<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-5920
BANKERS TRUST 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, New York 10006
(Address of principal executive offices) (Zip code)
(212) 250-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No _______
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of July 31, 1998: Common Stock, $1 par value,
96,168,686 shares.
<PAGE> 1
BANKERS TRUST CORPORATION
JUNE 30, 1998 FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income
Three Months Ended June 30, 1998 and 1997 2
Six Months Ended June 30, 1998 and 1997 3
Consolidated Statement of Comprehensive Income
Three Months Ended June 30, 1998 and 1997 4
Six Months Ended June 30, 1998 and 1997 5
Consolidated Balance Sheet
At June 30, 1998 and December 31, 1997 6
Consolidated Statement of Changes in Stockholders'
Equity
Six Months Ended June 30, 1998 and 1997 7
Consolidated Statement of Cash Flows
Six Months Ended June 30, 1998 and 1997 8
Consolidated Schedule of Net Interest Revenue
Three Months and Six Months Ended
June 30, 1998 and 1997 9
In the opinion of management, all material adjustments
necessary for a fair presentation of the financial position
and results of operations for the interim periods presented
have been made. All such adjustments were of a normal
recurring nature. The results of operations for the three
months and six months ended June 30, 1998 are not necessarily
indicative of the results of operations for the full year or
any other interim period.
On April 21, 1998, the shareholders of the Corporation
approved the change of the Corporation's name from "Bankers
Trust New York Corporation" to "Bankers Trust Corporation"
and an amendment to the Corporation's Certificate of Incor-
poration effecting the change was filed with the Secretary
of State of the State of New York, on April 23, 1998.
The financial statements included in this Form 10-Q
should be read with reference to the Bankers Trust
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 as supplemented by the first quarter
1998 Form 10-Q.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 36
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 37
SIGNATURE 38
<PAGE> 2
PART I. FINANCIAL INFORMATION
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Increase
THREE MONTHS ENDED JUNE 30, 1998 1997 (Decrease)
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $2,305 $1,731 $ 574
Interest expense 1,939 1,391 548
Net interest revenue 366 340 26
Credit loss provision - - -
Net interest revenue after credit loss provision 366 340 26
NONINTEREST REVENUE
Trading 97 315 (218)
Credit loss provision-trading (60) - (60)
Fiduciary and funds management 285 263 22
Corporate finance fees 392 269 123
Other fees and commissions 206 146 60
Net revenue from equity investments 73 9 64
Securities available for sale gains 50 68 (18)
Insurance premiums 59 64 (5)
Other 80 60 20
Total noninterest revenue 1,182 1,194 (12)
NONINTEREST EXPENSES
Salaries and commissions 361 304 57
Incentive compensation and employee benefits 417 442 (25)
Agency and other professional service fees 147 102 45
Communication and data services 61 57 4
Occupancy, net 54 44 10
Furniture and equipment 56 55 1
Travel and entertainment 42 36 6
Provision for policyholder benefits 74 73 1
Other 108 112 (4)
Total noninterest expenses 1,320 1,225 95
Income before income taxes 228 309 (81)
Income taxes 64 96 (32)
NET INCOME $ 164 $ 213 $ (49)
NET INCOME APPLICABLE TO COMMON STOCK $ 155 $ 201 $(46)
Cash dividends declared per common share $1.00 $1.00 $-
EARNINGS PER COMMON SHARE:
BASIC $1.54 $2.00 $(.46)
DILUTED $1.46 $1.89 $(.43)
<FN>
Certain prior period amounts have been reclassified to conform to the
current presentation.
</TABLE>
<PAGE> 3
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Increase
SIX MONTHS ENDED JUNE 30, 1998 1997 (Decrease)
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $4,294 $3,411 $ 883
Interest expense 3,526 2,740 786
Net interest revenue 768 671 97
Credit loss provision - - -
Net interest revenue after credit loss provision 768 671 97
NONINTEREST REVENUE
Trading 348 626 (278)
Credit loss provision-trading (120) - (120)
Fiduciary and funds management 546 498 48
Corporate finance fees 723 484 239
Other fees and commissions 366 281 85
Net revenue from equity investments 204 56 148
Securities available for sale gains 44 82 (38)
Insurance premiums 128 127 1
Other 174 106 68
Total noninterest revenue 2,413 2,260 153
NONINTEREST EXPENSES
Salaries and commissions 697 608 89
Incentive compensation and employee benefits 914 819 95
Agency and other professional service fees 252 191 61
Communication and data services 115 115 -
Occupancy, net 100 87 13
Furniture and equipment 110 108 2
Travel and entertainment 79 65 14
Provision for policyholder benefits 159 141 18
Other 219 195 24
Total noninterest expenses 2,645 2,329 316
Income before income taxes 536 602 (66)
Income taxes 150 189 (39)
NET INCOME $ 386 $ 413 $ (27)
NET INCOME APPLICABLE TO COMMON STOCK $ 366 $ 387 $ (21)
Cash dividends declared per common share $2.00 $2.00 $-
EARNINGS PER COMMON SHARE:
BASIC $3.62 $3.87 $(.25)
DILUTED $3.46 $3.65 $(.19)
<FN>
Certain prior period amounts have been reclassified to conform to the
current presentation.
</TABLE>
<PAGE> 4
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998 1997
<S> <C> <C>
NET INCOME $164 $213
Other comprehensive income (loss) net of tax:
Foreign currency translation adjustments, net of tax* (9) -
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period, net of tax** 20 40
Reclassification adjustment for realized (gains)
losses in net income, net of tax*** (34) (47)
Other comprehensive income (loss) (23) (7)
COMPREHENSIVE INCOME $141 $206
<FN>
* Amounts are net of income tax expense of $17 million and $15 million
for the three months ended June 30, 1998 and June 30, 1997, respectively.
** Amounts are net of income tax expense of $10 million and $21 million
for the three months ended June 30, 1998 and June 30, 1997, respectively.
*** Amounts are net of income tax expense of $16 million and $21 million
for the three months ended June 30, 1998 and June 30, 1997, respectively.
</TABLE>
<PAGE> 5
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998 1997
<S> <C> <C>
NET INCOME $386 $413
Other comprehensive income (loss) net of tax:
Foreign currency translation adjustments, net of tax* (18) 3
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period, net of tax** (4) 30
Reclassification adjustment for realized (gains)
losses in net income, net of tax*** (30) (55)
Other comprehensive income (loss) (52) (22)
COMPREHENSIVE INCOME $334 $391
<FN>
* Amounts are net of income tax expense of $8 million and $23 million for
the six months ended June 30, 1998 and June 30, 1997, respectively.
** Amounts are net of an income tax benefit of $2 million and income tax
expense of $15 million for the six months ended June 30, 1998 and
June 30, 1997, respectively.
*** Amounts are net of income tax expense of $14 million and $27 million
for the six months ended June 30, 1998 and June 30, 1997, respectively.
</TABLE>
<PAGE> 6
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in millions, except par value)
<TABLE>
<CAPTION>
June 30, December 31,
1998* 1997
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,221 $ 2,188
Interest-bearing deposits with banks 1,645 4,272
Federal funds sold 3,445 1,382
Securities purchased under resale
agreements 27,327 19,163
Securities borrowed 25,634 16,751
Trading assets:
Government securities 11,342 11,397
Corporate debt securities 10,375 8,128
Equity securities 11,190 7,914
Swaps, options and other derivatives, net of
allowance for credit losses of $320 at
June 30, 1998 and $285 at December 31, 1997 16,167 17,673
Other trading assets 14,375 11,460
Total trading assets 63,449 56,572
Securities available for sale 12,105 8,081
Loans, net of allowance for credit losses
of $678 at June 30, 1998 and $699
at December 31, 1997 22,233 19,106
Customer receivables 1,701 1,547
Accounts receivable and accrued interest 6,351 4,785
Other assets 6,200 6,255
Total $172,311 $140,102
LIABILITIES
Noninterest-bearing deposits
Domestic offices $ 3,314 $ 2,776
Foreign offices 1,717 1,952
Interest-bearing deposits
Domestic offices 24,180 22,353
Foreign offices 17,332 15,749
Total deposits 46,543 42,830
Trading liabilities:
Securities sold, not yet purchased
Government securities 10,265 4,389
Equity securities 8,650 5,273
Other trading liabilities 581 519
Swaps, options and other derivatives 15,271 17,065
Total trading liabilities 34,767 27,246
Securities loaned and securities sold under
repurchase agreements 26,057 17,896
Other short-term borrowings 27,049 19,577
Accounts payable and accrued expenses 5,866 6,536
Other liabilities, including allowance for
credit losses of $13 at June 30, 1998
and December 31, 1997 6,250 4,250
Long-term debt not included in risk-based capital 15,091 11,275
Long-term debt included in risk-based capital 3,351 3,312
Mandatorily redeemable capital securities of
subsidiary trusts holding solely junior
subordinated deferrable interest debentures
included in risk-based capital 1,474 1,472
Total liabilities 166,448 134,394
PREFERRED STOCK OF SUBSIDIARY 304 -
STOCKHOLDERS' EQUITY
Preferred stock 493 658
Common stock, $1 par value
Authorized, 300,000,000 shares
Issued, 105,379,697 shares at June 30, 1998
and 105,378,741 at December 31, 1997 105 105
Capital surplus 1,607 1,563
Retained earnings 4,240 4,202
Common stock in treasury, at cost:
1998, 8,902,909 shares;
1997, 8,422,401 shares (985) (889)
Other stockholders' equity 545 463
Accumulated other comprehensive income:
Net unrealized losses on securities available for
sale, net of taxes (66) (32)
Foreign currency translation, net of taxes (380) (362)
Total stockholders' equity 5,559 5,708
Total $172,311 $140,102
<FN>
* Unaudited
Certain prior period amounts have been reclassified to conform to the
current presentation.
</TABLE>
<PAGE> 7
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in millions)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998 1997
<S> <C> <C>
PREFERRED STOCK
Balance, January 1 $ 658 $ 810
Preferred stock redeemed (149) (100)
Preferred stock repurchased (16) (7)
Balance, June 30 493 703
COMMON STOCK
Balance, January 1 105 104
Issuance of common stock - 1
Balance, June 30 105 105
CAPITAL SURPLUS
Balance, January 1 1,563 1,437
Issuance of common stock - 31
Repurchase and retirement of common stock - (4)
Common stock distributed under employee
benefit plans 44 27
Balance, June 30 1,607 1,491
RETAINED EARNINGS
Balance, January 1 4,202 3,988
Net income 386 413
Cash dividends declared
Preferred stock (21) (26)
Common stock (194) (165)
Treasury stock distributed under
employee benefit plans (133) (42)
Balance, June 30 4,240 4,168
COMMON STOCK IN TREASURY, AT COST
Balance, January 1 (889) (372)
Purchases of stock (428) (274)
Restricted stock (cancelled), net - (17)
Treasury stock distributed under employee
benefit plans 332 150
Balance, June 30 (985) (513)
COMMON STOCK ISSUABLE - STOCK AWARDS
Balance, January 1 901 526
Deferred stock awards granted, net 55 61
Restricted stock awards granted, net 61 -
Deferred stock distributed (91) (18)
Balance, June 30 926 569
DEFERRED COMPENSATION - STOCK AWARDS
Balance, January 1 (438) (308)
Deferred stock awards (granted), net (57) (61)
Restricted stock (granted) cancelled, net (60) 16
Amortization of deferred compensation, net 174 125
Balance, June 30 (381) (228)
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, January 1 (362) (364)
Translation adjustments (10) 26
Income taxes applicable to translation adjustments (8) (23)
Balance, June 30 (380) (361)
SECURITIES VALUATION ALLOWANCE
Balance, January 1 (32) 57
Change in unrealized net gains/losses after applicable
income taxes and minority interest (34) (25)
Balance, June 30 (66) 32
TOTAL STOCKHOLDERS' EQUITY, JUNE 30 $5,559 $5,966
</TABLE>
<PAGE> 8
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 386 $ 413
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Credit loss provision-trading 120 -
Provision for policyholder benefits 159 141
Deferred income taxes (8) (65)
Depreciation and other amortization
and accretion 164 184
Other, net 21 53
Earnings adjusted for noncash charges and credits 842 726
Net change in:
Trading assets (6,832) 530
Trading liabilities 7,852 (2,127)
Receivables and payables from securities
transactions (1,500) 644
Customer receivables (154) (101)
Other operating assets and liabilities, net (565) 1,037
Securities available for sale gains (44) (82)
Net cash (used in) provided by operating activities (401) 627
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits with banks 2,610 (136)
Federal funds sold (2,063) 379
Securities purchased under resale agreements (8,164) (7,756)
Securities borrowed (8,883) 3,720
Loans (3,367) (3,982)
Securities available for sale:
Purchases (11,730) (2,868)
Maturities and other redemptions 1,402 1,897
Sales 5,617 306
Acquisitions of premises and equipment (171) (134)
Other, net 1,543 140
Net cash used in investing activities (23,206) (8,434)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in:
Deposits 3,845 7,916
Securities loaned and securities sold under
repurchase agreements 8,349 (455)
Other short-term borrowings 7,825 359
Issuances of long-term debt* 4,885 3,221
Repayments of long-term debt (885) (2,313)
Issuances of common stock - 23
Repurchase and retirement of common stock - (4)
Issuance of preferred stock of subsidiary 304 -
Redemption of preferred stock of subsidiary - (250)
Redemptions and repurchases of preferred stock (165) (107)
Purchases of treasury stock (428) (274)
Cash dividends paid (216) (191)
Other, net 108 89
Net cash provided by financing activities 23,622 8,014
Net effect of exchange rate changes on cash 18 (19)
NET INCREASE IN CASH AND DUE FROM BANKS 33 188
Cash and due from banks, beginning of period 2,188 1,568
Cash and due from banks, end of period $ 2,221 $1,756
Interest paid $3,166 $2,539
Income taxes paid, net $183 $71
Noncash investing activities $(3) $64
Noncash financing activities:
Conversion of debt to equity $12 $9
<FN>
* Includes $739 million for the six months ended June 30, 1997, related to
mandatorily redeemable capital securities of subsidiary trusts holding
solely junior subordinated deferrable interest
debentures included in risk-based capital ("trust preferred capital
securities").
Certain prior period amounts have been reclassified to conform to the
current presentation.
</TABLE>
<PAGE> 9
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
INTEREST REVENUE
Interest-bearing deposits with banks $ 85 $ 82 $ 183 $ 147
Federal funds sold 60 61 112 110
Securities purchased under
resale agreements 459 314 789 644
Securities borrowed 389 176 664 359
Trading assets 671 650 1,305 1,249
Securities available for sale
Taxable 181 96 318 206
Exempt from federal income taxes 10 6 20 16
Loans 414 314 832 616
Customer receivables 36 32 71 64
Total interest revenue 2,305 1,731 4,294 3,411
INTEREST EXPENSE
Interest-bearing deposits
Domestic offices 334 200 646 346
Foreign offices 286 259 545 509
Trading liabilities 135 126 234 277
Securities loaned and securities sold under
repurchase agreements 569 334 955 673
Other short-term borrowings 344 276 630 567
Long-term debt 241 166 456 314
Trust preferred capital securities 30 30 60 54
Total interest expense 1,939 1,391 3,526 2,740
NET INTEREST REVENUE $ 366 $ 340 $ 768 $ 671
</TABLE>
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ACQUISITION OF NATWEST MARKETS' EUROPEAN EQUITIES BUSINESS
On April 27, 1998, the Corporation completed its acquisition of
NatWest Markets' European cash equities business and the Wood McKenzie
Consulting business ("NatWest"). This acquisition, which has been
accounted for as a purchase, brings to the Corporation equities research,
institutional sales and trading, and primary markets origination businesses
in the U.K. and Continental Europe.
RESULTS OF OPERATIONS
Bankers Trust Corporation (the "Parent Company") and subsidiaries
(collectively, the "Corporation", or the "Firm") earned $164 million for
the three months ended June 30, 1998, or $1.46 diluted earnings per share.
In the second quarter of 1997, the Corporation earned $213 million, or
$1.89 diluted earnings per share.
For the first six months of 1998, the Corporation earned $386 million,
or $3.46 diluted earnings per share. For the first six months of 1997, the
Corporation earned $413 million, or $3.65 diluted earnings per share.
ORGANIZATIONAL UNIT RESULTS
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 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 generally restate this analysis to
conform with material changes in the allocation process and/or significant
changes in organizational structure.
<PAGE> 11
ORGANIZATIONAL UNIT RESULTS (continued)
The following tables present results by Organizational Unit:
<TABLE>
<CAPTION> Total Non- Pretax Net
Three Months Ended June 30, 1998 Total Net interest Income/ Income/
(in millions) Revenue Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Investment Banking $ 560 $ 433 $127 $ 91
Trading & Sales 244 144 100 72
Global Institutional Services 262 233 29 21
Private Client Services Group 193 157 36 26
Australia/New Zealand 162 115 47 34
Emerging Markets Group:
Latin America 84 127 (43) (30)
Emerging Europe, Middle East & Africa 29 26 3 2
Asia 8 42 (34) (25)
Corporate/Other 6 43 (37) (27)
Total $1,548 $1,320 $228 $164
</TABLE>
<TABLE>
<CAPTION> Total Non- Pretax Net
Three Months Ended June 30, 1997 Total Net interest Income/ Income/
(in millions) Revenue Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Investment Banking $ 543 $ 353 $190 $130
Trading & Sales 198 130 68 47
Global Institutional Services 228 212 16 11
Private Client Services Group 154 134 20 13
Australia/New Zealand 146 107 39 27
Emerging Markets Group:
Latin America 174 134 40 28
Emerging Europe, Middle East & Africa 40 26 14 10
Asia 24 52 (28) (19)
Corporate/Other 27 77 (50) (34)
Total $1,534 $1,225 $309 $213
</TABLE>
<TABLE>
<CAPTION> Total Non- Pretax Net
Six Months Ended June 30, 1998 Total Net interest Income/ Income/
(in millions) Revenue Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Investment Banking $1,230 $ 857 $ 373 $268
Trading & Sales 459 272 187 135
Global Institutional Services 516 461 55 40
Private Client Services Group 364 304 60 43
Australia/New Zealand 307 222 85 61
Emerging Markets Group:
Latin America 251 272 (21) (14)
Emerging Europe, Middle East & Africa 63 51 12 9
Asia (43) 91 (134) (97)
Corporate/Other 34 115 (81) (59)
Total $3,181 $2,645 $ 536 $386
</TABLE>
<PAGE> 12
ORGANIZATIONAL UNIT RESULTS (continued)
<TABLE>
<CAPTION> Total Non- Pretax Net
Six Months Ended June 30, 1997 Total Net interest Income/ Income/
(in millions) Revenue Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Investment Banking $ 993 $ 667 $ 326 $223
Trading & Sales 369 248 121 84
Global Institutional Services 446 421 25 17
Private Client Services Group 304 260 44 30
Australia/New Zealand 289 197 92 63
Emerging Markets Group:
Latin America 319 251 68 47
Emerging Europe, Middle East & Africa 68 45 23 16
Asia 90 100 (10) (7)
Corporate/Other 53 140 (87) (60)
Total $2,931 $2,329 $602 $413
</TABLE>
Acquisition of NatWest Markets
The businesses associated with the acquisition of NatWest are
classified in Investment Banking.
Organizational Unit Results
The Investment Banking business contributed net income of $91 million
in the second quarter of 1998. The decline in net income from the second
quarter of 1997 was primarily due to trading losses and charges related to
repositioning of European equity businesses, consisting of valuation
adjustments to the Corporation's trading assets and NatWest integration
costs offset in part by higher corporate finance fees. For the first six
months of 1998, net income was $268 million as compared to $223 million in
the prior year period. The increase was due primarily to higher corporate
finance fees and higher revenue from private equity investments.
Trading & Sales contributed $72 million of net income in the second
quarter of 1998, up $25 million from the 1997 second quarter. Net income
was $135 million in the first half of 1998 versus $84 million in the first
half of 1997. The current quarter and year-to-date improvement was largely
due to higher revenue from client-related activities.
Global Institutional Services contributed $21 million of net income in
the second quarter of 1998, up $10 million from the 1997 second quarter.
As compared to the prior year period, the second quarter of 1998 included
improved revenue from investment management and securities lending. Net
income was $40 million in the first half of 1998 versus $17 million in the
first half of 1997. Improved revenue from corporate trust and agency
services, investment management and securities lending contributed to this
increase.
The Corporation's Private Client Services Group business reported net
income of $26 million for the current quarter, up $13 million from the
prior year period. For the first six months of 1998, net income was $43
million as compared to $30 million in the prior year period. Higher global
private banking commissions and improved funds management revenue
contributed to these increases.
<PAGE> 13
ORGANIZATIONAL UNIT RESULTS (continued)
Net income of the Australia/NZ business was $34 million in the second
quarter of 1998, up $7 million from the prior year quarter despite a
decline in Australian dollar/US dollar exchange rates. The current quarter
benefited from higher corporate finance fees as compared to the prior year
quarter. In addition, the current quarter benefited from improved revenue
from funds management activities. Net income for the first six months of
1998 was $61 million versus $63 million in the prior year period.
Emerging Markets Group net loss was $53 million in the current
quarter, compared to net income of $19 million in the prior year quarter.
Net loss was $102 million in the first half of 1998 compared to net income
of $56 million in the prior year period.
Latin America - Trading losses negatively impacted the second
quarter of 1998. The prior year's quarter included an after-tax gain of
$15 million resulting from the completion of the first stage on the sale of
50% of the Corporation's stake in Consorcio.
Emerging Europe, Middle East & Africa - Trading revenue and trading-
related net interest revenue declined as a result of the market turmoil in
certain areas of Emerging Europe during the second quarter of 1998.
Asia - The first six months of 1998 reflected both the impact of a
$120 million provision for trading-related credit losses as well as
valuation adjustments to trading assets, for widening counterparty credit
spreads principally associated with Indonesian trading assets. In the
prior year period, the Corporation recognized a decline in value of its
unconsolidated investment in a Thai finance company. Partially offsetting
this decline, the Corporation recognized trading gains from favorable Thai
baht currency positions. The combined effect of these factors in Thailand
resulted in a pre-tax net loss of $22 million which was included in the
results for the first six months of 1997.
Corporate/Other includes the income and expenses of smaller businesses
that are not included in the main organizational units as well as some
activities not associated with specific business lines. It also includes
the funding benefit attributed to the Corporation's capital related to
these areas. Corporate/Other net loss was $27 million in the second
quarter of 1998, compared with a net loss of $34 million in the second
quarter of 1997. For the first half of 1998, the net loss was $59 million
as compared to a net loss of $60 million in the prior year period.
<PAGE> 14
REVENUE
Net Interest Revenue
The table below presents net interest revenue, average balances and
average rates. The tax equivalent adjustment is made to present the
revenue and yields on certain assets, primarily tax-exempt securities and
loans, as if such revenue were taxable.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
NET INTEREST REVENUE (in millions)
Book basis $366 $340 $768 $671
Tax equivalent adjustment 7 6 16 13
Fully taxable basis $373 $346 $784 $684
AVERAGE BALANCES (in millions)
Interest-earning assets $133,364 $102,189 $123,260 $100,072
Interest-bearing liabilities 129,915 98,685 120,142 95,502
Earning assets financed by
noninterest-bearing funds $ 3,449 $ 3,504 $ 3,118 $ 4,570
AVERAGE RATES (fully taxable basis)
Yield on interest-earning assets 6.95% 6.82% 7.05% 6.90%
Cost of interest-bearing liabilities 5.99 5.65 5.92 5.79
Interest rate spread .96 1.17 1.13 1.11
Contribution of noninterest-bearing
funds .16 .19 .15 .27
Net interest margin 1.12% 1.36% 1.28% 1.38%
</TABLE>
Net interest revenue for the second quarter of 1998 totaled $366
million, up $26 million, or 8 percent, from the second quarter of 1997.
The $26 million increase in net interest revenue was primarily due to a $29
million increase in nontrading-related net interest revenue, which totaled
$221 million for the second quarter of 1998. Trading-related net interest
revenue totaled $145 million for the second quarter of 1998 versus $148
million for the comparable period in 1997.
Net interest revenue for the first half of 1998 totaled $768 million,
up $97 million, or 14 percent, from the first half of 1997. The $97
million increase in net interest revenue was primarily due to a $54 million
increase in trading-related net interest revenue, which totaled $344
million for the first half of 1998. Nontrading-related net interest
revenue totaled $424 million for the first half of 1998 versus $381 million
for the comparable period in 1997.
In the second quarter of 1998, the interest rate spread was .96
percent compared to 1.17 percent in the prior year period. Net interest
margin decreased to 1.12 percent from 1.36 percent. The yield on interest-
earning assets increased by 13 basis points and the cost of interest-
bearing liabilities increased by 34 basis points. Average interest-earning
assets totaled $133.4 billion for the second quarter of 1998, up $31.2
billion from the same period in 1997. The increase was primarily
attributable to increases in securities borrowed and in securities
available for sale. Average interest-bearing liabilities totaled $129.9
billion for the second quarter of 1998, up $31.2 billion from the same
period in 1997. The increase was primarily attributable to a rise in
interest-bearing deposits and securities sold under repurchase agreements.
<PAGE> 15
REVENUE (continued)
In the first six months of 1998, the interest rate spread was 1.13
percent compared to 1.11 percent in the prior year period. Net interest
margin fell to 1.28 percent from 1.38 percent. The yield on interest-
earning assets increased by 15 basis points and the cost of interest-
bearing liabilities rose by 13 basis points. Average interest-earning
assets totaled $123.3 billion for the first six months of 1998, up $23.2
billion from the same period in 1997. The increase was primarily
attributable to an increase in securities borrowed and growth in the loan
portfolio. Average interest-bearing liabilities totaled $120.1 billion for
the first six months of 1998, up $24.6 billion from the same period in
1997. The increase was primarily attributable to a rise in interest-
bearing deposits and securities sold under repurchase agreements.
Trading Revenue
The Firm's trading and risk management activities include significant
transactions 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.
Combined trading revenue and trading-related net interest revenue
before the provision for trading-related credit losses for the second
quarter of 1998 totaled $242 million, down $221 million from the second
quarter of 1997. The decline is primarily attributable to valuation
adjustments related to the Corporation's European equity business and
Indonesian trading assets.
Combined trading revenue and trading-related net interest revenue
before the provision for trading-related credit losses for the first six
months of 1998 totaled $692 million, down $224 million from the first six
months of 1997. The decline is primarily attributable to valuation
adjustments related to the Corporation's European equity business and
Indonesian trading assets.
<PAGE> 16
REVENUE (continued)
The table below presents the Corporation'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.
<TABLE>
<CAPTION>
Trading-
Related
Net
Trading Interest
(in millions) Revenue Revenue Total
<S> <C> <C> <C>
Three Months ended June 30, 1998
Interest rate risk $ (9) $182 $173
Foreign exchange risk 143 - 143
Equity and commodity risk (37) (37) (74)
Total $ 97 $145 $242
Three Months ended June 30, 1997
Interest rate risk $139 $169 $308
Foreign exchange risk 48 - 48
Equity and commodity risk 128 (21) 107
Total $315 $148 $463
Six Months ended June 30, 1998
Interest rate risk $ 54 $362 $416
Foreign exchange risk 260 - 260
Equity and commodity risk 34 (18) 16
Total $348 $344 $692
Six Months ended June 30, 1997
Interest rate risk $291 $331 $622
Foreign exchange risk 86 - 86
Equity and commodity risk 249 (41) 208
Total $626 $290 $916
</TABLE>
Second Quarter 1998 vs. Second Quarter 1997
Interest Rate Risk - The decrease reflects adverse conditions in the
Latin American and Asian markets as well as valuation adjustments to
trading assets, for widening counterparty credit spreads principally
associated with Indonesian trading assets.
Foreign Exchange Risk - The increase in foreign exchange revenue is
primarily related to gains in the Asian and Australian markets.
Equity and Commodity Risk - Total trading and trading related net
interest revenue decreased from the same period last year. The decline is
primarily attributable to valuation adjustments related to the
Corporation's European equity business as well as decreased activity in the
equity derivatives books.
<PAGE> 17
REVENUE (continued)
Six Months 1998 vs. Six Months 1997
Interest Rate Risk - The decrease reflects adverse conditions in the
Latin American and Asian markets as well as valuation adjustments to
trading assets, for widening counterparty credit spreads principally
associated with Indonesian trading assets.
Foreign Exchange Risk - The increase compared to the same period last
year is principally due to gains in the Asian and Australian markets.
Equity and Commodity Risk - The decrease is primarily attributable to
valuation adjustments related to the Corporation's European equity business
as well as decreased activity in the equity derivatives books.
Noninterest Revenue (Excluding Trading)
Second Quarter 1998 vs. Second Quarter 1997
Fiduciary and funds management revenue was $285 million in the second
quarter of 1998, up $22 million from the prior year period. The current
quarter included higher global private banking commissions and improved
funds management revenue. At June 30, 1998, assets under management were
$365 billion compared to $284 billion at June 30, 1997.
Corporate finance fees of $392 million increased 46 percent from the
$269 million earned in the second quarter of 1997, primarily due to higher
underwriting fees, merger and acquisition fees and financial advisory fees.
Other fees and commissions of $206 million increased $60 million from
the prior year quarter primarily resulting from higher fees for brokerage
services.
Securities available for sale gains totaled $50 million compared to
$68 million in the prior year period. The current quarter included lower
gains on the sale of equity securities as compared to the prior year
period.
Six Months 1998 vs. Six Months 1997
Fiduciary and funds management revenue of $546 million earned during
the first six months of 1998 increased $48 million from the first six
months of 1997. The current period included higher global private banking
commissions and improved funds management revenue.
Corporate finance fees of $723 million increased $239 million, or 49
percent, from the first half of 1997, primarily due to higher underwriting
fees, merger and acquisition fees and loan syndication fees.
Other fees and commissions of $366 million increased $85 million from
the $281 million earned in the first half of 1997. Higher fees for
brokerage services contributed to this increase.
Net revenue from equity investments was $204 million during the first
half of 1998 as compared with $56 million during the first half of 1997.
The current period included higher gains on direct equity investments.
Other noninterest revenue of $174 million increased $68 million from
the prior year period. The current period included higher revenue from
mark-to-market adjustments on venture capital equity securities.
<PAGE> 18
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The total credit loss provision is determined based upon management's
evaluation as to the amount needed to maintain the allowance for credit
losses at a level considered appropriate in relation to the risk of losses
inherent in the portfolio.
The Corporation has allocated its total allowance for credit losses as
presented below; however, the Corporation believes 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
allowance for credit losses may be adjusted as risk factors change.
The total credit loss provision and the other changes in the allowance
for credit losses are shown below (in millions).
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
Total allowance for credit losses 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Balance, beginning of period $1,006 $958 $997 $973
Net charge-offs
Charge-offs
Loans 23 3 30 34
Trading assets 38 - 85 2
Total charge-offs 61 3 115 36
Recoveries
Loans 6 1 9 17
Trading assets - - - 2
Total recoveries 6 1 9 19
Total net charge-offs 55 2 106 17
Allowance related to acquisition of affiliate - 17 - 17
Credit loss provision - - - -
Credit loss provision-trading 60 - 120 -
Total credit loss provision 60 - 120 -
Balance, end of period (a) $1,011 $973 $1,011 $973
(a) Allocation of allowance for credit losses:
Loans $678 $767
Trading assets 320 196
Other liabilities 13 10
Balance, end of period $1,011 $973
</TABLE>
The allowance for credit losses that has been allocated to loans was
$678 million at June 30, 1998 compared to $699 million at December 31,
1997. This allowance was equal to 264 percent and 291 percent of total
cash basis loans at June 30, 1998 and December 31, 1997, respectively.
These ratios were computed using the amounts that were allocated to loans.
<PAGE> 19
PROVISION AND ALLOWANCE FOR CREDIT LOSSES (continued)
Impaired loans, which consisted of total cash basis loans and
renegotiated loans, were $283 million and $265 million at June 30, 1998 and
December 31, 1997, respectively. Included in these amounts were $160
million and $78 million of loans which required a valuation allowance of
$37 million and $13 million at those same dates, respectively.
EXPENSES
Second Quarter 1998 vs. Second Quarter 1997
As compared to the second quarter of 1997, salaries and commissions
expense increased $57 million, or 19%, partly due to an increase in the
number of employees resulting from the NatWest acquisition.
Agency and other professional service fees increased $45 million, or
44%, from the prior year period primarily due to costs associated with the
integration of NatWest.
Six Months 1998 vs. Six Months 1997
Salaries and commissions expense of $697 million in the first half of
1998 increased by $89 million from the first half of 1997, partly due to an
increase in the number of employees resulting from the NatWest acquisition.
Incentive compensation and employee benefits increased by $95 million
during the first half of 1998 primarily due to employee stock awards
granted in 1997.
Agency and other professional service fees of $252 million increased
by $61 million during the first half of 1998 primarily due to costs
associated with the integration of NatWest.
INCOME TAXES
Income tax expense for the second quarter of 1998 amounted to $64
million, compared to $96 million in the second quarter of 1997. For the
first six months of 1998, income tax expense was $150 million compared with
$189 million in the first half of 1997. The effective tax rate was 28
percent for the current quarter and six months ended June 30, 1998, and 31
percent for the prior year quarter and six months ended June 30, 1997.
YEAR 2000
As discussed on page 16 in the Corporation's 1997 Annual Report on
Form 10-K, the Corporation initiated a firm-wide program (the "Year 2000
Program") to prepare its computer systems, applications and infrastructure
for properly processing dates after December 31, 1999. Based on the
Federal Financial Institutions Examination Council guidelines, the
Corporation's Year 2000 Program consists of the following phases:
1) Awareness Phase - A strategic approach was developed to address the
Year 2000 problem.
2) Assessment Phase - Detailed plans and target dates were developed.
3) Renovation Phase - This phase includes code enhancements, hardware and
software upgrades, system replacements, vendor certification, and other
associated changes.
4) Validation Phase - This phase includes testing and conversion of
system applications.
5) Implementation Phase - This phase includes certification of Year 2000
compliance and user acceptance.
The Awareness Phase and Assessment Phase have been completed. The
Corporation expects the Renovation, Validation and Implementation phases to
be substantially completed by the fourth quarter of 1998. In addition, an
assessment of the Year 2000 readiness of external entities with whom the
Corporation conducts its operations is ongoing.
<PAGE> 20
YEAR 2000 (continued)
The Corporation is continuing to communicate with all of its
significant obligors, counterparties, other credit clients and vendors to
determine the likely extent to which the Corporation may be affected by
third parties' Year 2000 plans and target dates. In this regard, while the
Corporation does not have a current expectation of a material loss as a
result of the Year 2000 problem, there can be no guarantee that the systems
of other companies or counterparties on which the Corporation relies will
be remediated on a timely basis, or that a failure to remediate by another
party, or a remediation or conversion that is incompatible with the
Corporation's systems, would not have a material adverse effect on the
Corporation. The Corporation is developing contingency plans in the event
that external parties fail to achieve their Year 2000 plans and target
dates, but there can be no assurance that any such contingency plans will
fully mitigate the effects of any such failure.
Based on information currently available, the Corporation expects its
Year 2000 expenditures for 1998 and over the next two years to be
approximately $180 million to $230 million. A significant portion of these
costs are not likely to be incremental costs to the Corporation, but rather
will represent the redeployment of existing information technology
resources. The Corporation incurred approximately $40 million for the
second quarter of 1998 and $75 million for the six months ended June 30,
1998 for Year 2000 expenditures.
The costs of the Year 2000 Program and the date on which the
Corporation plans to complete the Year 2000 modifications are based on
management's best current estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors.
However, there can be no guarantee that these estimates will be achieved
and actual results could differ materially from those plans.
EUROPEAN ECONOMIC & MONETARY UNION ("EMU")
The Corporation is also engaged in a global effort to manage potential
operational and other business issues from the introduction by the European
Economic & Monetary Union, of a new unified currency for eleven countries
in the European Community. EMU is scheduled to start on January 1, 1999.
An EMU program was set up in 1997 to manage, track and report on the
Corporation's worldwide effort with the goal of ensuring a smooth
transition across the full range of products and services offered by the
Corporation.
Based on information currently available, the Corporation expects its
EMU expenditures for 1998 and over the next two years to be approximately
$93 million to $115 million. The Corporation incurred approximately $11
million for the second quarter of 1998 and $18 million for the six months
ended June 30, 1998 for EMU expenditures. A significant portion of these
costs are not likely to be incremental costs to the Corporation, but rather
will represent the redeployment of existing operations and information
technology resources.
Success in the conversion to EMU is vital in ensuring that the
Corporation can provide a full set of services and products on January 1,
1999. In this regard, while the Corporation does not have a current
expectation of a material loss as a result of the implementation of EMU,
there can be no guarantee that other counterparties on which the
Corporation relies will achieve full EMU readiness. The Corporation is
developing contingency plans in the event that external parties fail to
achieve EMU readiness, but there can be no assurance that any such
contingency plans will fully mitigate the effects of any such failure.
<PAGE> 21
EARNINGS PER COMMON SHARE
Basic earnings per common share amounts were computed by subtracting
from net income the dividend requirements on preferred stock to arrive at
net income applicable to common stockholders and dividing this amount by
the average number of common shares outstanding during the period. The
average number of common shares outstanding is the sum of the average
number of shares of common stock outstanding and vested but undistributed
shares awarded under deferred stock plans.
Diluted earnings per share amounts were calculated by adding back to
net income applicable to common stockholders the interest expense on the
convertible subordinated debentures and dividing this amount by the average
number of common shares and dilutive potential common shares outstanding
during the period.
Diluted earnings per share assumes the conversion into common stock of
outstanding stock options, deferred stock awards (including restricted
stock awards) and convertible subordinated debentures, as computed under
the treasury stock method, if dilutive. Under the treasury stock method,
the number of incremental shares is determined by assuming the issuance of
the outstanding stock options, deferred stock awards, and shares from
convertible subordinated debentures, reduced by the number of shares
assumed to be repurchased from the issuance proceeds, using the average
market price for the period of the Parent Company's common stock.
The following table sets forth the computation of basic and diluted
earnings per share (in millions, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 1997
<S> <C> <C>
Numerator
Net income $164 $213
Preferred stock dividends (9) (12)
Numerator for basic earnings per share - net
income applicable to common stockholders 155 201
Effect of dilutive securities
Convertible subordinated debentures - 1
Numerator for diluted earnings per share - net
income applicable to common stockholders after
assumed conversions $155 $202
Denominator
Denominator for basic earnings per share -
weighted average shares outstanding 100.949 99.947
Effect of dilutive securities
Options 2.676 1.184
Convertible subordinated debentures .391 3.061
Deferred stock 2.629 2.005
Dilutive potential common shares 5.696 6.250
Denominator for diluted earnings per share -
adjusted weighted-average shares after
assumed conversions 106.645 106.197
Basic earnings per share $1.54 $2.00
Diluted earnings per share $1.46 $1.89
</TABLE>
<PAGE> 22
EARNINGS PER COMMON SHARE (continued)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 1997
<S> <C> <C>
Numerator
Net income $386 $413
Preferred stock dividends (20) (26)
Numerator for basic earnings per share - net
income applicable to common stockholders 366 387
Effect of dilutive securities
Convertible subordinated debentures - 2
Numerator for diluted earnings per share - net
income applicable to common stockholders after
assumed conversions $366 $389
Denominator
Denominator for basic earnings per share -
weighted average shares outstanding 101.154 100.241
Effect of dilutive securities
Options 2.244 1.436
Convertible subordinated debentures .427 3.100
Deferred stock 2.061 1.833
Dilutive potential common shares 4.732 6.369
Denominator for diluted earnings per share -
adjusted weighted-average shares after
assumed conversions 105.886 106.610
Basic earnings per share $3.62 $3.87
Diluted earnings per share $3.46 $3.65
</TABLE>
<PAGE> 23
BALANCE SHEET ANALYSIS
The following table highlights the changes in the balance sheet.
Since quarter-end balances can be distorted by one-day fluctuations, an
analysis of changes in the quarterly averages is provided to give a better
indication of balance sheet trends.
<TABLE>
<CAPTION>
CONDENSED AVERAGE BALANCE SHEETS
(in millions)
2nd Qtr 1st Qtr 4th Qtr
1998 1998 1997
<S> <C> <C> <C>
ASSETS
Interest-earning
Interest-bearing deposits with banks $ 4,112 $ 4,073 $ 6,211
Federal funds sold 4,237 3,899 4,950
Securities purchased under resale
agreements 26,501 19,945 23,074
Securities borrowed 28,660 21,749 16,588
Trading assets 32,228 30,097 30,447
Securities available for sale
Taxable 11,778 9,011 6,876
Exempt from federal income taxes 1,739 1,353 1,237
Total securities available for sale 13,517 10,364 8,113
Loans
Domestic offices 11,474 10,654 10,800
Foreign offices 11,023 10,697 9,580
Total loans 22,497 21,351 20,380
Customer receivables 1,612 1,566 1,612
Total interest-earning assets 133,364 113,044 111,375
Noninterest-earning
Cash and due from banks 2,475 1,903 1,476
Noninterest-earning trading assets 27,670 25,821 25,356
All other assets 11,373 10,724 10,694
Allowance for credit losses (1,004) (991) (979)
Total $173,878 $150,501 $147,922
LIABILITIES
Interest-bearing
Interest-bearing deposits
Domestic offices $24,811 $ 23,293 $ 21,881
Foreign offices 20,339 18,740 20,966
Total interest-bearing deposits 45,150 42,033 42,847
Trading liabilities 8,754 6,531 5,587
Securities loaned and securities sold
under repurchase agreements 34,834 24,947 24,200
Other short-term borrowings 22,873 20,019 20,078
Long-term debt 16,830 15,256 13,050
Trust preferred capital securities 1,474 1,473 1,472
Total interest-bearing liabilities 129,915 110,259 107,234
Noninterest-bearing
Noninterest-bearing deposits 4,310 3,639 3,366
Noninterest-bearing trading liabilities 22,753 19,731 20,803
All other liabilities 10,862 10,818 10,591
Total liabilities 167,840 144,447 141,994
PREFERRED STOCK OF SUBSIDIARY 304 262 -
STOCKHOLDERS' EQUITY
Preferred stock 593 658 688
Common stockholders' equity 5,141 5,134 5,240
Total stockholders' equity 5,734 5,792 5,928
Total $173,878 $150,501 $147,922
</TABLE>
<PAGE> 24
BALANCE SHEET ANALYSIS (continued)
Securities Available for Sale
The fair value, amortized cost and gross unrealized holding gains and
losses for the Corporation's securities available for sale are as follows.
<TABLE>
<CAPTION> June 30, March 31, December 31,
(in millions) 1998 1998 1997
<S> <C> <C> <C>
Fair value $12,105 $12,893 $8,081
Amortized cost 12,238 13,016 8,128
Excess of amortized cost over
fair value* $ (133) $ (123) $ (47)
* Components:
Unrealized gains $ 126 $ 38 $ 128
Unrealized losses (259) (161) (175)
$ (133) $ (123) $ (47)
</TABLE>
Preferred Stock
On June 2, 1998, the Corporation redeemed all 5,950,720 depositary
shares of its 7 5/8% Cumulative Preferred Stock, Series O. The shares
were redeemed at a redemption price of $25 per depositary share plus
accrued and unpaid dividends to the redemption date.
<PAGE> 25
BALANCE SHEET ANALYSIS (continued)
TRADING DERIVATIVES
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.
The following tables reflect the gross fair values and balance sheet
amounts of trading derivative financial instruments:
<TABLE>
<CAPTION>
At June 30, Average During
1998 2nd Qtr. 1998
(Liabi- (Liabi-
(in millions) Assets lities) Assets lities)
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 22,854 $(20,384) $ 22,457 $(20,115)
Interest Rate Contracts
Forwards 286 (277) 244 (232)
Options purchased 1,290 1,281
Options written (1,382) (1,473)
Foreign Exchange Rate Contracts
Spot and Forwards 12,270 (12,843) 12,785 (13,309)
Options purchased 1,570 1,412
Options written (1,345) (1,293)
Equity-related contracts 4,947 (5,972) 4,938 (5,773)
Commodity-related and other contracts 748 (758) 729 (740)
Exchange-Traded Options
Interest Rate 6 (9) 11 (11)
Foreign Exchange 35 (26) 19 (13)
Commodity 8 2 (8)
Equity 579 (381) 513 (384)
Total Gross Fair Values 44,593 (43,377) 44,391 (43,351)
Impact of Netting Agreements (28,106) 28,106 (28,179) 28,179
Less Allowance for Credit Losses (320) - (307) -
$ 16,167(1) $15,905
$(15,271)(1) $(15,172)
<FN>
(1) As reflected on the balance sheet in "Trading Assets" and "Trading
Liabilities."
</TABLE>
<PAGE> 26
TRADING DERIVATIVES (continued)
<TABLE>
<CAPTION>
At December 31, Average During
1997 4th Qtr. 1997
(Liabi- (Liabi-
(in millions) Assets lities) Assets lities)
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 20,793 $(19,103) $19,730 $(18,138)
Interest Rate Contracts
Forwards 48 (40) 46 (48)
Options purchased 1,147 1,149
Options written (1,355) (1,309)
Foreign Exchange Rate Contracts
Spot and Forwards 17,846 (18,031) 14,694 (14,416)
Options purchased 1,299 1,187
Options written (1,192) (1,075)
Equity-related contracts 4,082 (4,607) 3,919 (4,294)
Commodity-related and other contracts 597 (680) 742 (785)
Exchange-Traded Options
Interest Rate 4 (3) 8 (1)
Foreign Exchange (5) (4)
Equity 411 (318) 436 (330)
Total Gross Fair Values 46,227 (45,334) 41,911 (40,400)
Impact of Netting Agreements (28,269) 28,269 (25,249) 25,249
Less Allowance for Credit Losses (285) - (200) -
$17,673(1) $16,462
$(17,065)(1) $(15,151)
<FN>
(1) As reflected on the balance sheet in "Trading Assets" and "Trading
Liabilities."
</TABLE>
END-USER DERIVATIVES
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 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.
Total net end-user derivative unrealized gains were $246 million at
June 30, 1998 compared with an unrealized gain of $223 million at December
1997. The $23 million increase was primarily due to a decrease in interest
rates.
<PAGE> 27
END-USER DERIVATIVES (continued)
The following tables provide 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.
<TABLE>
<CAPTION>
Other Net invest-
short- ments in
Securities Interest- term Long- foreign
(in millions) available Other bearing borrow- term subsi-
June 30, 1998 for sale Loans assets deposits ings debt(1) diaries Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps
Pay Variable
Unrealized Gain $ 7 $ 2 $ - $146 $ 18 $507 $ - $ 680
Unrealized (Loss) (1) (4) - (19) (23) (52) - (99)
Pay Variable Net 6 (2) - 127 (5) 455 - 581
Pay Fixed
Unrealized Gain 2 9 - 1 - 5 - 17
Unrealized (Loss)(60) (176) - (35) (13) (25) - (309)
Pay Fixed Net (58) (167) - (34) (13) (20) - (292)
Total Unrealized
Gain 9 11 - 147 18 512 - 697
Total Unrealized
(Loss) (61) (180) - (54) (36) (77) - (408)
Total Net $(52) $(169) $ - $ 93 $(18) $435 $ - $ 289
Forward Rate Agreements
Unrealized Gain $ - $ - $ - $ - $ - $ - $ - $ -
Unrealized (Loss) - - - (1) - - - (1)
Net $ - $ - $ - $(1) $ - $ - $ - $(1)
Currency Swaps and Forwards
Unrealized Gain $13 $ - $ - $ - $14 $ 44 $ 53 $ 124
Unrealized (Loss) - - (2) - (9) (91) (61) (163)
Net $13 $ - $(2) $ - $ 5 $(47) $ (8)$ (39)
Other Contracts (2)
Unrealized Gain $ - $- $ - $1 $ - $ - $ - $ 1
Unrealized (Loss) (3) - (1) - - - - (4)
Net $(3) $- $(1) $1 $ - $ - $ - $(3)
Total Unrealized
Gain $ 22 $ 11 $ - $148 $ 32 $ 556 $ 53 $ 822
Total Unrealized
(Loss) (64) (180) (3) (55) (45) (168) (61) (576)
Total Net $(42) $(169) $(3) $ 93 $(13) $ 388 $ (8) $ 246
<FN>
(1) Includes trust preferred capital securities.
(2) Other contracts are principally equity swaps and collars.
</TABLE>
<PAGE> 28
END-USER DERIVATIVES (continued)
<TABLE>
<CAPTION>
Other Net invest-
short- ments in
Securities Interest- term Long- foreig
(in millions) available Other bearing borrow- term subsi-
Dec 31, 1997 for sale Loans assets deposits ings debt(1) diaries Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps
Pay Variable
Unrealized Gain $ 3 $ 8 $ - $ 61 $ 20 $ 524 $ - $ 616
Unrealized (Loss) - (3) - (13) (27) (94) - (137)
Pay Variable Net 3 5 - 48 (7) 430 - 479
Pay Fixed
Unrealized Gain 2 1 - 32 11 3 - 49
Unrealized (Loss) (51) (184) - (42) (30) (25) - (332)
Pay Fixed Net (49) (183) - (10) (19) (22) - (283)
Total Unrealized
Gain 5 9 - 93 31 527 - 665
Total Unrealized
(Loss) (51) (187) - (55) (57) (119) - (469)
Total Net $(46) $(178) $ - $ 38 $ (26) $ 408 $ - $ 196
Forward Rate Agreements
Unrealized Gain $ - $ - $ - $ - $ - $ - $ - $ -
Unrealized (Loss) - - - (1) - - - (1)
Net $ - $ - $ - $ (1) $ - $ - $ -$ (1)
Currency Swaps and Forwards
Unrealized Gain $ 14 $ 6 $ 2 $ 25 $ 34 $ 36 $ 40 $ 157
Unrealized (Loss) - - - - (16) (63) (46) (125)
Net $ 14 $ 6 $ 2 $ 25 $ 18$ (27) $ (6) $ 32
Other Contracts (2)
Unrealized Gain $ - $ 1 $ - $ - $ - $ - $ - $ 1
Unrealized (Loss) (4) - (1) - - - - (5)
Net $(4) $ 1 $(1) $ - $ - $ - $ - $ (4)
Total Unrealized
Gain $ 19 $ 16 $ 2 $118 $65 $ 563 $ 40 $ 823
Total Unrealized
(Loss) (55) (187) (1) (56) (73) (182) (46) (600)
Total Net $(36) $(171) $ 1 $ 62 $ (8) $ 381 $ (6) $ 223
<FN>
(1) Includes trust preferred capital securities.
(2) Other contracts are principally equity swaps and collars.
</TABLE>
<PAGE> 29
END-USER DERIVATIVES (continued)
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 were as follows ($ in
millions):
<TABLE>
<CAPTION>
At June 30, 1998
Notional
Amount Paying Variable Paying Fixed
Maturing Notional Receive Pay Notional Receive Pay Total
In: Amount Rate Rate Amount Rate Rate Notional
<S> <C> <C> <C> <C> <C> <C> <C>
1998 $57,201 5.83% 5.67% $3,749 5.73% 6.17% $60,950
1999-2000 30,698 5.94 5.79 5,007 5.60 6.05 35,705
2001-2002 3,754 6.44 5.70 1,279 5.30 9.13 5,033
2003 and
thereafter 9,134 6.37 5.33 1,697 5.26 6.41 10,831
Total $100,787 $11,732 $112,519
</TABLE>
All rates were those in effect at June 30, 1998. Variable rates are
primarily based on LIBOR and may change significantly, affecting future
cash flows.
<TABLE>
<CAPTION>
At December 31, 1997
Notional
Amount Paying Variable Paying Fixed
Maturing Notional Receive Pay Notional Receive Pay Total
In: Amount Rate Rate Amount Rate Rate Notional
<S> <C> <C> <C> <C> <C> <C> <C>
1998 $74,471 5.79% 5.84% $6,799 5.83% 6.00% $81,270
1999-2000 11,222 5.97 5.72 3,006 5.04 5.62 14,228
2001-2002 3,282 6.56 5.75 1,437 5.32 9.66 4,719
2003 and
thereafter 6,730 6.89 5.43 1,106 5.75 7.26 7,836
Total $95,705 $12,348 $108,053
</TABLE>
All rates were those in effect at December 31, 1997. Variable rates
are primarily based on LIBOR and may change significantly, affecting future
cash flows.
<PAGE> 30
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 ("FRB") risk-based capital
guidelines address the capital adequacy of bank holding companies and banks
(collectively, "banking organizations"). These guidelines include: a
definition of capital, a framework for calculating risk-weighted assets,
and minimum risk-based capital ratios to be maintained by banking
organizations. A banking organization's risk-based capital ratios are
calculated by dividing its qualified capital by its risk-weighted assets.
The FRB 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 Corporation's
1997 Annual Report on Form 10-K, on pages 20 and 59, provides a detailed
discussion of these guidelines and regulations.
The Corporation adopted the new market risk amendment to the risk-
based capital guidelines issued by the FRB and the Bank for International
Settlements in March 1997. The Corporation's 1997 Annual Report on Form 10-
K, on page 24, provides further detailed discussion on the market risk
amendment.
Based on their respective regulatory capital ratios as of June 30,
1998, both the Corporation and Bankers Trust Company ("BTCo") are well
capitalized, as defined in the regulations issued by the FRB and the other
federal bank regulatory agencies setting forth the general capital
requirements mandated by FDICIA, as applicable.
The Corporation's and BTCo's ratios are presented in the table below.
<TABLE>
<CAPTION>
FRB
Minimum To Be Well
Actual Actual for Capitalized
as of as of Capital Under
June 30, December 31, Adequacy Regulatory
1998 1997 Purposes Guidelines
<S> <C> <C> <C> <C>
Tier 1 Capital
Corporation 8.1% 8.3% 4.0% 6.0%
BTCo 9.5% 9.0% 4.0% 6.0%
Total Capital
Corporation 14.2% 14.1% 8.0% 10.0%
BTCo 13.5% 12.3% 8.0% 10.0%
Leverage
Corporation 3.7% 4.4% 3.0% 3.0%
BTCo 5.2% 5.4% 3.0%-5.0% 5.0%
</TABLE>
<PAGE> 31
REGULATORY CAPITAL (continued)
The following are the essential components of the Corporation's and
BTCo's risk-based capital ratios.
<TABLE>
<CAPTION>
Actual as of Actual as of
June 30, December 31,
(in millions) 1998 1997
<S> <C> <C>
Corporation
Tier 1 Capital $ 6,300 $ 6,431
Tier 2 Capital 4,319 4,138
Tier 3 Capital 400 400
Total Capital $11,019 $10,969
Total risk-weighted assets $77,406 $77,726
BTCo
Tier 1 Capital $6,606 $ 5,999
Tier 2 Capital 2,808 2,262
Total Capital $9,414 $ 8,261
Total risk-weighted assets $69,832 $66,975
</TABLE>
Comparing June 30, 1998 to December 31, 1997, the Corporation's Tier 1
Capital ratio declined 20 basis points due to the decrease in Tier 1
Capital of $131 million offset by the decrease in risk-weighted assets of
$320 million. Total Capital ratio increased 10 basis points because of the
increase in Total Capital of $50 million and the decrease in risk-weighted
assets. The Leverage ratio decreased by 70 basis points due to the
decrease in Tier 1 Capital along with an increase in the quarterly average
assets.
BTCo's Tier 1 Capital ratio increased 50 basis points as a result of
an increase in Tier 1 Capital of $607 million offset by an increase in risk-
weighted assets of $2.9 billion. Total Capital ratio increased by 120
basis points because of the increase in Total Capital of $1.2 billion
offset by the increase in risk-weighted assets. The Leverage ratio
decreased by 20 basis points as the increase in Tier 1 Capital did not
offset the increase in the quarterly average assets.
RISK MANAGEMENT
Risk management continues to be an area of focus and a core competency
of the Corporation. The risk management policies and practices described
in the Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 ("Annual Report") remain in effect. There has been
no material change in the Corporation's overall risk profile as characterized
by the quantitative information presented in the Risk
Management section of the Annual Report. The Corporation has maintained the
trading-related component of its risk at approximately its year-end level,
and it has maintained an average non-trading risk level approximately
equal to the 1997 average.
<PAGE> 32
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 policy is to maintain conservative
levels of liquidity designed to ensure that the Firm has the ability to
meet its obligations under reasonably foreseeable circumstances. The
fundamental objective is to ensure that, even in the event of a complete
loss of market access, the Corporation will be able to fund those assets
that cannot be liquidated on a timely basis. While the Corporation manages
its liquidity position on a day-to-day basis to meet its ongoing funding
needs at the lowest possible cost, the Firm's planning and management
process also encompasses contingency planning to address even the most
severe liquidity events.
One of the Corporation's principal liquidity strengths is its stock of
highly liquid assets; at June 30, 1998 and December 31, 1997, liquid assets
accounted for approximately 78 percent and 77 percent of the Corporation's
gross assets, respectively. An important component of these liquid assets
is the "liquidity warehouse" and the aggregate warehouse size relative to
maturing liabilities. The "liquidity warehouse" is defined as liquid
assets which are under the direct control of the Treasury/Funding area and
which can be liquidated immediately at current market value.
Interest Rate Sensitivity
Condensed interest rate sensitivity data for the Corporation at June
30, 1998 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
Non-
interest-
(in billions) Within 1 - 5 After bearing
June 30, 1998 1 year years 5 years funds Total
<S> <C> <C> <C> <C> <C>
Assets $ 115.9 $ 6.4 $ 6.7 $ 43.3 $ 172.3
Liabilities, preferred
stock of subsidiary
and preferred stock (109.8) (10.3) (5.9) (41.2) (167.2)
Common stockholders'
equity - - - (5.1) (5.1)
Effect of off-balance sheet
hedging instruments (22.9) 8.4 14.5 - -
Interest rate
sensitivity gap $ (16.8) $ 4.5 $15.3 $ (3.0) $ -
</TABLE>
<PAGE> 33
NONPERFORMING ASSETS
The components of cash basis loans, renegotiated loans, other real
estate and other nonperforming assets are shown below ($ in millions).
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
CASH BASIS LOANS
Domestic
Commercial and industrial $ 28 $ 49
Secured by real estate 82 92
Total domestic 110 141
International
Commercial and industrial 106 65
Secured by real estate 22 25
Other 19 9
Total international 147 99
Total cash basis loans $257 $240
Ratio of cash basis loans to total gross loans 1.1% 1.2%
Ratio of allowance for credit losses to cash
basis loans (1) 264% 291%
RENEGOTIATED LOANS $26 $25
OTHER REAL ESTATE $187 $194
OTHER NONPERFORMING ASSETS (primarily trading) $447 $38
Loans 90 days or more past due and still
accruing interest $- $-
<FN>
(1) Ratio was computed using the allowance for credit losses that had been
allocated to loans of $678 million and $699 million at June 30, 1998 and
December 31, 1997, respectively.
</TABLE>
<PAGE> 34
NONPERFORMING ASSETS (continued)
An analysis of the changes in the Corporation's total cash basis loans
during the first six months of 1998 follows (in millions).
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1997 $ 240
Net transfers to cash basis loans 101
Net transfers to other real estate (2)
Net paydowns (34)
Charge-offs (30)
Other (18)
Balance, June 30, 1998 $257
</TABLE>
The Corporation's total cash basis loans amounted to $257 million at
June 30, 1998, up $17 million, or 7 percent, from December 31, 1997.
Within cash basis loans, loans secured by real estate were $104
million and $117 million at June 30, 1998 and December 31, 1997,
respectively. Commercial and industrial loans to highly leveraged
borrowers were $23 million and $41 million at June 30, 1998 and December
31, 1997, respectively.
Other nonperforming assets (excluding other real estate) at June 30,
1998 were $447 million, up from $38 million at December 31, 1997. This
increase is mainly due to swaps with Asian counterparties, primarily
Indonesian.
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 June 30 of each year.
The rates used in determining the gross amount of interest which would have
been recorded at the original rate were not necessarily representative of
current market rates.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(in millions) 1998 1997
<S> <C> <C>
Domestic Loans
Gross amount of interest that would have
been recorded at original rate $4 $12
Less, interest, net of reversals, recognized
in interest revenue 1 2
Reduction of interest revenue 3 10
International Loans
Gross amount of interest that would have
been recorded at original rate 5 4
Less, interest, net of reversals, recognized
in interest revenue 2 -
Reduction of interest revenue 3 4
Total reduction of interest revenue $6 $14
</TABLE>
<PAGE> 35
ACCOUNTING DEVELOPMENTS
As of January 1, 1998, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") 127 which had deferred for one year the
effective date of some portions of SFAS 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The
deferred provisions related to collateral, repurchase agreements, dollar-
rolls, securities lending and similar transactions. The adoption as of
January 1, 1998 of the deferred portions of SFAS 125 did not have a
material impact on the Corporation's net income, stockholders' equity or
total assets.
On January 1, 1998, the Corporation adopted SFAS 130, "Reporting
Comprehensive Income." SFAS 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements.
SFAS 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 also requires that a company classify items
of other comprehensive income by their nature in a financial statement, and
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the stockholders'
equity section of a statement of financial position. All periods presented
have been restated to conform with SFAS 130.
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 establishes standards for
the way that public enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. SFAS 131 is effective for financial statement periods beginning
after December 15, 1997. Comparative information for earlier years is to
be restated. SFAS 131 need not be applied to interim financial statements
in the initial year of its application.
In February 1998, the FASB issued SFAS 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which revises and
standardizes pension and other postretirement benefit plan disclosures that
are to be included in the employers' financial statements. It does not
change the measurement or recognition rules for pensions and other
postretirement benefit plans. SFAS 132 is effective for financial
statement periods beginning after December 15, 1997.
In March 1998, the Accounting Standards Executive Committee of the
AICPA issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1), which
provides guidance as to when it is or is not appropriate to capitalize the
cost of software developed or obtained for internal use. SOP 98-1 is
effective for financial statements for fiscal years beginning after
December 15, 1998. The Corporation is in the process of evaluating the
potential impact of the new standard.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging
activities. It requires companies to recognize all derivatives on the
balance sheet as assets or liabilities measured at fair value. SFAS 133 is
effective on January 1, 2000 for calendar year companies. Depending on the
underlying risk management strategy, the accounting for these products
under the new standard could affect reported earnings and balance sheet
accounts. The Corporation is in the process of evaluating the potential
impact of the new standard.
<PAGE> 36
SUBSEQUENT EVENTS
On July 23, 1998, the Corporation announced that it would redeem all
3,967,397 depositary shares of its 7.50% Cumulative Preferred Stock, Series
P on August 17, 1998. The shares will be redeemed at a redemption price of
$25 per depositary share plus accrued and unpaid dividends to the
redemption date. Dividends on these shares will cease to accumulate on the
redemption date, unless the Corporation fails to pay the redemption price.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Risk Management" on page 31 for Quantitative and
Qualitative Disclosures About Market Risk.
FORWARD LOOKING STATEMENTS
Certain sections of this report contain forward looking statements and
can be identified by the use of such words as "anticipates," "expects," and
"estimates," and similar expressions. See "Year 2000" and "European
Economic & Monetary Union." These statements are subject to certain risks
and uncertainties. These risks and uncertainties could cause actual
results to differ materially from the current statements. See also
"Important Factors Relating to Forward Looking Statements" contained in the
Corporation's Annual Report.
<PAGE> 37
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(4) Instruments Defining the Rights of Security Holders,
Including Indentures
(v) - The Corporation hereby agrees to furnish to the
Commission, upon request, a copy of any instru-
ments defining the rights of security holders
issued by Bankers Trust Corporation or its
subsidiaries.
(10) Material Contracts
iii(a) - Management Contracts and Compensation Plans
(12) Statement re Computation of Ratios
(27) Financial Data Schedule
(b) Reports on Form 8-K - Bankers Trust Corporation filed two reports
on Form 8-K during the quarter ended June 30, 1998.
- The report dated April 23, 1998, filed the Corporation's Press
Release dated April 23, 1998, which announced earnings for the
quarter ending March 31, 1998.
- The report dated April 23, 1998 and filed on April 24, 1998,
reported that at the annual meeting of shareholders, the
shareholders approved amendments to the Corporation's restated
certificate of incorporation. On April 23, 1998, the Corporation
effected such amendments by filing with the Department of State
of the State of New York a certificate of amendment to
its restated certificate of incorporation.
<PAGE> 38
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on August 14, 1998.
BANKERS TRUST CORPORATION
BY: /S/ DAVID C. FISHER
DAVID C. FISHER
Controller and Principal
Accounting Officer
<PAGE>
BANKERS TRUST CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
EXHIBIT INDEX
(4) Instruments Defining the Rights of Security
Holders, Including Indentures
(v) - Long-Term Debt Indentures (a)
(10) Material Contracts
iii (a) Management Contracts and Compensation Plans
(1) Employment Agreement with Gene Ludwig
(12) Statement re Computation of Ratios
(a) - Computation of Consolidated Ratios of
Earnings to Fixed Charges
(b) - Computation of Consolidated Ratios of
Earnings to Combined Fixed Charges and
Preferred Stock Dividend Requirements
(27) Financial Data Schedule
[FN]
(a) 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 Bankers Trust Corporation or its subsidiaries.
Mr. Gene Ludwig
April 14, 1998
<PAGE>
<PAGE>
Exhibit 10 iii(a)(1)
April 14, 1998
Mr. Gene Ludwig
Comptroller of the Currency
Administrator of National Banks
250 E. St. SW, #9-1
Washington, DC 20219
Dear Gene:
It gives me great pleasure to extend to you the following offer
of employment as Vice Chairman of Bankers Trust New York
Corporation ("BT"). Your start date will be May 11,
1998.
You will be a member of the BT Management Committee, Chairman
of the BT Control Committee, and a member of the BT Asset
Liability Committee, and will have authority and
responsibilities commensurate with your position as Vice Chairman
of BT. Your initial responsibilities will include the
following functions at BT: Legal, Senior Control Officers
Group, Credit, Compliance and the administration of the Audit
Group. You will report to Frank Newman, Chief Executive Officer
of Bankers Trust. Your services shall be principally performed,
and your office shall be located, in New York City; as you know,
BT is a global firm, and your responsibilities will call for
travel as appropriate. In light of your responsibilities for
government regulatory matters, it is understood that you may spend on
average at least one day per week
in Washington D.C. and BT will provide you with the use of
adequate and appropriate office facilities in Washington D.C.
Your annual base salary will be $350,000 paid monthly in equal
installments. Subsequent increases in your annual base salary
will be subject to review in accordance with BT practice.
On your start date, you will receive a one-time payment of $1,000,000
(less mandatory tax deductions ) and a $100,000 credit to your ADCAP
retirement account. In addition, on your
start date, you are to receive an 80,000-share stock option
award and 10,000 shares of restricted stock.
The above restricted stock and stock options, as well as the
options granted to you in respect of services for 1998 and 1999,
as described below, are to be awarded under the terms and
conditions of BT's Stock Option and Stock Award Plan. The
exercise price of the stock options will be based on the average
of the high and low trading prices of BT's common stock on the
respective grant
<PAGE>
dates. In addition, stock options have a term of 10 years from
the date of grant and vest on the first anniversary of the date
of each grant. Your options become first exercisable upon
vesting and remain exercisable until the earlier of the tenth
anniversary of the respective grant date or three years
following your termination of employment with BT for any reason,
other than (i) your termination of employment by BT for "Cause"
(as defined below) or (ii) your voluntary termination of
employment without "Good Reason" (as defined below) which does
not occur during the one year period following a "Change of
Control" (as defined below).
Your restricted stock award will vest on the third anniversary of
your start date. Your ADCAP account is subject to the terms and
conditions of the ADCAP Plan.
For your services in 1998, you will receive the following in
addition to your base salary:
A guaranteed minimum bonus of $1,800,000, of which
$1,600,000 will be paid in cash, and $200,000 will be granted as
equity in one or more stock or stock-based compensation plans of
BT, consistent with that granted to other senior executives of
the firm at your level ("BT Equity"). The cash portion of this
guarantee is to be paid as follows: $500,000 before June 30,
1998, $500,000 before September 30, 1998 and the balance in
January 1999.
A minimum of a 60,000 share stock option award to be granted
on the normal award date (anticipated to be in January 1999).
A minimum of 60,000 units in the 1998 Partnership Equity Plan (PEP).
An additional minimum credit to your ADCAP account of $70,000.
For your services in 1999, you will receive the following in
addition to your base salary:
A guaranteed minimum bonus of $2,000,000, of which
$1,750,000 will be paid in cash, and $250,000 will be granted as
BT Equity.
A minimum of a 60,000 share stock option award to be granted
on the normal award date (anticipated to be in January 2000).
A minimum of 75,000 units in the 1999 PEP.
An additional minimum credit to your ADCAP account of $70,000.
For your services in 2000, in addition to your base salary, you
will receive a guaranteed minimum bonus of $2,000,000, of
which $1,750,000 will be paid in cash, and $250,000 will be
granted as BT Equity.
<PAGE>
The above bonus awards will be granted on the dates that BT
normally pays respective bonus awards to other members of the
Management Committee. In addition, any amount awarded for the
1998 through 2000 performance years in excess of the above
minimum guaranteed bonuses will be granted in whole or part as BT
Equity. The table below shows the cash/equity ratios for any
amount awarded in excess of the above guaranteed minimums:
Bonus award Cash/Equity Split
up to $200,000 over guaranteed minimum all equity
any additional amounts 75% cash/ 25%equity
For the performance years 2001 and beyond, the cash and equity
proportions of bonus awards granted to you will be commensurate
with that of other officers at your level.
BT will reimburse you or pay directly all reasonable
relocation expenses of you and your family. These reimbursements
will include:
- Temporary living expenses, for a period up to 12 months,
under the BT Relocation and Temporary Living Expense Reimbursement
Policy for Senior Level Executives. (See enclosure) In the event
permanent housing in the New York City area hasn't been acquired at
the end of this twelve month
period, the firm agrees to reimburse local housing rent and
utilities for up to an additional six months.
- Home buy-out of your existing residence based on the
average of two independent appraisals.
- House-hunting expenses to include all travel, hotel, ground
transportation and childcare expenses for you and your
spouse.
- Usual and customary closing costs on the sale of your
existing home (including brokerage commissions) and on the acquisition of
a primary residence in the New York City metropolitan area, including
two points on the purchase and any brokerage commissions paid by you
in connection with such purchase.
- Travel expenses and the cost of moving your household
goods, including reimbursement for travel expenses incurred by you in
connection with commuting from New York City to your current residence.
- A settling-in allowance of $100,000.
- All relocation-related expenses will be grossed up for tax
purposes.
<PAGE>
During the term of your employment, you will be entitled to
participate in all employee benefit plans, programs and
arrangements of BT on a basis no less favorable than is made
available to any other senior executives (including, without
limitation, each plan, program or arrangement providing for
retirement benefits, supplemental and excess retirement benefits,
annual and long-term incentive compensation, stock options, group
life insurance, accident and death insurance, medical and dental
insurance, sick leave, disability benefits and fringe benefits
and perquisites).
In addition, you will be entitled to five (5) weeks paid vacation
per calendar year and you shall receive prompt reimbursement from
BT or its subsidiaries for all reasonable out-of-pocket expenses
incurred by you in performing your duties for BT or its
subsidiaries .
You will be afforded the same indemnification protection
regarding directors and officers liability that BT provides to
its senior executive officers and directors. In addition, you
will be covered by any directors and officers liability policy
generally in force of BT's senior executive officers and
directors.
Our offer is contingent upon your completing our standard
employment package. The package includes an employment
application, a security data sheet, a personal information form,
and confirmation of employment authorization (which includes
completion the Immigration and Naturalization Services Form I-0).
You will also have to read and sign a Substance Abuse Policy
Employee Acknowledgment Form which is enclosed in the envelope
marked "Medical Evaluation."
In addition, it will be necessary for you to successfully
complete a medical evaluation, background investigation,
including but not limited to a credit investigation, and all
other components of BT's pre-employment screening process to BT's
satisfaction.
Please call me to arrange for your medical evaluation either at
BT Plaza or, if you wish, in your local area. You will be
eligible to start employment once you have received notification
of the successful completion of your medical evaluation and
credit investigation which we estimate will take 48 hours.
We recently reviewed our policies and procedures as they relate
to the handling of information of a proprietary or confidential
nature. Included in this policy is a requirement that all
employee and related accounts be maintained in designated
accounts from BT Alex. Brown, Fleet Corporation or Smith Barney,
Inc. Additional information pertaining to this policy can be
found in the Bankers Trust employee booklet entitled,
"Confidential Information, Insider Trading and Related Matters."
<PAGE>
In the event your employment with BT or its subsidiaries is
terminated (i) at any time by BT without Cause, (ii) at any time
by you with Good Reason, (iii) by you for any reason within one
year following a "Change of Control" (as defined below), or (iv)
as a result of your death or permanent disability, you will
receive as soon as practicable thereafter:
A) a lump sum cash payment equal to any portion of your
annual base salary which shall have accrued but remain unpaid
through your date of termination;
B) a lump sum cash payment equal to any cash bonus with
respect to the immediately preceding calendar year which shall
have accrued but remain unpaid as of the date of your
termination;
C) if such termination of employment occurs prior to the
fifth anniversary of your start date, a lump sum cash payment equal to
the greater of (X) $1,350,000 and (Y) the sum of
(i) $1,050,000, less all amounts previously paid as base salary
pursuant to this agreement, plus (ii) an amount equal to all
guaranteed bonuses described herein to the extent unpaid. You will also
be entitled to a lump sum cash payment equal to the value of any stock
options, PEP units
and ADCAP credits relating to 1998 and 1999 which had not been
awarded as of the date of termination.
D) also if such termination of employment occurs prior to the
fifth anniversary of your start date, immediate full vesting
of all restricted stock, PEP awards, stock options, ADCAP
credits, and other incentive awards, without loss of floor
protection with respect to PEP awards (the "incentive plan
awards"); and continued coverage under BT's medical, dental,
disability and life insurance plans, policies and programs on the
same basis enjoyed by you while employed by the BT until the
earlier of (A) the fifth anniversary of your start date or
(B) the date on which you become eligible for medical, dental and
life insurance coverage without a preexisting condition exclusion
by a subsequent employer; provided that the aggregate amount of
cash payments to be made to you in connection with your
termination of employment due to your death or permanent
disability shall be reduced by the aggregate present value of any
cash death or disability payments payable to you in connection
with such termination under BT's death and disability benefit
plans, programs and arrangements.
Your entitlement of the foregoing shall be without prejudice to
any other severance or termination benefits for which you may
eligible under any other plan, policy or arrangement of BT,
provided that BT shall be entitled to reduce the amount of cash
compensation otherwise payable to you under any other severance
arrangement maintained by BT by the aggregate amount of cash
compensation payable to you pursuant to the above. Any other
compensation and benefits following your termination of
employment under any of the circumstances described above will be
determined under the applicable plans, programs and arrangements
of BT.
<PAGE>
In the event your employment with BT is terminated at any time by
BT for Cause (as defined below) or is terminated by you without
Good Reason, other than during the one year period following a
Change of Control (a "Voluntary Resignation"), you will receive,
as soon as practicable thereafter, a lump sum cash payment equal
to the sum of:
(i) any portion of your annual base salary which shall
have accrued but remain unpaid through your date of termination;
plus
(ii) any cash bonus with respect to the immediately
preceding calendar year which shall have accrued but remain unpaid as of
the date of your termination.
Your entitlement to the foregoing shall be without prejudice to
any other severance or termination benefits for which you may be
eligible under any other plan, policy or arrangement of BT. Your
entitlement to any other compensation and benefits following your
termination of employment by BT for Cause or by you by Voluntary
Resignation will be determined under the applicable plans,
programs and arrangements of the parent or its affiliates.
For purposes of this agreement, the following definitions will
apply:
"Cause" will mean (i) conviction of a felony or commission
of an act rising to the level of a felony, including, but not
limited to, fraud, or (ii) your willful and continuing refusal or
failure to substantially perform your duties for BT following
BT's written notification to you of such alleged refusal or
failure and your subsequent refusal or failure within 30 days of
your receipt of such notice to perform or in good faith to
commence the performance of your duties for BT; provided
that in no event shall your ineffectiveness or incompetence in
the performance of your duties for BT or a bona fide disagreement
over corporate policy be deemed grounds for a termination for
Cause.
"Good Reason" will mean any material breach by BT of its
obligations to you hereunder including, without limitation, any
material reduction in your duties, authority, status or
responsibilities (whether or not accompanied by a change in
title) as described in this agreement or any requirement that you
report to any person or entity other than BT's Chief Executive
Officer, which breach is not cured by BT within 30 days following
written notice thereof from you.
"Change of Control" will mean the occurrence of one of the
events described in Sections 5(i) through 5(iv) in BT's 1997
Stock Option and Stock Award Plan (attached):
Upon a Change of Control, all restricted shares, PEP awards,
stock options, ADCAP credits, and other incentive awards then
held by you shall immediately vest and be distributed. You will
also be entitled to any other Change of Control compensation and
benefits that are provided to any other senior executives of BT.
Under BT's current Change of Control policy, in the event
<PAGE>
you are terminated by the firm or resign for "Good Reason", as
defined in the Change of Control Policy, within two years
following a Change of Control event (the "second trigger"), you
will be entitled to a severance benefit equal to three times the
combination of your base salary plus bonus. For these purposes,
bonus is defined to be the higher of the bonus paid in the year
immediately preceding the year in which the Change of Control
event or, if higher, the average bonus paid in the three years
preceding the year in which the Change of Control event occurs.
The maximum severance benefit payable in the event of a Change of
Control is $7.5 million. Notwithstanding this provision, any
severance benefit payable under this agreement if higher than
that under the Change of Control Policy shall be payable in lieu
of the above Change of Control severance benefit.
In addition, you will be entitled to protection with respect to
any potential excise taxes that might be imposed upon the
executives in connection with a Change of Control under section
4999 of the Internal Revenue Code, or otherwise. In the event it
shall be determined that any payments or benefits provided to you
by BT (including any accelerated vesting of compensation and
benefits) would be subject to the excise tax imposed by section
4999 of the Internal Revenue code or any similar tax payable
under any federal, state, local or other law (collectively, the
"Excise Tax"), then you shall be entitled to gross-up other
protection, if any, as may be provided by BT to any other senior
executive of BT.
You will not be required to mitigate any payments or benefits due
to you under this agreement by seeking alternative employment,
nor will any payments from BT be reduced by any amounts or
benefits received in connection with such alternative employment.
BT will reimburse you for (i) all reasonable legal fees and
disbursements incurred by you in connection with the negotiation
and preparation of this agreement and (ii) all reasonable fees
and disbursements incurred by you in connection with any dispute
over the enforcement of your rights under this agreement, but
only if you substantially prevail in such dispute.
All cash and stock compensation described in this agreement are
stated as pretax amounts and are subject to all required
reporting and tax withholding rules.
<PAGE>
Needless to say, we are all very enthusiastic at the prospect of
your joining Bankers Trust. Please sign and return one copy of
this letter upon your acceptance of our offer. Call me if you
have any questions regarding our offer.
Sincerely,
/S/ Mark Bieler
Mark Bieler
Agreed To:
/S/ Gene Ludwig_____________________
Gene Ludwig
Date:__________
<PAGE>
EXHIBIT 12(a)
BANKERS TRUST CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
(dollars in millions)
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Earnings:
1. Income before
income taxes and
cumulative effects
of accounting
changes $1,698 $ 987 $ 469 $1,131 $1,239 $ 536
2. Add: Fixed charges
excluding
capitalized
interest
(Line 10) 3,168 3,911 5,138 5,483 5,959 3,544
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 30 45 28 30 (117) 3
4. Earnings including
interest on deposits 4,836 4,853 5,579 6,584 7,315 4,077
5. Less: Interest on
deposits 1,013 965 1,360 1,355 2,076 1,191
6. Earnings excluding
interest on deposits $3,823 $3,888 $4,219 $5,229 $5,239 $2,886
Fixed Charges:
7. Interest Expense $3,137 $3,880 $5,105 $5,451 $5,926 $3,526
8. Estimated interest
component of net
rental expense 31 31 33 32 33 18
9. Amortization of debt
issuance expense - - - - - -
10. Total fixed charges
including interest on
deposits and excluding
capitalized interest 3,168 3,911 5,138 5,483 5,959 3,544
11. Add: Capitalized
interest - - - - - -
12. Total fixed charges 3,168 3,911 5,138 5,483 5,959 3,544
13. Less: Interest on
deposits
(Line 5) 1,013 965 1,360 1,355 2,076 1,191
14. Fixed charges excluding
interest on deposits $2,155 $2,946 $3,778 $4,128 $3,883 $2,353
Consolidated Ratios of Earnings
to Fixed Charges:
Including interest on
deposits
(Line 4/Line 12) 1.53 1.24 1.09 1.20 1.23 1.15
Excluding interest on
deposits
(Line 6/Line 14) 1.77 1.32 1.12 1.27 1.35 1.23
</TABLE>
<PAGE>
EXHIBIT 12(b)
BANKERS TRUST CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(dollars in millions)
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Earnings:
1. Income before
income taxes and
cumulative effect
of accounting
changes $1,698 $ 987 $ 469 $1,131 $1,239 $ 536
2. Add: Fixed charges
excluding
capitalized
interest
(Line 13) 3,168 3,911 5,138 5,483 5,959 3,544
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 30 45 28 30 (117) 3
4. Earnings including
interest on deposits 4,836 4,853 5,579 6,584 7,315 4,077
5. Less: Interest on
deposits 1,013 965 1,360 1,355 2,076 1,191
6. Earnings excluding
interest on deposits $3,823 $3,888 $4,219 $5,229 $5,239 $2,886
Preferred Stock Dividend Requirements:
7. Preferred stock dividend
requirements $ 23 $ 28 $ 51 $ 51 $ 49 $ 20
8. Ratio of income from
continuing operations
before income taxes to
income from continuing
operations after income
taxes 147% 144% 151% 148% 143% 139%
9. Preferred stock dividend
requirements on a pretax
basis $ 34 $ 40 $ 77 $ 75 $ 70 $ 28
Fixed Charges:
10. Interest Expense $3,137 $3,880 $5,105 $5,451 $5,926 $3,526
11. Estimated interest
component of net
rental expense 31 31 33 32 33 18
12. Amortization of debt
issuance expense - - - - - -
13. Total fixed charges
including interest on
deposits and excluding
capitalized interest 3,168 3,911 5,138 5,483 5,959 3,544
14. Add: Capitalized
interest - - - - - -
15. Total fixed charges 3,168 3,911 5,138 5,483 5,959 3,544
<PAGE>
16. Add: Preferred stock
dividend require-
ments - pretax
(Line 9) 34 40 77 75 70 28
17. Total combined fixed
charges and preferred
stock dividend require-
ments on a pretax
basis 3,202 3,951 5,215 5,558 6,029 3,572
18. Less: Interest on
deposits
(Line 5) 1,013 965 1,360 1,355 2,076 1,191
19. Combined fixed charges
and preferred stock
dividend requirements
on a pretax basis
excluding interest on
deposits $2,189 $2,986 $3,855 $4,203 $3,953 $2,381
Consolidated Ratios of Earnings
to Combined Fixed Charges
and Preferred Stock
Dividend Requirements:
Including interest on
deposits
(Line 4/Line 17) 1.51 1.23 1.07 1.18 1.21 1.14
Excluding interest on
deposits
(Line 6/Line 19) 1.75 1.30 1.09 1.24 1.32 1.21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Bankers
Trust Corporation and Subsidiaries consolidated statement of condition at June
30, 1998 and the consolidated statement of income for the six months ended June
30, 1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2221
<INT-BEARING-DEPOSITS> 1645
<FED-FUNDS-SOLD> 3445
<TRADING-ASSETS> 63449<F1>
<INVESTMENTS-HELD-FOR-SALE> 12105
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 22911
<ALLOWANCE> 678
<TOTAL-ASSETS> 172311
<DEPOSITS> 46543
<SHORT-TERM> 53106<F2>
<LIABILITIES-OTHER> 12116<F3>
<LONG-TERM> 19916
0
493
<COMMON> 105
<OTHER-SE> 4961
<TOTAL-LIABILITIES-AND-EQUITY> 172311
<INTEREST-LOAN> 832
<INTEREST-INVEST> 338
<INTEREST-OTHER> 1819<F4>
<INTEREST-TOTAL> 4294
<INTEREST-DEPOSIT> 1191
<INTEREST-EXPENSE> 3526
<INTEREST-INCOME-NET> 768
<LOAN-LOSSES> 120<F5>
<SECURITIES-GAINS> 44
<EXPENSE-OTHER> 2645
<INCOME-PRETAX> 536
<INCOME-PRE-EXTRAORDINARY> 536
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 386
<EPS-PRIMARY> 3.62
<EPS-DILUTED> 3.46
<YIELD-ACTUAL> 1.28
<LOANS-NON> 257
<LOANS-PAST> 0
<LOANS-TROUBLED> 26
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 997
<CHARGE-OFFS> 115
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 1011<F6>
<ALLOWANCE-DOMESTIC> 117
<ALLOWANCE-FOREIGN> 304
<ALLOWANCE-UNALLOCATED> 257
<FN>
<F1>Trading assets are net of allowance of 320.
<F2>Short-term borrowings include the following:
Securities loaned and securities sold under
repurchase agreements 26057
Other short-term borrowings 27049
Total 53106
<F3>Other liabilities include the following:
Accounts payable and accrued expenses 5866
Other liabilities 5738
Acceptances outstanding 512
Total 12116
<F4>Other interest income includes the following:
Interest-bearing deposits with banks 183
Federal funds sold 112
Securities purchased under resale agreements 789
Securities borrowed 664
Customer receivables 71
Total 1819
<F5>Amount represents credit loss provision - trading
<F6>The Corporation has allocated its total allowance for credit losses
as follows: 678 as a reduction of loans, 320 as a reduction of trading
assets, and 13 as other liabilities related to all other credit related items.
</FN>
</TABLE>
