitalized
interest -- -- -- -- --
------ ------ ------ ------ ------
15. Total fixed charges 3,099 3,148 3,884 5,095 5,426
16. Add: Preferred stock
dividend require-
ments - pretax
(Line 9) 43 33 39 74 72
------ ------ ------ ------ ------
17. Total combined fixed
charges and preferred
stock dividend require-
ments on a pretax
basis 3,142 3,181 3,923 5,169 5,498
18. Less: Interest on
deposits
(Line 5) 1,119 1,013 965 1,360 1,355
------ ------ ------ ------ ------
19. Combined fixed charges
and preferred stock
dividend requirements
on a pretax basis
excluding interest on
deposits $2,023 $2,168 $2,958 $3,809 $4,143
====== ====== ====== ====== ======
Consolidated Ratios of Earnings
to Combined Fixed Charges
and Preferred Stock
Dividend Requirements:
Including interest on
deposits
(Line 4/Line 17) 1.26 1.47 1.20 1.04 1.14
====== ====== ====== ====== ======
Excluding interest on
deposits
(Line 6/Line 19) 1.41 1.69 1.27 1.05 1.19
====== ====== ====== ====== ======
</TABLE>
EXHIBIT 21
BANKERS TRUST NEW YORK CORPORATION
SUBSIDIARIES OF THE REGISTRANT
DECEMBER 31, 1996
Subsidiary(1) State of Incorporation
------------- ----------------------
Bankers Trust Company New York
BT Securities Corporation Delaware
BT Holdings (NY) Inc. New York
Bankers Trust (Delaware) Delaware
BT (Pacific) Delaware Delaware
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.
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, 33-50395,
33-51615, 33-65301, 333-08549, 333-15089, 333-15089-01 through -04, and Form S-4
Nos. 333-22733 and 333-22733-01, and Form S-8 Nos. 2-67517, 2-97972, 33-20693,
33-21564, 33-41014, 33-52329, 33-54971, 333-12181 and 333-19963) and in the
related Prospectuses of Bankers Trust New York Corporation of our report dated
January 23, 1997 except for Note 28, as to which the date is March 6, 1997, 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, 1996.
/S/ ERNST & YOUNG LLP
---------------------------------
Ernst & Young LLP
New York, New York
March 6, 1997
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
Frank N. Newman, George J. Vojta, Richard H. Daniel, Melvin A. Yellin, 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 1996 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 18, 1997 Bankers Trust New York Corporation
By /S/ FRANK N. NEWMAN
------------------------
Frank N. Newman
Chairman of the Board
/S/ FRANK N. NEWMAN
- ---------------------------------------
Frank N. Newman
Chairman of the Board, Chief Executive
Officer, President and Director
(Principal Executive Officer)
/S/ RICHARD H. DANIEL
- ---------------------------------------
Richard H. Daniel
Executive Vice President,
Chief Financial Officer and Controller
(Principal Financial Officer)
/S/ GEOFFREY M. FLETCHER
- ---------------------------------------
Geoffrey M. Fletcher
Senior Vice President
(Principal Accounting Officer)
<PAGE>
February 18, 1997
/S/ GEORGE B. BEITZEL
- ---------------------------------------
George B. Beitzel Director
/S/ PHILLIP A. GRIFFITHS
- ---------------------------------------
Phillip A. Griffiths Director
/S/ WILLIAM R. HOWELL
- ---------------------------------------
William R. Howell Director
/S/ JON M. HUNTSMAN
- ---------------------------------------
Jon M. Huntsman Director
/S/ VERNON E. JORDAN, JR.
- ---------------------------------------
Vernon E. Jordan, Jr. Director
/S/ HAMISH MAXWELL
- ---------------------------------------
Hamish Maxwell Director
/S/ N.J. NICHOLAS JR.
- ---------------------------------------
N.J. Nicholas Jr. Director
/S/ RUSSELL E. PALMER
- ---------------------------------------
Russell E. Palmer Director
/S/ DONALD L. STAHELI
- ---------------------------------------
Donald L. Staheli Director
/S/ PATRICIA C. STEWART
- ---------------------------------------
Patricia C. Stewart Director
/S/ GEORGE J. VOJTA
- ---------------------------------------
George J. Vojta Vice Chairman and Director
/S/ PAUL A. VOLCKER
- ---------------------------------------
Paul A. Volcker Director
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BANKERS TRUST NEW
YOUR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION AT
DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE TWELVE MONTHS
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,543
<INT-BEARING-DEPOSITS> 2,210
<FED-FUNDS-SOLD> 1,599
<TRADING-ASSETS> 48,919
<INVESTMENTS-HELD-FOR-SALE> 7,290
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 15,826
<ALLOWANCE> 773
<TOTAL-ASSETS> 120,235
<DEPOSITS> 30,315
<SHORT-TERM> 42,395<F1>
<LIABILITIES-OTHER> 5,892<F2>
<LONG-TERM> 11,839
0
810
<COMMON> 84
<OTHER-SE> 4,340
<TOTAL-LIABILITIES-AND-EQUITY> 120,235
<INTEREST-LOAN> 1,042
<INTEREST-INVEST> 459
<INTEREST-OTHER> 2,461<F3>
<INTEREST-TOTAL> 6,366
<INTEREST-DEPOSIT> 1,355
<INTEREST-EXPENSE> 5,400
<INTEREST-INCOME-NET> 966
<LOAN-LOSSES> 5
<SECURITIES-GAINS> 75
<EXPENSE-OTHER> 3,288
<INCOME-PRETAX> 872
<INCOME-PRE-EXTRAORDINARY> 872
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 612
<EPS-PRIMARY> 6.78
<EPS-DILUTED> 6.74
<YIELD-ACTUAL> 1.05
<LOANS-NON> 452
<LOANS-PAST> 0
<LOANS-TROUBLED> 37
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 992
<CHARGE-OFFS> 89
<RECOVERIES> 65
<ALLOWANCE-CLOSE> 973<F4>
<ALLOWANCE-DOMESTIC> 161
<ALLOWANCE-FOREIGN> 144
<ALLOWANCE-UNALLOCATED> 468
<FN>
<F1>Short-term borrowings include the following:
Securities sold under repurchase agreements 23,000
Other short-term borrowings 19,395
Total 42,395
<F2>Other liabilities include the following:
Accounts payable and accrued expenses 3,656
Other Liabilities 2.236
Total 5,892
<F3>Other interest income includes the following:
Interest-bearing deposits with banks 214
Federal funds sold 119
Securities purchased under resale agreements 1,312
Securities borrowed 816
Total 2,461
<F4>The Corporation has allocated its total allowance for credit losses
as follows: 773 as a reduction of loans and 200 as other liabilities related
to all other credit-related items.
</FN>
</TABLE>
