<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 March 31, 1999
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 April 30, 1999: Common Stock, $1 par value,
97,683,115 shares.
<PAGE> 1
BANKERS TRUST CORPORATION
MARCH 31, 1999 FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income
Three Months Ended March 31, 1999 and 1998 2
Consolidated Statement of Comprehensive Income
Three Months Ended March 31, 1999 and 1998 3
Consolidated Balance Sheet
At March 31, 1999 and December 31, 1998 4
Consolidated Statement of Changes in Stockholders'
Equity
Three Months Ended March 31, 1999 and 1998 5
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1999 and 1998 6
Consolidated Schedule of Net Interest Revenue
Three Months Ended March 31, 1999 and 1998 7
In the opinion of management, all material adjustments
necessary for a fair presentation of the financial position
and results of operations for the interim periods presented
have been made. All such adjustments were of a normal
recurring nature. The results of operations for the three
months ended March 31, 1999 are not necessarily indicative
of the results of operations for the full year or any other
interim period.
The financial statements included in this Form 10-Q
should be read with reference to the Bankers Trust
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 33
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 35
Item 6. Exhibits and Reports on Form 8-K 36
SIGNATURE 37
<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 MARCH 31, 1999 1998 (Decrease)
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $1,511 $1,989 $ (478)
Interest expense 1,250 1,587 (337)
Net interest revenue 261 402 (141)
Provision for credit losses-loans - - -
Net interest revenue after provision for
credit losses-loans 261 402 (141)
NONINTEREST REVENUE
Trading 340 191 149
Fiduciary and funds management 271 261 10
Corporate finance fees 197 331 (134)
Other fees and commissions 211 160 51
Net revenue from equity investments 99 131 (32)
Securities available for sale gains (losses) (4) (6) 2
Insurance premiums 48 69 (21)
Other 87 94 (7)
Total noninterest revenue 1,249 1,231 18
NONINTEREST EXPENSES
Salaries and commissions 373 336 37
Incentive compensation and employee benefits 432 497 (65)
Agency and other professional service fees 91 105 (14)
Communication and data services 66 54 12
Occupancy, net 58 46 12
Furniture and equipment 69 54 15
Travel and entertainment 30 37 (7)
Provision for policyholder benefits 63 85 (22)
Other 119 111 8
Total noninterest expenses 1,301 1,325 (24)
Income before income taxes 209 308 (99)
Income taxes 69 86 (17)
NET INCOME $ 140 $ 222 $ (82)
NET INCOME APPLICABLE TO COMMON STOCK $ 134 $ 211 $ (77)
Cash dividends declared per common share $1.00 $1.00 $-
EARNINGS PER COMMON SHARE:
BASIC $1.33 $2.08 $(0.75)
DILUTED $1.30 $2.01 $(0.71)
<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 COMPREHENSIVE INCOME
(in millions)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 1998
<S> <C> <C>
NET INCOME $ 140 $222
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax* (30) (9)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period, net of tax** - (20)
Reclassification adjustment for realized (gains)
losses, net of tax*** - -
Total other comprehensive income (loss) (30) (29)
COMPREHENSIVE INCOME $110 $193
<FN>
* Amounts are net of an income tax benefit of $23 million and $9 million
for the three months ended March 31, 1999 and March 31, 1998, respectively.
** Amounts are net of income tax expense (benefit) of $16 million and
$(16) million for the three months ended March 31, 1999 and March 31, 1998,
respectively.
*** Amounts are net of an income tax benefit of $4 million and $6 million
for the three months ended March 31, 1999 and March 31, 1998, respectively.
</TABLE>
<PAGE> 4
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in millions, except par value)
<TABLE>
<CAPTION>
March 31, December 31,
1999* 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,753 $ 2,837
Interest-bearing deposits with banks 1,187 2,382
Federal funds sold 2,475 2,484
Securities purchased under resale
agreements 21,249 17,053
Securities borrowed 18,487 14,709
Trading assets:
Government securities 6,064 5,731
Corporate debt securities 4,415 5,519
Equity securities 5,657 5,810
Swaps, options and other derivatives 11,223 17,376
Other trading assets 11,820 11,734
Total trading assets 39,179 46,170
Securities available for sale 10,371 12,748
Loans, net of allowance for credit losses
of $603 at March 31, 1999 and $652
at December 31, 1998 19,690 22,633
Customer receivables 1,854 1,524
Accounts receivable and accrued interest 3,677 3,815
Other assets 7,184 6,760
Total $127,106 $133,115
LIABILITIES
Noninterest-bearing deposits
Domestic offices $ 2,521 $ 2,784
Foreign offices 1,790 1,689
Interest-bearing deposits
Domestic offices 15,871 18,259
Foreign offices 16,155 14,602
Total deposits 36,337 37,334
Trading liabilities:
Securities sold, not yet purchased
Government securities 5,567 4,149
Equity securities 6,066 6,458
Other trading liabilities 426 789
Swaps, options and other derivatives 10,536 15,857
Total trading liabilities 22,595 27,253
Securities loaned and securities sold under
repurchase agreements 15,889 17,420
Other short-term borrowings 18,438 16,313
Accounts payable and accrued expenses 5,277 5,210
Other liabilities, including allowance for
credit losses of $18 at March 31, 1999
and December 31, 1998 5,351 5,466
Long-term debt not included in risk-based capital 13,939 14,890
Long-term debt included in risk-based capital 3,122 3,113
Mandatorily redeemable capital securities of
subsidiary trusts holding solely junior
subordinated deferrable interest debentures
included in risk-based capital 1,421 1,420
Total liabilities 122,369 128,419
STOCKHOLDERS' EQUITY
Preferred stock 394 394
Common stock, $1 par value
Authorized, 300,000,000 shares
Issued, 105,380,175 shares at March 31, 1999 and
at December 31, 1998 105 105
Capital surplus 1,617 1,613
Retained earnings 3,452 3,504
Common stock in treasury, at cost:
1999, 7,726,558 shares;
1998, 9,666,055 shares (828) (1,056)
Other stockholders' equity 490 599
Accumulated other comprehensive income:
Net unrealized gains (losses) on securities available
for sale, net of taxes (65) (65)
Foreign currency translation, net of taxes (428) (398)
Total stockholders' equity 4,737 4,696
Total $127,106 $133,115
<FN>
* Unaudited
Certain prior period amounts have been reclassified to conform to the
current presentation.
</TABLE>
<PAGE> 5
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in millions)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 1998
<S> <C> <C>
PREFERRED STOCK
Balance, January 1 and March 31 $ 394 $ 658
COMMON STOCK
Balance, January 1 and March 31 105 105
CAPITAL SURPLUS
Balance, January 1 1,613 1,563
Common stock distributed under employee
benefit plans 4 29
Balance, March 31 1,617 1,592
RETAINED EARNINGS
Balance, January 1 3,504 4,202
Net income 140 222
Cash dividends declared
Preferred stock (5) (11)
Common stock (98) (98)
Treasury stock distributed under employee benefit plans (89) (90)
Balance, March 31 3,452 4,225
COMMON STOCK IN TREASURY, AT COST
Balance, January 1 (1,056) (889)
Purchases of stock (66) (143)
Treasury stock distributed under employee benefit plans 294 229
Balance, March 31 (828) (803)
COMMON STOCK ISSUABLE - STOCK AWARDS
Balance, January 1 817 901
Deferred stock awards granted, net 560 77
Deferred stock distributed (207) (89)
Balance, March 31 1,170 889
DEFERRED COMPENSATION - STOCK AWARDS
Balance, January 1 (218) (438)
Deferred stock awards granted, net (559) (80)
Amortization of deferred compensation, net 97 87
Balance, March 31 (680) (431)
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, January 1 (398) (362)
Translation adjustments (53) (18)
Income taxes applicable to translation adjustments 23 9
Balance, March 31 (428) (371)
SECURITIES VALUATION ALLOWANCE
Balance, January 1 (65) (32)
Change in unrealized net gains (losses), after
applicable income taxes and minority interest - (20)
Balance, March 31 (65) (52)
TOTAL STOCKHOLDERS' EQUITY, MARCH 31 $4,737 $5,812
</TABLE>
<PAGE> 6
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 140 $ 222
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for policyholder benefits 63 85
Deferred income taxes, net 51 (23)
Depreciation and other amortization
and accretion 183 102
Other, net 6 17
Earnings adjusted for noncash charges and credits 443 403
Net change in:
Trading assets 9,804 (3,159)
Trading liabilities (4,519) 1,805
Receivables and payables from securities
transactions 355 (109)
Customer receivables (330) (25)
Other operating assets and liabilities, net (1,455) (87)
Securities available for sale losses 4 6
Net cash provided by (used in) operating activities 4,302 (1,166)
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits with banks 1,204 2,195
Federal funds sold 9 (248)
Securities purchased under resale agreements (4,200) (3,679)
Securities borrowed (3,778) (6,081)
Loans 2,892 (2,059)
Securities available for sale:
Purchases (3,354) (6,373)
Maturities and other redemptions 476 441
Sales 2,770 424
Acquisitions of premises and equipment (40) (72)
Other, net (290) 1,466
Net cash used in investing activities (4,311) (13,986)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in:
Deposits (965) 3,567
Securities loaned and securities sold under
repurchase agreements (1,576) 4,035
Other short-term borrowings 2,148 5,299
Issuances of long-term debt 411 1,983
Repayments of long-term debt (935) (510)
Issuance of preferred stock of subsidiary - 304
Purchases of treasury stock (66) (143)
Cash dividends paid (101) (108)
Other, net 12 44
Net cash (used in) provided by financing activities (1,072) 14,471
Net effect of exchange rate changes on cash (3) (3)
NET DECREASE IN CASH AND DUE FROM BANKS (1,084) (684)
Cash and due from banks, beginning of period 2,837 2,188
Cash and due from banks, end of period $ 1,753 $ 1,504
Interest paid $ 1,167 $ 1,372
Income taxes paid, net $14 $165
Noncash investing activities $16 $(15)
Noncash financing activities:
Conversion of debt to equity $- $9
<FN>
Certain prior period amounts have been reclassified to conform to the
current presentation.
</TABLE>
<PAGE> 7
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase
1999 1998 (Decrease)
<S> <C> <C> <C>
INTEREST REVENUE
Interest-bearing deposits with banks $ 60 $ 98 $ (38)
Federal funds sold 26 52 (26)
Securities purchased under resale agreements 294 330 (36)
Securities borrowed 223 275 (52)
Trading assets 329 634 (305)
Securities available for sale
Taxable 142 137 5
Exempt from federal income taxes 12 10 2
Loans 394 418 (24)
Customer receivables 31 35 (4)
Total interest revenue 1,511 1,989 (478)
INTEREST EXPENSE
Interest-bearing deposits
Domestic offices 193 312 (119)
Foreign offices 229 259 (30)
Trading liabilities 68 99 (31)
Securities loaned and securities sold under
repurchase agreements 343 386 (43)
Other short-term borrowings 228 286 (58)
Long-term debt 161 215 (54)
Trust preferred capital securities 28 30 (2)
Total interest expense 1,250 1,587 (337)
NET INTEREST REVENUE $ 261 $ 402 $ (141)
</TABLE>
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PROPOSED MERGER WITH DEUTSCHE BANK
On April 27, 1999, the shareholders of Bankers Trust Corporation voted
to approve the Corporation's merger with Deutsche Bank. On May 6, 1999,
the New York State Banking Board approved the merger. The merger, which is
expected to be completed in the second quarter of 1999, is subject to the
approval of regulatory authorities in a variety of other jurisdictions.
On the day of the closing of the merger, the change-in-control ("COC")
date, all employee deferred compensation amounts to the extent unvested
will be vested in full. Bankers Trust Corporation will recognize such
amounts, which are estimated to be approximately $500 million after-tax, as
compensation expense on the COC date in the Consolidated Statement of
Income. Employer contributions to individual employee retirement accounts
will also vest, to the extent unvested, and remain in the employees'
accounts. In addition, all bonus-eligible employees who are active
employees of the Corporation on the date of COC will be eligible to receive
a pro rata bonus paid in cash for that portion of the 1999 performance year
ending on the COC date. The pro rata bonus will be based on the greater of
an employee's total (cash and deferred stock) 1998 performance bonus or the
employee's average total 1996, 1997 and 1998 performance bonus awards. Any
1999 performance bonus (which is awarded in the year 2000) will be reduced
by the amount of such pro rata bonus. It is estimated that this pro rata
payout will result in an after-tax charge of approximately $130 million to
recognize the cash payment of bonuses that otherwise would have been
awarded as deferred stock and amortized over a three-year vesting period.
RESULTS OF OPERATIONS
Bankers Trust Corporation (the "Parent Company") and subsidiaries
(collectively, the "Corporation", or the "Firm") earned $140 million for
the three months ended March 31, 1999, or $1.30 diluted earnings per share.
In the first quarter of 1998, the Corporation earned $222 million, or $2.01
diluted earnings per share.
BUSINESS SEGMENT RESULTS
During the first quarter of 1999, the Corporation reorganized its
business segments. Businesses previously included in the Emerging Markets
Group have been transferred to other segments, primarily the Restructuring
Portfolio. The Restructuring Portfolio business segment was formed in the
first quarter of 1999 and includes the Corporation's exposures (loans,
securities, derivatives) that require special monitoring. These exposures
are virtually all in emerging markets. The Corporation intends to continue
to reduce exposure in the Restructuring Portfolio over a reasonable
timeframe.
In addition, the securities brokerage and portfolio management
activities for high net worth individuals, previously included in the
Private Client Services Group, have been transferred to Investment Banking.
Traditional banking services for high net worth individuals, previously
included in Private Client Services Group, are included in Other Business
Segments.
Prior period results have been restated for changes in organizational
structure.
<PAGE> 9
BUSINESS SEGMENT RESULTS (continued)
The following tables present results by Business Segment:
<TABLE>
<CAPTION> Total Non- Pretax Net
Three Months Ended March 31, 1999 Total Net interest Income/ Income/
(in millions) Revenue* Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Investment Banking $ 655 $ 548 $ 107 $ 72
Trading & Sales 292 164 128 86
Global Institutional Services 258 223 35 24
Australia/New Zealand/Int'l
Funds Mgmt 161 120 41 27
Restructuring Portfolio 18 141 (123) (82)
Other Business Segments 65 60 5 3
Total Business Segments 1,449 1,256 193 130
Corporate Items 61 45 16 10
Total $1,510 $1,301 $ 209 $140
<FN>
* There were no material intersegment revenues among the business segments.
</TABLE>
<TABLE>
<CAPTION>
Total Non- Pretax Net
Three Months Ended March 31, 1998 Total Net interest Income/ Income/
(in millions) Revenue* Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Investment Banking $ 816 $ 567 $249 $180
Trading & Sales 226 137 89 64
Global Institutional Services 255 227 28 20
Australia/New Zealand/Int'l
Funds Mgmt 145 107 38 27
Restructuring Portfolio 134 190 (56) (40)
Other Business Segments 72 68 4 2
Total Business Segments 1,648 1,296 352 253
Corporate Items (15) 29 (44) (31)
Total $1,633 $1,325 $308 $222
<FN>
* There were no material intersegment revenues among the business segments.
</TABLE>
The Investment Banking business recorded net income of $72 million in
the first quarter of 1999 compared to net income of $180 million in the
prior year quarter. The current quarter reflected lower revenue from
corporate finance activities and private equity investments as compared to
the prior year quarter. The year-over-year decrease was partially offset
by higher fees for brokerage services.
Trading & Sales recorded net income of $86 million in the first
quarter of 1999, compared to net income of $64 million in the 1998 first
quarter. The year-over-year increase was primarily attributable to equity
earnings in the Corporation's investment in Long-Term Capital Management,
L.P. Excluding this equity pick-up, Trading & Sales results declined
reflecting significant reductions in the Corporation's risk positions.
Global Institutional Services contributed $24 million of net income in
the first quarter of 1999, up $4 million from the 1998 first quarter.
Net income of the Australia/New Zealand/International Funds Management
business was $27 million in the first quarter of 1999, unchanged from the
first quarter of 1998.
<PAGE> 10
BUSINESS SEGMENT RESULTS (continued)
Restructuring Portfolio net loss in the first quarter of 1999 was $82
million, compared with a net loss of $40 million in the first quarter of
1998. The current quarter reflected the Corporation's reductions in risk
in emerging markets.
Other business segments include the income and expenses of smaller
businesses that are not included in the main business segments. Corporate
Items include revenue and expenses that have not been allocated to business
segments.
The following table reconciles total net income for business segments
to consolidated net income (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 1998
<S> <C> <C>
Total net income reported for business segments $130 $253
Earnings associated with unassigned capital 3 13
Loan net charge-offs in excess of the total provision
for credit losses-loans 32 3
Unallocated costs of corporate staff (9) (15)
Other unallocated amounts (16) (32)
Consolidated net income $140 $222
</TABLE>
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
March 31, Increase
1999 1998 (Decrease)
<S> <C> <C> <C>
NET INTEREST REVENUE (in millions)
Book basis $ 261 $ 402 $ (141)
Tax equivalent adjustment 9 9 -
Fully taxable basis $ 270 $ 411 $ (141)
AVERAGE BALANCES (in millions)
Interest-earning assets $100,160 $113,044 $(12,884)
Interest-bearing liabilities 97,016 110,259 (13,243)
Earning assets financed by
noninterest-bearing funds $ 3,144 $ 2,785 $ 359
AVERAGE RATES (fully taxable basis)
Yield on interest-earning assets 6.15% 7.17% (1.02)%
Cost of interest-bearing liabilities 5.23 5.84 (.61)
Interest rate spread .92 1.33 (.41)
Contribution of noninterest-bearing
funds .17 .14 .03
Net interest margin 1.09% 1.47% (.38)%
</TABLE>
<PAGE> 11
REVENUE (continued)
Net interest revenue for the first quarter of 1999 totaled $261
million, down $141 million, or 35 percent, from the first quarter of 1998.
The $141 million decrease in net interest revenue was primarily due to a
$122 million decrease in trading-related net interest revenue, which
totaled $77 million for the first quarter of 1999. Nontrading-related net
interest revenue totaled $184 million for the first quarter of 1999 versus
$203 million for the comparable period in 1998.
In the first quarter of 1999, the interest rate spread was 0.92
percent compared to 1.33 percent in the prior year period. Net interest
margin decreased to 1.09 percent from 1.47 percent. The yield on interest-
earning assets decreased by 102 basis points and the cost of interest-
bearing liabilities declined by 61 basis points. Average interest-earning
assets totaled $100.2 billion for the first quarter of 1999, down $12.9
billion from the same period in 1998. The decrease was primarily
attributable to declines in trading assets and securities borrowed.
Average interest-bearing liabilities totaled $97.0 billion for the first
quarter of 1999, down $13.2 billion from the same period in 1998. The
decrease was primarily attributable to a decline in interest-bearing
deposits.
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 for
the first quarter of 1999 totaled $417 million, up $27 million from the
first quarter of 1998.
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 March 31, 1999
Interest rate risk $135 $104 $239
Foreign exchange risk 106 - 106
Equity and commodity risk 99 (27) 72
Total $340 $ 77 $417
Three months ended March 31, 1998
Interest rate risk $ 3 $180 $183
Foreign exchange risk 117 - 117
Equity and commodity risk 71 19 90
Total $191 $199 $390
</TABLE>
<PAGE> 12
REVENUE (continued)
Interest Rate Risk - The increase is primarily due to mark-to-mark
valuation adjustments to trading assets for widening counterparty credit
spreads in Asia recorded in the first quarter of 1998.
Foreign Exchange Risk - The decrease in foreign exchange revenue is
primarily related to losses incurred in the Asian foreign exchange markets.
Equity and Commodity Risk - The decrease resulted as the first quarter
of 1998 contained stronger revenue from equity arbitrage activities.
Noninterest Revenue (Excluding Trading)
Fiduciary and funds management revenue was $271 million in the first
quarter of 1999, up $10 million from the prior year period. The increase
was primarily due to higher client processing fees and improved funds
management revenue. At March 31, 1999, assets under management were $378
billion compared to $334 billion at March 31, 1998.
Corporate finance fees of $197 million decreased $134 million from the
$331 million earned in the first quarter of 1998. The decline is primarily
attributable to lower revenue from underwriting and loan syndication
activities.
Other fees and commissions of $211 million increased $51 million from
the prior year quarter. Increased customer trading activity primarily due
to the acquisition of NatWest Markets' European equities business in the
second quarter of 1998 resulted in higher fees for brokerage services.
Net revenue from equity investments decreased $32 million from the
prior year quarter. The current quarter reflected lower gains on direct
equity investments.
Insurance premium revenue decreased $21 million from the prior year
quarter. The decrease reflects the general decline in the Chilean
annuities market.
<PAGE> 13
PROVISION AND ALLOWANCES FOR CREDIT LOSSES
The allowance for credit losses-loans represents management's estimate
of probable loan losses that have occurred as of the date of the financial
statements. For a more detailed discussion of this topic, refer to page 31
of the Corporation's 1998 Annual Report on Form 10-K.
The Corporation is in receipt of a letter from the Securities and
Exchange Commission's Office of the Chief Accountant related to the
Corporation's policies and procedures for determining the allowance for
credit losses-loans. As a result, the Corporation is undertaking a
comprehensive review of its accounting policies and procedures related to
the determination of the allowance for credit losses-loans to ensure that
they are appropriate within the framework of generally accepted accounting
principles. These policies and procedures will be revised, as necessary,
to improve and ensure a systematic, consistently applied and adequately
documented process. More specifically, the Corporation intends to revise
certain procedures and enhance its documentation governing the estimation
of credit losses and related charge-offs.
In November 1998, the Securities and Exchange Commission, Federal
Deposit Insurance Corporation, Federal Reserve Board, Office of the
Comptroller of the Currency, and Office of Thrift Supervision (the
"Agencies") issued a Joint Interagency Statement which underscored the
requirement that depository institutions record and report their allowance
for loan and lease losses in accordance with generally accepted accounting
principles. In March 1999, the Agencies announced the establishment of a
Joint Working Group to gain a better understanding of the procedures and
processes, including sound practices, used by banking organizations to
determine the allowance for credit losses with the objective of issuing
parallel guidelines on the appropriate methodologies and supporting
documentation and enhanced disclosures regarding the allowance for credit
losses.
In April 1999, the FASB staff issued a Viewpoints article,
"Application of FASB Statements 5 and 114 to a Loan Portfolio". The
article describes the requirements of these Statements and how they relate
to each other and responds to questions about the detailed application of
those Statements to a loan portfolio. The Corporation will continue to
keep abreast of developments in this area and will revise its procedures
accordingly.
The provisions for credit losses and the other changes in the
allowances for credit losses are shown below (in millions).
<TABLE>
<CAPTION>
Quarter Ended
March 31,
Allowances for credit losses 1999 1998
<S> <C> <C>
Loans
Balance, beginning of quarter $652 $699
Provision for credit losses - -
Net charge-offs
Charge-offs 60 7
Recoveries 11 3
Total net charge-offs 49 4
Balance, end of quarter $603 $695
Other liabilities
Balance, beginning of quarter $18 $13
Provision for credit losses - -
Balance, end of quarter $18 $13
</TABLE>
<PAGE> 14
PROVISION AND ALLOWANCES FOR CREDIT LOSSES (continued)
Impaired loans under SFAS 114, were $375 million and $418 million at
March 31, 1999 and December 31, 1998, respectively. Included in these
amounts were $304 million and $295 million of loans which required a
valuation allowance of $97 million and $61 million at those same dates,
respectively.
EXPENSES
As compared to the first quarter of 1998, salaries and commissions
expense increased $37 million, or 11 percent, primarily due to an increase
in the average number of employees and higher annual salaries.
Incentive compensation and employee benefits decreased $65 million, or
13 percent, from the prior year quarter due to lower performance-based pay
partially offset by the amortization of employee stock awards granted in
1999 for 1998 performance.
The provision for policyholder benefits expense decreased $22 million
from the prior year quarter. The decrease reflects the general decline in
the Chilean annuities market.
INCOME TAXES
Income tax expense for the first quarter of 1999 amounted to $69
million, compared to $86 million in the first quarter of 1998. The
effective tax rate was 33 percent for the current quarter and 28 percent
for the prior year quarter.
YEAR 2000 READINESS DISCLOSURE
As discussed on page 18 in the Corporation's 1998 Annual Report on
Form 10-K, the Corporation maintains a firm-wide program (the "Year 2000
Program") to prepare its computer systems, applications and infrastructure
for properly processing dates after December 31, 1999. The Corporation's
Year 2000 Program is proceeding on schedule in accordance with regulatory
guidelines.
Based on the Federal Financial Institutions Examination Council
("FFIEC") guidelines, the Corporation's Year 2000 Program consists of the
following phases related to technology:
1) Awareness Phase - A strategic approach was developed to address the
Year 2000 problem in mid 1996.
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 a review of Year 2000
compliance and user acceptance.
The Awareness, Assessment and Renovation Phases have been completed.
The Validation Phase is substantially complete. The Corporation expects
the Validation and Implementation phases to continue through the second
quarter of 1999. The remainder of 1999 will focus on the completion of
firm-wide risk mitigation and contingency planning. Although the priority
given to Year 2000 issues may cause other technology projects to be
deferred, the deferral of these other projects is not expected to have a
material impact on the Corporation's business or operational controls.
<PAGE> 15
YEAR 2000 READINESS DISCLOSURE (continued)
The Corporation's Year 2000 Program includes a Business Support Group
that addresses Year 2000 issues not directly related to technology. This
group, which includes representatives from various areas of the
Corporation, has subgroups and task forces working on the following
programs.
Facilities Compliance Program - The Year 2000 problem could affect
building management systems and other systems critical to the
Corporation's business operations. The Corporation's Facilities Year
2000 Compliance Program deals with infrastructure components,
including all applicable embedded systems, that are used in a facility
(e.g., elevators, HVAC, generators, security systems, etc.) and third-
party-provided facilities or services (utilities, landlord services,
etc.). The facilities assessment and inventory phases were completed
in 1997. Third-party service provider assessment and independent
assessment verification began in mid 1998. The Facilities Year 2000
Compliance Program was completed at the end of the first quarter of
1999. Any new locations and/or issues will be addressed as they arise
prior to the millennium changeover.
Counterparty Assessment Program - This program addresses the Year 2000
readiness of counterparties. Counterparty Year 2000 assessment has
been incorporated into the standard credit process. At March 31,
1999, the Corporation had substantially completed its assessment of
the Year 2000 readiness of its material customers in accordance with
FFIEC guidelines. The counterparty assessment program is an ongoing
process, which will continue throughout 1999, and for as long as
necessary thereafter.
Critical Vendor/Service Provider Program - This program assesses the
Year 2000 readiness of the Corporation's critical vendors and service
providers, as well as dealing with related contractual issues. These
third parties are providers in such areas as telecommunications,
hardware and software, office equipment and market data as well as
correspondent financial services. Risk mitigation actions are in the
process of being identified for any critical vendor/service provider
deficient in its Year 2000 readiness.
The Corporation is continuing to communicate with its significant
obligors, counterparties, other credit clients, vendors and entities in
which the Corporation holds a significant interest 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
currently expect a material loss as a result of the Year 2000 problem,
there can be no guarantee that the systems of other companies and
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's Year 2000 Program considers crisis management
efforts for Year 2000 as part of its overall Year 2000 Risk Mitigation and
Contingency Planning Program. As with Year 2000 contingency planning
generally, the Corporation anticipates that any crisis management structure
would leverage off of its pre-existing Business Continuity Planning (BCP)
framework. As the basis for the Corporation's existing BCP process
primarily focuses on outages and loss of facilities, data centers and
applications, it is anticipated that, for Year 2000 purposes, contingency
planning, and thus crisis management efforts, will be supplemented for
those risks unique to Year 2000.
<PAGE> 16
YEAR 2000 READINESS DISCLOSURE (continued)
Existing BCPs are maintained by each operating unit throughout the
firm. Business-aligned BCP Coordinators are responsible for administering
these plans. In those instances where a single business is predominant in
an office, the business-aligned BCP coordinator from that particular
business also serves as the crisis manager. In addition, alternate sites
that might be needed due to a Year 2000 related problem will likely be the
same sites included and utilized in existing BCPs. All businesses are
required to ensure that these sites are Year 2000 compliant.
As mentioned above, the existing BCP plans will be expanded to include
other Year 2000 specific categories, creating a Year 2000 contingency plan
for each core business. In many cases, the plans have already been
drafted. The Corporation's goal is to have such plans "complete" by June
30, 1999 in accordance with FFIEC guidelines. The Corporation recognizes
that, since there are multiple external factors not within the
Corporation's direct control, that will influence the focus of any one
contingency plan, the Corporation will endeavor to update plans after June
30, 1999 and up through the end of 1999, and for as long as necessary
thereafter.
The Corporation envisions that a Year 2000 specific crisis management
structure will be in place by the end of the third quarter of 1999. As
noted above, the Corporation will leverage off of its existing BCP process,
which already includes concepts such as Business Recovery Intersect During
General Emergencies (BRIDGE) teams, employee notification efforts measures,
command centers and recovery efforts. The Corporation anticipates that
information on significant outages will be communicated to designated
command centers in a similar manner as during the EMU conversion. This
group will likely be composed of representation from the Corporation's Year
2000 Program Management Office (PMO), business management, and corporate
resource areas.
The Corporation anticipates that Year 2000 specific contingency plans
for core businesses will be validated in accordance with the guidelines of
the FFIEC by June 30, 1999. The Corporation will consider such plans to
be validated by one or more of the following: 1) large-scale physical
testing (in addition to business compliance testing); 2) business walk-
throughs of contingency plans; and, 3) peer reviews by internal business
management, including those independent from the actual creation of the
plan. In addition, the Corporation actively participates in industry wide
tests and reviews its progress against industry benchmarks through
participation in Global 2000 and other forums.
The Corporation incurred approximately $16 million for the first
quarter of 1999 for Year 2000 expenditures. Based on information currently
available, the Corporation expects its Year 2000 expenditures for 1999 and
over the next year to be approximately $90 million to $130 million. A
significant portion of these expenditures are not likely to be incremental
costs to the Corporation, but rather will represent the redeployment of
existing information technology resources.
The costs of the Year 2000 Program and the dates on which the
Corporation plans to complete the various stages of the Year 2000 Program
are based on management's 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.
The Corporation is currently evaluating its systems needs in
connection with the proposed merger with Deutsche Bank. As a result of the
merger, the Corporation's Year 2000 expenditures for the remainder of 1999
and 2000 could differ from current estimates.
<17>
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 was the sum of the average
number of shares of common stock outstanding and undistributed vested
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 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 March 31, 1999 1998
<S> <C> <C>
Numerator
Net income $140 $ 222
Preferred stock dividends (6) (11)
Numerator for basic and diluted earnings per
share - net income applicable to common stockholders 134 211
Denominator
Denominator for basic earnings per share -
Weighted-average shares outstanding 100.658 101.357
Effect of dilutive securities
Options .589 1.811
Convertible subordinated debentures .259 .463
Deferred stock 1.451 1.492
Dilutive potential common shares 2.299 3.766
Denominator for diluted earnings per share -
adjusted weighted-average shares after
assumed conversions 102.957 105.123
Basic earnings per share $1.33 $2.08
Diluted earnings per share $1.30 $2.01
</TABLE>
<PAGE> 18
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)
1st Qtr 4th Qtr Increase
1999 1998 (Decrease)
<S> <C> <C> <C>
ASSETS
Interest-earning
Interest-bearing deposits with banks $ 2,878 $ 2,370 $ 508
Federal funds sold 2,182 3,445 (1,263)
Securities purchased under resale
agreements 19,165 19,316 (151)
Securities borrowed 18,516 17,903 613
Trading assets 21,402 25,206 (3,804)
Securities available for sale
Taxable 9,573 10,038 (465)
Exempt from federal income taxes 1,645 1,692 (47)
Total securities available for sale 11,218 11,730 (512)
Loans
Domestic offices 12,953 12,847 106
Foreign offices 10,094 10,417 (323)
Total loans 23,047 23,264 (217)
Customer receivables 1,752 1,622 130
Total interest-earning assets 100,160 104,856 (4,696)
Noninterest-earning
Cash and due from banks 3,053 2,721 332
Noninterest-earning trading assets 23,224 29,650 (6,426)
All other assets 11,390 11,853 (463)
Less: Allowance for credit losses-loans 647 665 (18)
Total $137,180 $148,415 $(11,235)
LIABILITIES
Interest-bearing
Interest-bearing deposits
Domestic offices $ 16,854 $ 18,891 $ (2,037)
Foreign offices 17,988 16,650 1,338
Total interest-bearing deposits 34,842 35,541 (699)
Trading liabilities 5,211 5,918 (707)
Securities loaned and securities sold
under repurchase agreements 21,032 20,650 382
Other short-term borrowings 17,006 19,247 (2,241)
Long-term debt 17,505 18,645 (1,140)
Trust preferred capital securities 1,420 1,419 1
Total interest-bearing liabilities 97,016 101,420 (4,404)
Noninterest-bearing
Noninterest-bearing deposits 4,253 4,362 (109)
Noninterest-bearing trading liabilities 19,962 26,454 (6,492)
All other liabilities 11,182 11,271 (89)
Total liabilities 132,413 143,507 (11,094)
PREFERRED STOCK OF SUBSIDIARY - 144 (144)
STOCKHOLDERS' EQUITY
Preferred stock 394 394 -
Common stockholders' equity 4,373 4,370 3
Total stockholders' equity 4,767 4,764 3
Total $137,180 $148,415 $(11,235)
</TABLE>
<PAGE> 19
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> March 31, December 31,
(in millions) 1999 1998
<S> <C> <C>
Fair value $10,371 $12,748
Amortized cost 10,472 12,903
Excess of amortized cost over
fair value* $ (101) $ (155)
* Components:
Unrealized gains $ 205 $ 264
Unrealized losses (306) (419)
$(101) $(155)
</TABLE>
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 March 31, Average During
1999 1st Qtr. 1999
(Liabi- (Liabi-
(in millions) Assets lities) Assets lities)
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 25,077 $(24,897) $ 26,420 $(26,008)
Interest Rate Contracts
Forwards 188 (189) 271 (270)
Options purchased 1,741 2,082
Options written (1,760) (1,994)
Foreign Exchange Rate Contracts
Spot and Forwards 9,785 (9,504) 14,130 (13,555)
Options purchased 1,146 1,171
Options written (913) (968)
Equity-related contracts 6,318 (6,304) 7,328 (7,422)
Commodity-related and other contracts 783 (851) 974 (1,012)
Exchange-Traded Options
Interest Rate 5 (4) 11 (4)
Foreign exchange 2 (2) 11 (21)
Commodity 8 (17) 8 (12)
Equity 224 (149) 380 (253)
Total Gross Fair Values 45,277 (44,590) 52,786 (51,519)
Impact of Netting Agreements (34,054) 34,054 (36,553) 36,553
$ 11,223(1) $16,233
$(10,536)(1) $(14,966)
<FN>
(1) As reflected on the balance sheet in "Trading Assets" and "Trading
Liabilities."
</TABLE>
<PAGE> 20
TRADING DERIVATIVES (continued)
<TABLE>
<CAPTION>
At December 31, Average During
1998 4th Qtr. 1998
(Liabi- (Liabi-
(in millions) Assets lities) Assets lities)
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 26,923 $(26,401) $29,422 $(27,742)
Interest Rate Contracts
Forwards 188 (193) 326 (319)
Options purchased 2,236 2,156
Options written (2,111) (2,155)
Foreign Exchange Rate Contracts
Spot and Forwards 17,851 (17,169) 18,364 (18,097)
Options purchased 1,254 1,350
Options written (1,048) (1,152)
Equity-related contracts 5,508 (5,672) 4,956 (5,424)
Commodity-related and other contracts 966 (970) 824 (808)
Exchange-Traded Options
Interest Rate 12 (4) 9 (7)
Foreign exchange 30 (39) 33 (32)
Commodity 8 (9) 2 (5)
Equity 531 (372) 652 (421)
Total Gross Fair Values 55,507 (53,988) 58,094 (56,162)
Impact of Netting Agreements (38,131) 38,131 (36,835) 36,835
$17,376(1) $21,259
$(15,857)(1) $(19,327)
<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 $71 million at
March 31, 1999 compared with unrealized gains of $264 million at December
31, 1998. The $193 million decrease was primarily due to an increase in
interest rates.
<PAGE> 21
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-
March 31, 1999 for sale Loans assets deposits ings debt(1) diaries Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps(2)
Pay Variable
Unrealized Gain $ 16 $ 8 $ - $ 127 $ 14 $323 $ - $ 488
Unrealized (Loss) (3) (8) - (71) (9) (58) - (149)
Pay Variable Net 13 - - 56 5 265 - 339
Pay Fixed
Unrealized Gain 2 - - 6 - 4 - 12
Unrealized (Loss) (69) (71) - (61) (13) (27) - (241)
Pay Fixed Net (67) (71) - (55) (13) (23) - (229)
Total Unrealized
Gain 18 8 - 133 14 327 - 500
Total Unrealized
(Loss) (72) (79) - (132) (22) (85) - (390)
Total Net $(54) $(71) $ - $ 1 $ (8) $242 $ - $ 110
Forward Rate Agreements
Unrealized Gain $ - $ - $ - $ - $ - $ - $ - $ -
Unrealized (Loss) - - - - - - - -
Net $ - $ - $ - $ - $ - $ - $ - $ -
Currency Swaps and Forwards
Unrealized Gain $ - $ - $ - $ 5 $ 1 $ 43 $ 14 $ 63
Unrealized (Loss) (5) - - - (1) (63) (30) (99)
Net $(5) $ - $ - $ 5 $ - $(20) $(16) $(36)
Other Contracts
Unrealized Gain $ - $- $ - $ - $ - $ - $ - $ -
Unrealized (Loss) (3) - - - - - - (3)
Net $(3) $- $ - $ - $ - $ - $ - $(3)
Total Unrealized
Gain $ 18 $ 8 $ - $ 138 $ 15 $ 370 $ 14 $ 563
Total Unrealized
(Loss) (80) (79) - (132) (23) (148) (30) (492)
Total Net $(62) $(71) $ - $ 6 $ (8) $ 222 $(16) $ 71
<FN>
(1) Includes trust preferred capital securities.
(2) Includes swaps with embedded options to cancel.
</TABLE>
<PAGE> 22
END-USER DERIVATIVES (continued)
<TABLE>
<CAPTION>
Other Net invest-
short- ments in
Securities Interest- term Long- foreign
(in millions) available Other bearing borrow- term subsi-
Dec 31, 1998 for sale Loans assets deposits ings debt(1) diaries Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps(2)
Pay Variable
Unrealized Gain $ 64 $ 8 $ - $149 $ 17 $471 $ - $ 709
Unrealized (Loss) (3) (7) - (13) (14) (55) - (92)
Pay Variable Net 61 1 - 136 3 416 - 617
Pay Fixed
Unrealized Gain 6 - - 3 - 7 - 16
Unrealized (Loss) (129) (76) (13) (70) (16) (30) - (334)
Pay Fixed Net (123) (76) (13) (67) (16) (23) - (318)
Total Unrealized
Gain 70 8 - 152 17 478 - 725
Total Unrealized
(Loss) (132) (83) (13) (83) (30) (85) - (426)
Total Net $(62) $(75) $(13) $ 69 $ (13) $393 $ - $ 299
Forward Rate Agreements
Unrealized Gain $ - $ - $ - $ - $ - $ - $ - $ -
Unrealized (Loss) - - - - - - - -
Net $ - $ - $ - $ - $ - $ - $ - $ -
Currency Swaps and Forwards
Unrealized Gain $ 6 $ - $ - $ 5 $ 1 $ 76 $ 19 $ 107
Unrealized (Loss) (7) (3) (1) (4) (1) (89) (34) (139)
Net $(1) $(3) $(1) $ 1 $ - $(13) $(15) $ (32)
Other Contracts
Unrealized Gain $ - $ - $ - $ - $ - $ - $ - $ -
Unrealized (Loss) (3) - - - - - - (3)
Net $(3) $ - $ - $ - $ - $ - $ - $ (3)
Total Unrealized
Gain $ 76 $ 8 $ - $157 $18 $ 554 $ 19 $ 832
Total Unrealized
(Loss) (142) (86) (14) (87) (31) (174) (34) (568)
Total Net $ (66) $(78) $(14) $ 70 $(13) $ 380 $(15) $ 264
<FN>
(1) Includes trust preferred capital securities.
(2) Includes swaps with embedded options to cancel.
</TABLE>
<PAGE> 23
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 March 31, 1999
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>
1999 $47,093 5.71% 4.98% $6,700 5.21% 5.14% $53,793
2000-2001 15,691 5.34 4.93 4,120 4.88 6.10 19,811
2002-2003 5,404 4.72 4.21 973 4.28 4.74 6,377
2004 and
thereafter 7,400 5.70 5.11 1,598 5.31 5.68 8,998
Total $75,588 $13,391 $88,979
</TABLE>
All rates were those in effect at March 31, 1999. Variable rates are
primarily based on LIBOR and may change significantly, affecting future
cash flows.
<TABLE>
<CAPTION>
At December 31, 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>
1999 $55,494 5.37% 5.18% $8,704 5.34% 5.54% $64,198
2000-2001 9,802 5.63 5.32 3,266 4.94 6.49 13,068
2002-2003 5,601 5.48 4.51 983 4.15 5.04 6,584
2004 and
thereafter 8,071 6.49 4.90 2,120 5.28 6.34 10,191
Total $78,968 $15,073 $94,041
</TABLE>
All rates were those in effect at December 31, 1998. Variable rates
are primarily based on LIBOR and may change significantly, affecting future
cash flows.
<PAGE> 24
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
1998 Annual Report on Form 10-K, on pages 22 and 62, provides a detailed
discussion of these guidelines and regulations.
Based on their respective regulatory capital ratios as of March 31,
1999, both the Corporation and Bankers Trust Company ("BTCo") are well
capitalized, as defined in the applicable regulations.
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
March 31, December 31, Adequacy Regulatory
1999 1998 Purposes Guidelines
<S> <C> <C> <C> <C>
Corporation
Risk-Based Capital Ratios
Tier 1 Capital 8.1% 7.5% 4.0% 6.0%
Total Capital 14.5% 13.6% 8.0% 10.0%
Leverage Ratio 3.8% 3.5% 3.0% N/A
BTCo
Risk-Based Capital Ratios
Tier 1 Capital 11.8% 10.5% 4.0% 6.0%
Total Capital 13.7% 13.4% 8.0% 10.0%
Leverage Ratio 6.4% 5.7% 3.0% 5.0%
<FN>
N/A Not Applicable
</TABLE>
<PAGE> 25
REGULATORY CAPITAL (continued)
The following are the essential components used in calculating the
Corporation's and BTCo's risk-based capital ratios:
<TABLE>
<CAPTION>
Actual as of Actual as of
March 31, December 31,
(in millions) 1999 1998
<S> <C> <C>
Corporation
Tier 1 Capital $5,073 $5,069
Tier 2 Capital 3,587 3,812
Tier 3 Capital 400 400
Total Capital $9,060 $9,281
Total risk-weighted assets $62,567 $67,980
BTCo
Tier 1 Capital $6,785 $ 6,682
Tier 2 Capital 1,097 1,858
Total Capital $7,882 $ 8,540
Total risk-weighted assets $57,556 $63,748
</TABLE>
Comparing March 31, 1999 to December 31, 1998, the Corporation's Tier
1 Capital ratio increased 60 basis points due to the decrease in risk-
weighted assets of $5.4 billion, primarily related to lower balances for
loans and trading derivatives at March 31, 1999. The Total Capital ratio
increased 90 basis points because of the decrease in risk-weighted assets,
offset by a decrease in Total Capital of $221 million. The Leverage ratio
increased by 30 basis points due to a decrease in the quarterly average
assets.
BTCo's Tier 1 Capital ratio increased 130 basis points as a result of
an increase in Tier 1 Capital of $103 million and a decrease in risk-
weighted assets of $6.2 billion, primarily related to lower balances for
loans and trading derivatives at March 31, 1999. The Total Capital ratio
increased 30 basis points due to the decrease in risk-weighted assets being
offset by the decrease in Tier 2 Capital of $761 million, primarily caused
by the retirement of qualifying subordinated debt. The Leverage ratio
increased by 70 basis points due to the increase in Tier 1 Capital and a
decrease in the quarterly average assets.
<PAGE> 26
RISK MANAGEMENT
Market risk is the risk of losses in the value of the Corporation's
portfolio due to movements in market prices and rates. Market risk arises
from the Corporation's investment, trading, and client activities. This
section discusses changes in the Corporation's market-risk profile as
characterized by the quantitative information presented on pages 23 to 28
of the Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 ("Annual Report").
The management of market risk continues to be a key focus for the
Firm. The Firm employs regular stress testing, scenario analyses and
statistical measures of potential loss in order to identify and control
market risk. Table 1 below shows the results of the statistical measures
of loss in the first quarter of 1999 and all of 1998 for the set of
financial assets and liabilities whose values are functions of market
traded variables irrespective of accounting intention. This measure shows
the 99th percentile loss potential of the Firm assuming the Firm's
positions are held unchanged for 10 days. This measure is commonly known
as Value-at-Risk (VaR) and is computed according to standards set by the
Federal Reserve for determining regulatory capital required for market
risk. Table 2 shows the same information for the subset of these positions
that appear as Trading Assets on the Corporation's balance sheet.
Table 1
BT Corporation Total Ten-Day Value at Risk
(in millions)
<TABLE>
<CAPTION>
Three Months
1998 1999 December 31, March 31,
Risk Class Average Average 1998 1999
<S> <C> <C> <C> <C>
Interest Rate $101.4 $73.2 $ 77.4 $ 66.6
Currency 35.5 16.3 26.0 9.5
Equity 88.0 99.4 105.0 86.4
Commodity 4.2 4.2 3.9 4.1
Diversification (67.9) (59.5) (64.7) (52.0)
Overall Portfolio $161.2 $133.6 $147.6 $114.6
</TABLE>
<PAGE> 27
RISK MANAGEMENT (continued)
Table 2
BT Corporation Trading Ten-Day Value at Risk
(in millions)
<TABLE>
<CAPTION>
Three Months
1998 1999 December 31, March 31,
Risk Class Average Average 1998 1999
<S> <C> <C> <C> <C>
Interest Rate $ 61.1 $ 41.5 $ 52.2 $ 38.3
Currency 34.8 16.2 22.0 9.5
Equity 57.0 46.5 51.2 35.8
Commodity 4.2 4.2 3.9 4.1
Diversification (53.7) (37.9) (47.5) (30.9)
Overall Portfolio 103.4 $70.5 $81.8 $ 56.8
</TABLE>
Table 1 shows that the Corporation's overall market-risk exposure
declined during the first quarter of 1999 on an average and spot basis by
17 percent and 22 percent, respectively. The overall decline was driven
by declines in interest rate and currency risk. Although average equity
risk rose by 13 percent during the quarter in comparison with the 1998
average, the quarterly average declined by 5 percent from the December 31
level. On a spot basis, equity risk declined by 18 percent as of March 31
in comparison with the December 31 level. These reductions represent a
continuation of the overall decline in risk levels that began in the third
quarter of 1998, when the Corporation sharply reduced its risk exposures in
response to market turbulence experienced during the period.
Table 2 shows that the Corporation's risk levels from Trading Assets
declined even more sharply during this period than the risk levels reported
in Table 1, declining on an average and spot basis by 32 percent and 31
percent, respectively. The decline was evident across all significant risk
areas. Furthermore, on no occasion during the quarter did the Corporation
exceed its one-day, one-percent, value-at-risk statistic for trading
account positions.
<PAGE> 28
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. 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 at current market value on a timely basis.
Interest Rate Sensitivity
Condensed interest rate sensitivity data for the Corporation at March
31, 1999 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
March 31, 1999 1 year years 5 years funds Total
<S> <C> <C> <C> <C> <C>
Assets $ 85.2 $ 6.5 $ 4.9 $ 30.5 $ 127.1
Liabilities and preferred
stock (78.9) (4.9) (7.5) (31.5) (122.8)
Common stockholders' equity - - - (4.3) (4.3)
Effect of off-balance sheet
hedging instruments (5.0) 3.4 1.6 - -
Interest rate sensitivity
gap $ 1.3 $ 5.0 $(1.0) $ (5.3) -
</TABLE>
<PAGE> 29
NONPERFORMING ASSETS
The components of cash basis loans, renegotiated loans, other real
estate and other nonperforming assets are shown below ($ in millions).
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
<S> <C> <C>
CASH BASIS LOANS
Domestic
Commercial and industrial $ 74 $ 91
Secured by real estate 77 86
Financial institutions 15 15
Other 1 -
Total domestic 167 192
International
Commercial and industrial 106 135
Secured by real estate 14 18
Foreign governments 15 23
Lease financings 7 7
Other 18 17
Total international 160 200
Total cash basis loans $327 $392
Ratio of cash basis loans to total gross loans 1.6% 1.7%
Ratio of allowance for credit losses-loans to
cash basis loans 184% 166%
RENEGOTIATED LOANS
Secured by real estate $25 $25
Other - 1
Total renegotiated loans $25 26
OTHER REAL ESTATE $92 $87
OTHER NONPERFORMING ASSETS $8 $8
</TABLE>
There were no loans 90 days or more past due and still accruing
interest at March 31, 1999 and December 31, 1998.
<PAGE> 30
NONPERFORMING ASSETS (continued)
An analysis of the changes in the Corporation's total cash basis loans
during the first three months of 1999 follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1998 $ 392
Net transfers to cash basis loans 23
Net transfers to other real estate (11)
Net paydowns (16)
Charge-offs (60)
Other (1)
Balance, March 31, 1999 $ 327
</TABLE>
The Corporation's total cash basis loans amounted to $327 million at
March 31, 1999, down $65 million, or 17 percent, from December 31, 1998.
Within cash basis loans, loans secured by real estate were $91 million
and $104 million at March 31, 1999 and December 31, 1998, respectively.
Commercial and industrial loans to highly leveraged borrowers were $55
million and $66 million at March 31, 1999 and December 31, 1998,
respectively.
The following table sets forth the approximate effect on interest
revenue of cash basis loans and renegotiated loans. This disclosure
reflects the interest on loans which were carried on the balance sheet and
classified as either cash basis or renegotiated at March 31 of each year.
The rates used in determining the gross amount of interest which would have
been recorded at the original rate were not necessarily representative of
current market rates.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(in millions) 1999 1998
<S> <C> <C>
Domestic Loans
Gross amount of interest that would have
been recorded at original rate $4 $3
Less, interest, net of reversals, recognized
in interest revenue 2 2
Reduction of interest revenue 2 1
International Loans
Gross amount of interest that would have
been recorded at original rate 5 2
Less, interest, net of reversals, recognized
in interest revenue 4 1
Reduction of interest revenue 1 1
Total reduction of interest revenue $3 $2
</TABLE>
<PAGE> 31
EMERGING MARKETS CROSS-BORDER EXPOSURES(1)
<TABLE>
<CAPTION>
% Change from
March 31, December 31, December 31,
($ in billions) 1999 1998 1998
<S> <C> <C> <C>
Korea, Republic of $0.9 $0.8 13%
Indonesia 0.4 0.4 -%
Hong Kong 0.3 0.4 (25)%
Thailand 0.2 0.2 -%
Malaysia 0.1 0.1 -%
Other(2) 0.6 0.8 (25)%
Total Emerging Asia $2.5 $2.7 (7)%
Brazil $0.6 $0.7 (14)%
Mexico 0.5 0.6 (17)%
Argentina 0.4 0.5 (20)%
Venezuela - 0.1 (100)%
Other(3) 0.6 0.6 -%
Total Latin America $2.1 $2.5 (16)%
Russian Federation $0.2 $0.2 -%
Total $4.8 $5.4 (11)%
As a % of Total Assets 3.8% 4.1%
<FN>
(1) Based on FFIEC instructions. Shown by country of ultimate risk.
Excludes local country claims on local residents.
(2) Includes Peoples Republic of China, Republic of Taiwan, India,
Philippines, Singapore and Sri Lanka.
(3) Includes Chile, Colombia, Peru, Ecuador, Nicaragua, Panama and Uruguay.
</TABLE>
<PAGE> 32
ACCOUNTING DEVELOPMENTS
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 adoption as of January 1, 1999 of SOP 98-1 did not
have a material impact on the Corporation's net income, stockholders'
equity or total assets.
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 continues to evaluate the potential impact of
the new standard as plans for implementation proceed.
<PAGE> 33
SUBSEQUENT EVENTS
An appeal was recently argued in the Arizona State court action
against the Corporation arising from the 1986 leveraged buyout of the Kroy
Company. In January of 1998, a jury awarded the plaintiffs in this action
$18.3 million in compensatory damages and punitive damages of $30 million.
Plaintiffs assert that any compensatory damages in this matter are subject
to trebling, and seek interest on any judgment. The Corporation's post-
trial motion for reduction of the jury's award was granted in part, giving
plaintiffs the option of either accepting a judgment for $15 million or a
new trial on damages if they declined that amount. The plaintiffs did not
accept the reduced judgment and appealed the judge's ruling. The
Corporation filed a cross appeal. On April 20, 1999, the Arizona Court of
Appeals granted the plaintiffs' appeal in part and denied it in part,
reinstating the jury award of $18.3 million in compensatory damages, plus
any prejudgment interest, trebling and attorney's fees and costs. The
court upheld the lower court's reduction of punitive damages to $5 million
and gave the plaintiffs the option of a new trial on punitive damages alone
if they decline that amount. The Corporation's cross appeal was denied.
The Corporation has filed a petition for rehearing with the Arizona Court
of Appeals.
On April 26, 1999, BT (Pacific) Limited ("BT Pacific"), a wholly-owned
subsidiary of the Corporation, entered into a Sale and Purchase Agreement
with Banvida S.A. and P&S S.A. (together, the "Purchasers") under which BT
Pacific has agreed, subject to the terms and conditions thereof, to sell
its 50 percent ownership interest in BT (Pacific) Limited y Compania
Limitada ("Limitada") to the Purchasers. Limitada owns over 99 percent of
the shares of Compania de Seguros de Vida - Consorcio Nacional de Seguros
S.A. and 100 percent of the shares of Compania de Seguros de Vida Vitalis
S.A., Chilean life insurance companies, and indirectly owns 50 percent of
the shares of Interseguros Compania de Seguros S.A., a Peruvian life
insurance company. The total consideration to be paid to BT Pacific in
respect of the sale is $153 million. The sale is scheduled to close in the
second quarter of 1999. The Corporation expects the impact on its results
of operations to be nominal.
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 26 for Quantitative and
Qualitative Disclosures About Market Risk.
<PAGE> 34
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 Readiness
Disclosure". 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> 35
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A Special Meeting of Shareholders was held on April 27, 1999 to vote
on the Corporation's proposed merger with a subsidiary of Deutsche Bank
A.G.
(c) The following are the voting results on the matter which was
submitted to the shareholders:
<TABLE>
<CAPTION>
Unvoted
For Against Abstain Shares
<S> <C> <C> <C> <C>
Resolutions
Adoption of Merger Agreement 68,647,881 1,280,154 253,863 27,466,302
The text of the matters referred to under this Item 4 is set forth
in the Proxy Statement dated March 23, 1999 previously filed with
the Commission.
<PAGE> 36
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.
(12) Statement re Computation of Ratios
(27) Financial Data Schedule
(b) Reports on Form 8-K - Bankers Trust Corporation filed three
reports on Form 8-K during the quarter ended March 31, 1999.
- The report filed January 22, 1999, filed the Corporation's Press
Release dated January 21, 1999, which announced earnings for the
quarter ended December 31, 1998.
- The report dated March 11, 1999 and filed March 12, 1999
announced that the Corporation had reached an agreement with the
United States Attorney's Office in the Southern District of New
York to resolve an investigation concerning inappropriate transfers
of unclaimed funds and related record keeping problems that occurred
between 1994 and early 1996.
- The report dated March 18, 1999 and filed March 19, 1999
announced that a decision had been made to sell BT Funds Management,
the asset management arm of the Registrant in Australia.
<PAGE> 37
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 May 14, 1999.
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 MARCH 31, 1999
EXHIBIT INDEX
(4) Instruments Defining the Rights of Security
Holders, Including Indentures
(v) - Long-Term Debt Indentures (a)
(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.
</TABLE>
<PAGE>
EXHIBIT 12(a)
BANKERS TRUST CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
(dollars in millions)
[CAPTION]
<TABLE>
Three Months
Ended
Year Ended December 31, March 31,
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Earnings:
1. Income (loss) before
income taxes $ 987 $ 469 $1,131 $1,239 $ (77) $ 209
2. Add: Fixed charges
excluding
capitalized
interest
(Line 10) 3,911 5,138 5,483 5,959 6,954 1,261
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 45 28 30 (117) 15 60
4. Earnings including
interest on deposits 4,853 5,579 6,584 7,315 6,862 1,410
5. Less: Interest on
deposits 965 1,360 1,355 2,076 2,195 422
6. Earnings excluding
interest on deposits $3,888 $4,219 $5,229 $5,239 $4,667 $ 988
Fixed Charges:
7. Interest Expense $3,880 $5,105 $5,451 $5,926 $6,919 $1,250
8. Estimated interest
component of net
rental expense 31 33 32 33 35 11
9. Amortization of debt
issuance expense - - - - - -
10. Total fixed charges
including interest on
deposits and excluding
capitalized interest 3,911 5,138 5,483 5,959 6,954 1,261
11. Add: Capitalized
interest - - - - - -
12. Total fixed charges 3,911 5,138 5,483 5,959 6,954 1,261
13. Less: Interest on
deposits
(Line 5) 965 1,360 1,355 2,076 2,195 422
14. Fixed charges excluding
interest on deposits $2,946 $3,778 $4,128 $3,883 $4,759 $ 839
Consolidated Ratios of Earnings
to Fixed Charges:
Including interest on
deposits
(Line 4/Line 12) 1.24 1.09 1.20 1.23 .99 1.12
Excluding interest on
deposits
(Line 6/Line 14) 1.32 1.12 1.27 1.35 .98 1.18
<FN>
For the year ended December 31, 1998, earnings, as defined, did not cover
fixed charges, including and excluding interest on deposits by $92 million,
as a result of a net loss recorded during the period.
</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)
[CAPTION]
<TABLE>
Three Months
Ended
Year Ended December 31, March 31,
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Earnings:
1. Income (loss) before
income taxes $ 987 $ 469 $1,131 $1,239 $ (77) $ 209
2. Add: Fixed charges
excluding
capitalized
interest
(Line 13) 3,911 5,138 5,483 5,959 6,954 1,261
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 45 28 30 (117) 15 60
4. Earnings including
interest on deposits 4,853 5,579 6,584 7,315 6,862 1,410
5. Less: Interest on
deposits 965 1,360 1,355 2,076 2,195 422
6. Earnings excluding
interest on deposits $3,888 $4,219 $5,229 $5,239 $4,667 $ 988
Preferred Stock Dividend Requirements:
7. Preferred stock dividend
requirements $ 28 $ 51 $ 51 $ 49 $ 32 $ 6
8. Ratio of income (loss) from
continuing operations
before income taxes to
income (loss) from
continuing operations
after income taxes 144% 151% 148% 143% 105% 149%
9. Preferred stock dividend
requirements on a pretax
basis $ 40 $ 77 $ 75 $ 70 $ 34 $ 9
Fixed Charges:
10. Interest Expense $3,880 $5,105 $5,451 $5,926 $6,919 $1,250
11. Estimated interest
component of net
rental expense 31 33 32 33 35 11
12. Amortization of debt
issuance expense - - - - - -
13. Total fixed charges
including interest on
deposits and excluding
capitalized interest 3,911 5,138 5,483 5,959 6,954 1,261
14. Add: Capitalized
interest - - - - - -
15. Total fixed charges 3,911 5,138 5,483 5,959 6,954 1,261
<PAGE>
16. Add: Preferred stock
dividend require-
ments - pretax
(Line 9) 40 77 75 70 34 9
17. Total combined fixed
charges and preferred
stock dividend require-
ments on a pretax
basis 3,951 5,215 5,558 6,029 6,988 1,270
18. Less: Interest on
deposits
(Line 5) 965 1,360 1,355 2,076 2,195 422
19. Combined fixed charges
and preferred stock
dividend requirements
on a pretax basis
excluding interest on
deposits $2,986 $3,855 $4,203 $3,953 $4,793 $ 848
Consolidated Ratios of Earnings
to Combined Fixed Charges
and Preferred Stock
Dividend Requirements:
Including interest on
deposits
(Line 4/Line 17) 1.23 1.07 1.18 1.21 .98 1.11
Excluding interest on
deposits
(Line 6/Line 19) 1.30 1.09 1.24 1.32 .97 1.17
<FN>
For the year ended December 31, 1998, earnings, as defined, did not cover
fixed charges, and preferred stock dividend requirements, including and
excluding interest on deposits, by $126 million, as a result of a net loss
recorded during the period.
</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
MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,753
<INT-BEARING-DEPOSITS> 1,187
<FED-FUNDS-SOLD> 23,724
<TRADING-ASSETS> 39,179
<INVESTMENTS-HELD-FOR-SALE> 10,371
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 20,293
<ALLOWANCE> 603
<TOTAL-ASSETS> 127,106
<DEPOSITS> 36,337
<SHORT-TERM> 34,327<F1>
<LIABILITIES-OTHER> 10,628<F2>
<LONG-TERM> 18,482
0
394
<COMMON> 105
<OTHER-SE> 4,238
<TOTAL-LIABILITIES-AND-EQUITY> 127,106
<INTEREST-LOAN> 394
<INTEREST-INVEST> 154
<INTEREST-OTHER> 634<F3>
<INTEREST-TOTAL> 1,511
<INTEREST-DEPOSIT> 422
<INTEREST-EXPENSE> 1,250
<INTEREST-INCOME-NET> 261
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (4)
<EXPENSE-OTHER> 1,301
<INCOME-PRETAX> 209
<INCOME-PRE-EXTRAORDINARY> 209
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.30
<YIELD-ACTUAL> 1.09
<LOANS-NON> 327
<LOANS-PAST> 0
<LOANS-TROUBLED> 25
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 652
<CHARGE-OFFS> 60
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 603<F4>
<ALLOWANCE-DOMESTIC> 260<F4>
<ALLOWANCE-FOREIGN> 343<F4>
<ALLOWANCE-UNALLOCATED> 0<F4>
<FN>
<F1>Short-term borrowings include the following:
Securities loaned and securities sold under
repurchase agreements 15,889
Other short-term borrowings 18,438
Total 34,327
<F2>Other liabilities include the following:
Accounts payable and accrued expenses 5,277
Other liabilities 5,066
Acceptances outstanding 285
Total 10,628
<F3>Other interest income includes the
following:
Interest-bearing deposits with banks 60
Federal funds sold 26
Securities purchased under resale agreements 294
Securities borrowed 223
Customer receivables 31
Total 634
<F4>Amount pertains to the allowance for credit losses loans.
</FN>
</TABLE>
