<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
The registrant is a wholly-owned subsidiary of Deutsche Bank AG, as of the
date hereof, 1 share of the registrant's Common Stock par value $1 per
share, was issued and outstanding.
<PAGE> 1
BANKERS TRUST CORPORATION
SEPETEMBER 30, 1999 FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income
Three Months Ended September 30, 1999 and 1998 2
Nine Months Ended September 30, 1999 and 1998 3
Consolidated Statement of Comprehensive Income
Three Months Ended September 30, 1999 and 1998 and
Nine Months Ended September 30, 1999 and 1998 4
Consolidated Balance Sheet
At September 30, 1999 and December 31, 1998 5
Consolidated Statement of Changes in Stockholders'
Equity
Nine Months Ended September 30, 1999 and 1998 6
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1999 and 1998 7
Consolidated Schedule of Net Interest Revenue
Three Months and Nine Months Ended
September 30, 1999 and 1998 8
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. The results of operations for the three
months and nine months ended September 30, 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 as supplemented by the first and second quarter
1999 Form 10-Q.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 37
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 38
SIGNATURE 39
<PAGE> 2
PART I. FINANCIAL INFORMATION
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Increase
THREE MONTHS ENDED SEPTEMBER 30, 1999 1998 (Decrease)
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $818 $2,281 $(1,463)
Interest expense 664 1,945 (1,281)
Net interest revenue 154 336 (182)
Provision for credit losses-loans (49) 20 (69)
Net interest revenue after provision for
credit losses-loans 203 316 (113)
NONINTEREST REVENUE
Trading 12 (491) 503
Fiduciary and funds management 250 273 (23)
Corporate finance fees 46 242 (196)
Other fees and commissions 92 218 (126)
Net revenue from equity investments 135 (1) 136
Securities available for sale gains (losses) (7) (125) 118
Insurance premiums - 74 (74)
Other 900 (35) 935
Total noninterest revenue 1,428 155 1,273
NONINTEREST EXPENSES
Salaries and commissions 193 366 (173)
Incentive compensation and employee benefits 230 286 (56)
Agency and other professional service fees 93 122 (29)
Communication and data services 40 65 (25)
Occupancy, net 45 56 (11)
Furniture and equipment 51 65 (14)
Travel and entertainment 14 44 (30)
Provision for policyholder benefits - 92 (92)
Other 144 82 62
Total noninterest expenses 810 1,178 (368)
Income (loss) before income taxes 821 (707) 1,528
Income taxes (benefit) 559 (219) 778
NET INCOME (LOSS) $262 $(488) $750
<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)
(unaudited)
<TABLE>
<CAPTION>
Increase
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998 (Decrease)
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $3,622 $6,575 $(2,953)
Interest expense 2,971 5,471 (2,500)
Net interest revenue 651 1,104 (453)
Provision for credit losses-loans (74) 20 (94)
Net interest revenue after provision for
credit losses-loans 725 1,084 (359)
NONINTEREST REVENUE
Trading (55) (263) 208
Fiduciary and funds management 805 819 (14)
Corporate finance fees 488 965 (477)
Other fees and commissions 456 584 (128)
Net revenue from equity investments 243 203 40
Securities available for sale gains (losses) (150) (81) (69)
Insurance premiums 86 202 (116)
Other 812 139 673
Total noninterest revenue 2,685 2,568 117
NONINTEREST EXPENSES
Salaries and commissions 903 1,063 (160)
Incentive compensation and employee benefits 945 1,200 (255)
Change in control related incentive
compensation and employee benefits 1,101 - 1,101
Agency and other professional service fees 343 374 (31)
Communication and data services 172 180 (8)
Occupancy, net 165 156 9
Furniture and equipment 189 175 14
Travel and entertainment 98 123 (25)
Provision for policyholder benefits 114 251 (137)
Other 424 301 123
Restructuring charge 459 - 459
Total noninterest expenses 4,913 3,823 1,090
Income (loss) before income taxes (1,503) (171) (1,332) 860)
Income taxes (benefit) 43 (69) 112
NET INCOME (LOSS) $(1,546) ($102) $(1,444)
<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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $262 $(488) $(1,546) $(102)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized foreign currency translation
gains (losses) arising during period,
net of tax(a) 12 (1) 9 (19)
Reclassification adjustment for realized
foreign currency translation (gains)
losses, net of tax(b) 130 - 302 -
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during period, net of tax(c) (3) (114) (27) (117)
Reclassification adjustment for realized
(gains) losses, net of tax(d) 4 93 121 62
Total other comprehensive income (loss) 143 (22) 405 (74)
COMPREHENSIVE INCOME (LOSS) $405 $(510) $(1,141) $(176)
<FN>
(a) Amounts are net of income tax expense (benefit) of $9 million and $1
million for the three months ended September 30, 1999 and September 30, 1998,
respectively and $(10) million and $9 million for the nine months ended
September 30, 1999 and September 30, 1998, respectively.
(b) Realized foreign currency translation losses result from the transfer
of certain foreign subsidiaries to Deutsche Bank in the second quarter of
1999 and the sale of BTAL in the third quarter of 1999. Amounts are net of
an income tax benefit of $43 million and $34 million for the three months
and nine months ended September 30, 1999, respectively.
(c) Amounts are net of income tax expense (benefit) of $(3) million and
$(45) million for the three months ended September 30, 1999 and September 30,
1998, respectively and $5 million and $(48) million for the nine months ended
September 30, 1999 and September 30, 1998, respectively.
(d) Amounts are net of an income tax benefit of $3 million and $32 million
for the three months ended September 30, 1999 and September 30, 1998,
respectively and $29 million and $19 million for the nine months ended
September 30, 1999 and September 30, 1998, respectively.
</TABLE>
Certain prior period amounts have been reclassified to conform to the
current presentation.
<PAGE> 5
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in millions, except par value)
<TABLE>
<CAPTION>
September 30,December 31,
1999* 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,642 $ 2,837
Interest-bearing deposits with banks 3,357 2,382
Federal funds sold 1,169 2,484
Securities purchased under resale
agreements 8,888 17,053
Securities borrowed 239 14,709
Trading assets:
Government securities 2,973 5,731
Corporate debt securities 838 5,519
Equity securities 1,719 5,810
Swaps, options and other derivatives 5,987 17,376
Other trading assets 3,917 11,734
Total trading assets 15,434 46,170
Securities available for sale 3,539 12,748
Loans, net of allowance for credit losses
of $476 at September 30, 1999 and $652
at December 31, 1998 17,711 22,633
Customer receivables 472 1,524
Accounts receivable and accrued interest 2,371 3,815
Other assets 6,982 6,760
Total $ 61,804 $133,115
LIABILITIES
Noninterest-bearing deposits
Domestic offices $2,568 $ 2,784
Foreign offices 2,316 1,689
Interest-bearing deposits
Domestic offices 12,079 18,259
Foreign offices 7,375 14,602
Total deposits 24,338 37,334
Trading liabilities:
Securities sold, not yet purchased
Government securities 103 4,149
Equity securities 18 6,458
Other trading liabilities 9 789
Swaps, options and other derivatives 6,360 15,857
Total trading liabilities 6,490 27,253
Securities loaned and securities sold under
repurchase agreements 155 17,420
Other short-term borrowings 6,714 16,313
Accounts payable and accrued expenses 2,281 5,210
Other liabilities, including allowance for
credit losses of $30 at September 30, 1999
and $18 at December 31, 1998 2,978 5,466
Long-term debt not included in risk-based capital 10,588 14,890
Long-term debt included in risk-based capital 2,431 3,113
Mandatorily redeemable capital securities of
subsidiary trusts holding solely junior
subordinated deferrable interest debentures
included in risk-based capital 1,426 1,420
Total liabilities 57,401 128,419
STOCKHOLDERS' EQUITY
Preferred stock 394 394
Common stock, $1 par value
Authorized, 200 shares at September 30, 1999 and
300,000,000 shares at December 31, 1998
Issued, 1 share at September 30, 1999 and
105,380,175 at December 31, 1998 - 105
Capital surplus 2,318 1,613
Retained earnings 1,749 3,504
Common stock in treasury, at cost: 1999, 0 shares;
1998, 9,666,055 shares - (1,056)
Other stockholders' equity - 599
Accumulated other comprehensive income:
Net unrealized gains (losses) on securities available
for sale, net of taxes 29 (65)
Foreign currency translation, net of taxes (87) (398)
Total stockholders' equity 4,403 4,696
Total $61,804 $133,115
<FN>
* Unaudited
Certain prior period amounts have been reclassified to conform to the
current presentation.
</TABLE>
<PAGE> 6
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in millions, except par value)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
<S> <C> <C>
PREFERRED STOCK
Balance, January 1 $ 394 $ 658
Preferred stock redeemed - (248)
Preferred stock repurchased - (16)
Balance, September 30 394 394
COMMON STOCK
Balance, January 1 105 105
Retirement of common stock (105) -
Issuance of common stock* - -
Balance, September 30 - 105
CAPITAL SURPLUS
Balance, January 1 1,613 1,563
Common stock distributed under employee
benefit plans 4 47
Capital transactions related to change in control (699) -
Capital contribution from parent 1,400 -
Balance, September 30 2,318 1,610
RETAINED EARNINGS
Balance, January 1 3,504 4,202
Net income (loss) (1,546) (102)
Cash dividends declared
Preferred stock (16) (29)
Common stock (98) (289)
Treasury stock distributed under employee benefit plans (95) (168)
Balance, September 30 1,749 3,614
COMMON STOCK IN TREASURY, AT COST
Balance, January 1 (1,056) (889)
Purchases of stock (71) (601)
Treasury stock distributed under employee benefit plans 322 372
Capital transactions related to change in control 805 -
Balance, September 30 - (1,118)
COMMON STOCK ISSUABLE - STOCK AWARDS
Balance, January 1 817 901
Deferred stock awards granted, net 557 51
Deferred stock distributed (216) (98)
Capital transactions related to change in control (1,158) -
Balance, September 30 - 854
DEFERRED COMPENSATION - STOCK AWARDS
Balance, January 1 (218) (438)
Deferred stock awards granted, net (556) (52)
Amortization of deferred compensation, net 749 209
Other 25 -
Balance, September 30 - (281)
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, January 1 (398) (362)
Translation adjustments/entity transfers and sales 335 (10)
Income taxes (24) (9)
Balance, September 30 (87) (381)
SECURITIES VALUATION ALLOWANCE
Balance, January 1 (65) (32)
Change in unrealized net gains (losses), after applicable
income taxes and minority interest 94 (55)
Balance, September 30 29 (87)
TOTAL STOCKHOLDERS' EQUITY, SEPTEMBER 30 $4,403 $4,710
<FN>
* 1 share, $1 par value.
</TABLE>
<PAGE> 7
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,546) $ (102)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for credit losses - loans (74) 20
Provision for credit losses-other 12 -
Provision for policyholder benefits 114 251
Restructuring charges 459 -
Deferred income taxes, net (70) (159)
Depreciation and other amortization and
accretion 881 250
Other, net 128 32
Gain on sale of BTAL (779) -
Earnings adjusted for noncash charges and credits (875) 292
Net change in:
Trading assets (11,264) (1,815)
Trading liabilities 21,839 8,457
Receivables and payables from securities
transactions 861 (950)
Customer receivables (1,276) (162)
Other operating assets and liabilities, net (2,592) (1,358)
Securities available for sale losses 150 81
Net cash provided by operating activities 6,843 4,545
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits with banks (2,351) 2,065
Federal funds sold 1,315 (3,280)
Securities purchased under resale agreements (6,392) (2,589)
Securities borrowed (8,955) (2,941)
Loans 1,778 (2,759)
Securities available for sale:
Purchases (6,103) (18,711)
Maturities and other redemptions 1,015 1,996
Sales 8,351 12,527
Acquisitions of premises and equipment (80) (298)
Other, net (474) 1,188
Proceeds from transfer of legal entities and
sale of BTAL 4,323 -
Net cash used in investing activities (7,573) (12,802)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in:
Deposits (5,459) (1,401)
Securities loaned and securities sold under
repurchase agreements 12,565 5,338
Other short-term borrowings (6,711) 1,194
Issuances of long-term debt 2,167 5,483
Repayments of long-term debt (4,188) (1,400)
Issuance of preferred stock of subsidiary - 304
Redemptions and repurchases of preferred stock - (264)
Purchases of treasury stock (71) (601)
Cash dividends paid (210) (320)
Capital contribution from parent 1,400 -
Other, net 25 123
Net cash (used in) provided by financing activities (482) 8,456
Net effect of exchange rate changes on cash 17 18
Net Increase (Decrease)in Cash and Due from Banks (1,195) 217
Cash and due from banks, beginning of period 2,837 2,188
Cash and due from banks, end of period $ 1,642 $ 2,405
Interest paid $ 3,951 $ 5,226
Income taxes paid, net $ 28 $189
Noncash investing activities:
Transfer of legal entity in exchange for shares $ 852 $ -
in affiliate
Other 24 7
Total noncash investing activities $ 876 $7
Noncash financing activities:
Conversion of debt to equity $ - $14
<FN>
Certain prior period amounts have been reclassified to conform to the
current presentation.
</TABLE>
<PAGE> 8
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
INTEREST REVENUE
Interest-bearing deposits with banks $100 $ 70 $ 232 $ 253
Federal funds sold 34 55 111 167
Securities purchased under resale agreements 83 494 600 1,283
Securities borrowed 14 350 383 1,014
Trading assets 158 655 770 1,960
Securities available for sale
Taxable 54 165 308 483
Exempt from federal income taxes - 13 18 33
Loans 368 443 1,135 1,275
Customer receivables 7 36 65 107
Total interest revenue 818 2,281 3,622 6,575
INTEREST EXPENSE
Interest-bearing deposits
Domestic offices 162 300 550 946
Foreign offices 156 252 583 797
Trading liabilities 9 139 131 373
Securities loaned and securities sold under
repurchase agreements 10 579 536 1,534
Other short-term borrowings 157 392 642 1,022
Long-term debt 142 254 444 710
Trust preferred capital securities 28 29 85 89
Total interest expense 664 1,945 2,971 5,471
NET INTEREST REVENUE $ 154 $ 336 $ 651$ 1,104
</TABLE>
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ACQUISITION BY DEUTSCHE BANK AG
Change in Control
On June 4, 1999, the change-in-control ("COC") date, pursuant to an
agreement dated as of November 30, 1998, between Deutsche Bank AG
("Deutsche Bank") and Bankers Trust Corporation ("Bankers Trust", the
"Corporation", or the "Firm"), Deutsche Bank, through its U.S. holding
corporation, Taunus Corporation ("Taunus"), acquired all of the outstanding
shares of common stock of Bankers Trust from its shareholders at a price of
$93.00 per share (the "Acquisition"). Bankers Trust was merged with a
wholly-owned subsidiary of Deutsche Bank, with Bankers Trust as the
surviving entity.
On June 4, 1999, all Bankers Trust employee deferred compensation
amounts vested in full. Employer contributions to individual employee
retirement accounts also vested. In addition, all bonus-eligible employees
on the date of COC became entitled to a pro rata bonus which was paid in
cash on July 2, 1999 for that portion of the 1999 performance year ending
on the COC date. The pro rata bonus was 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.
In conjunction with the Acquisition, the Corporation incurred pre-tax
charges of approximately $1.1 billion in COC-related costs, principally due
to the aforementioned vesting of all employee deferred compensation amounts
and related pro-rata bonus awards as well as a pre-tax restructuring charge
of $459 million. Also, in connection with the Acquisition, the Corporation
incurred other charges reflecting a change in management's intention
regarding certain assets as a result of integrating the Corporation into
Deutsche Bank, a change in certain pricing methodologies in order to
conform to those of Deutsche Bank, and the transfer of certain available
for sale securities to Deutsche Bank related entities based on changes in
management responsibility. These one-time charges are included in Deutsche
Bank's consolidated financial statements as of June 30, 1999 as part of the
goodwill associated with the Acquisition. The goodwill is being amortized
over 15 years.
Disposition of Assets
On June 5, 1999, Bankers Trust transferred its wholly-owned subsidiary
BT Alex. Brown Incorporated ("BTAB") and substantially all of its interest
in Bankers Trust International PLC ("BTI") to Deutsche Bank Securities Inc.
("DBSI") and Deutsche Holdings (BTI) Ltd., respectively, which are wholly-
owned subsidiaries of Deutsche Bank. The transfer of BTAB to DBSI took the
form of an exchange of stock pursuant to which BTAB became a wholly-owned
subsidiary of DBSI and Bankers Trust received shares of DB U.S. Financial
Markets Holding Corporation ("DBUSH"), the parent of DBSI. In the third
quarter of 1999, the Corporation sold its shares of DBUSH to Taunus for
approximately $800 million. The transfer of substantially all of Bankers
Trust's interest in BTI was for cash in the amount of approximately $1.7
billion.
On August 31, 1999, the Corporation completed the sale of Bankers
Trust Australia Limited ("BTAL"), a wholly-owned subsidiary, to the
Principal Financial Group for a price of approximately $1.3 billion. Prior
to the sale, BTAL remitted to the Corporation a dividend for accumulated
retained earnings which included proceeds from BTAL's sale of its
investment banking division to Macquarie Bank. The Corporation also
received cash for the assumption of certain BTAL long-term debt. In
addition, the Corporation is entitled to receive an additional payment 60-
120 days after the closing. The Corporation recognized a pre-tax gain of
approximately $779 million in the third quarter of 1999 on the sale of
BTAL.
<PAGE> 10
ACQUISITION BY DEUTSCHE BANK AG (continued)
In connection with the Acquisition and in addition to the foregoing
transactions, the Corporation has and will continue to transfer certain
entities and financial assets and liabilities to Deutsche Bank related
entities. The consideration received and to be received for such
transactions was and will be fair market value of the financial assets and
liabilities at and on the date of transfer. In addition, the Corporation's
money market related funding activities, which are short-term in nature,
are expected to be significantly reduced over time, commensurate with its
ongoing reorganization.
Capital Contribution
In conjunction with the Acquisition and to strengthen the
Corporation's capital base, Deutsche Bank made a capital contribution of
$1.4 billion in the second quarter of 1999.
RESULTS OF OPERATIONS
The Corporation earned $262 million for the three months ended
September 30, 1999 and reported a loss of $1,546 million for the first nine
months of 1999. The third quarter of 1999 included the aforementioned gain
on the sale of BTAL. As previously mentioned, in the second quarter of
1999 the Corporation incurred pre-tax charges of approximately $1.1 billion
in COC-related costs and a pre-tax restructuring charge of $459 million.
Also, in connection with the Acquisition, the Corporation incurred other
charges reflecting a change in management's intention regarding certain
assets as a result of integrating the Corporation into Deutsche Bank, a
change in certain pricing methodologies in order to conform to those of
Deutsche Bank, and the transfer of certain available for sale securities to
Deutsche Bank related entities based on changes in management
responsibility.
The Corporation reported a loss of $488 million for the three months
ended September 30, 1998 and $102 million for the first nine months of
1998. The results for 1998, which were significantly affected by turmoil
in global and equity markets particularly in the emerging market economies,
include trading losses, losses on securities available for sale and a
provision for credit losses.
Prior to the Acquisition in the second quarter of 1999, the
Corporation completed the sale of its remaining stake in Consorcio, a
Chilean insurance company. The impact of the sale was immaterial to the
Corporation's results of operations.
Because of the significant business and net financial asset transfers
to Deutsche Bank entities, the aforementioned other charges reflecting
changes in management intent and responsibility in the second quarter of
1999 and the sale of BTAL in the third quarter of 1999, the Corporation's
historical financial statements are not fully comparable for all periods
presented.
BUSINESS SEGMENT RESULTS
Business segments results, which are presented in accordance with U.S.
generally accepted accounting principles, are derived from internal
management reports.
In conjunction with the Acquisition, the Corporation realigned its
business activities to conform to Deutsche Bank's management structure. In
this regard, Retail and Private Banking focuses on the Corporation's
private banking activities. The Asset Management division includes the
Corporation's institutional and retail funds management operations. Global
Corporates and Institutions includes the Corporation's commercial banking
and investment banking activities as well as trading activities. This
business segment also includes credit business, trade finance, structured
finance and cash management in addition to the Corporation's private equity
business. Global Technology and Services includes four product groups:
payments, securities processing, custody services and electronic banking
services.
Prior period results have been restated for changes in organizational
structure.
<PAGE> 11
BUSINESS SEGMENT RESULTS (continued)
The following tables present results by Business Segment:
<TABLE>
<CAPTION>
Total Non- Pretax Net
Three Months Ended September 30, 1999 Total Net interest Income/ Income/
(in millions) Revenue* Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Retail and Private Banking $ 38 $ 42 $ (4) $ (2)
Asset Management 61 46 15 8
Global Corporates and Institutions 343 251 92 52
Global Technology and Services 223 231 (8) (4)
Other Business Segments** 56 87 (31) (18)
Total Business Segments 721 657 64 36
Corporate Items*** 910 153 757 226
Total $1,631 810 821 262
<FN>
* There were no material intersegment revenues among the business
segments.
** Due to the sale of BTAL in the third quarter of 1999, its results are
included in Other Business Segments.
***Includes pre-tax gain on sale of BTAL of $779 million.
</TABLE>
<TABLE>
<CAPTION>
Total Non- Pretax Net
Three Months Ended September 30, 1998 Total Net interest Income/ Income/
(in millions) Revenue* Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Retail and Private Banking $ 46 41 5 4
Asset Management 62 39 23 16
Global Corporates and Institutions (224) 617 (841) (580)
Global Technology and Services 227 215 12 8
Other Business Segments** 219 196 23 16
Total Business Segments 330 1,108 (778) (536)
Corporate Items 141 70 71 48
Total 471 1,178 (707) (488)
<FN>
* There were no material intersegment revenues among the business
segments.
** Due to the sale of BTAL in the third quarter of 1999, its results are
included in Other Business Segments.
</TABLE>
<TABLE>
<CAPTION>
Total Non- Pretax Net
Nine Months Ended September 30, 1999 Total Net interest Income/ Income/
(in millions) Revenue* Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Retail and Private Banking $ 131 152 (21) (16)
Asset Management 155 118 37 25
Global Corporates and Institutions 817 2,357 (1,540) (1,218)
Global Technology and Services 702 774 (72) (54)
Other Business Segments** 413 518 (105) (75)
Total Business Segments 2,218 3,919 (1,701) (1,338)
Corporate Items*** 1,192 994 198 (208)
Total 3,410 4,913 (1,503) (1,546)
<FN>
* There were no material intersegment revenues among the business
segments.
** Due to the sale of BTAL in the third quarter of 1999, its results are
included in Other Business Segments.
*** Includes restructuring charges of $459 million and a pre-tax gain on
sale of BTAL of $779 million.
</TABLE>
<PAGE> 12
BUSINESS SEGMENT RESULTS (continued)
<TABLE>
<CAPTION>
Total Non- Pretax Net
Nine Months Ended September 30, 1998 Total Net interest Income/ Income/
(in millions) Revenue* Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Retail and Private Banking $ 143 130 13 9
Asset Management 144 91 53 38
Global Corporates and Institutions 1,697 2,154 (457) (304)
Global Technology and Services 714 696 18 13
Other Business Segments** 651 583 68 48
Total Business Segments 3,349 3,654 (305) (196)
Corporate Items 303 169 134 94
Total 3,652 3,823 (171) (102)
<FN>
* There were no material intersegment revenues among the business
segments.
** Due to the sale of BTAL in the third quarter of 1999, its results are
included in Other Business Segments.
</TABLE>
The Retail and Private Banking business recorded a net loss of $2
million in the third quarter of 1999, compared to net income of $4 million
in the prior year quarter. The current quarter reflected lower revenue
from fiduciary and funds management activities resulting from certain
foreign activities transferred to a Deutsche Bank related entity in July
1999. For the first nine months of 1999, net loss was $16 million as
compared to net income of $9 million in the prior year period. The 1999
year-to-date results contain pre-tax COC-related costs of approximately $21
million.
Asset Management recorded net income of $8 million in the third
quarter of 1999, compared to net income of $16 million in the 1998 third
quarter. The decline in net income from the prior year period was mainly
attributable to a one-time increase in personnel-related costs. Net income
was $25 million for the first nine months of 1999 versus $38 million for
the first nine months of 1998. The 1999 year-to-date results contain pre-
tax COC-related costs of approximately $16 million.
The Global Corporates and Institutions business recorded net income of
$52 million in the third quarter of 1999, compared to a net loss of $580
million in the 1998 third quarter. The current quarter reflects higher
revenue from private equity investments as compared to the prior year
period. Net loss was $1,218 million for the first nine months of 1999
versus a net loss of $304 million for the first nine months of 1998. The
1999 year-to-date results contain pre-tax COC-related costs of
approximately $770 million. Trading losses also negatively impacted the
1999 year-to-date results. Total net revenue for the first nine months of
1999 also includes the impact of a change in management's intention
regarding certain assets as a result of integrating the Corporation into
Deutsche Bank, as well as the transfer of certain securities available for
sale to Deutsche Bank related entities. The prior year quarter and year-to-
date results included losses related to widening credit spreads on high-
yield debt securities, mark-to-market losses on investments in the unit's
private equity portfolio and losses on securities available for sale
resulting from the economic turmoil experienced in the third quarter of
1998.
The Corporation's Global Technology and Services business recorded a
net loss of $4 million for the current quarter compared to net income of $8
million in the prior year quarter. The current quarter included higher
agency and other professional service fees as compared to the prior year
period. For the first nine months of 1999, net loss was $54 million as
compared to net income of $13 million in the prior year period. The 1999
year-to-date results contain pre-tax COC-related costs of approximately $90
million.
Other business segments primarily include the operating income and
expenses of BTAL and Consorcio, and the results of smaller businesses that
are not included in the main business segments. Due to the sale of BTAL in
the third quarter of 1999, its results are not included as a reportable
business segment. Corporate Items include revenue and expenses that have
not been allocated to business segments.
<PAGE> 13
BUSINESS SEGMENT RESULTS (continued)
The following table reconciles total net income (loss) for business
segments to consolidated net income (loss) (in millions):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
<S> <C> <C>
Total net income (loss) reported for business segments $(1,338) $(196)
Gain on sale of BTAL* 476 -
Restructuring charges (358) -
Realized foreign currency translation losses** (172) -
Earnings associated with unassigned capital 107 201
Loan net charge-offs in excess of the total provision
for credit losses-loans 68 31
Unallocated costs of corporate staff (70) (22)
Other unallocated amounts*** (259) (116)
Consolidated net income(loss) $(1,546) $(102)
<FN>
* Gain is net of foreign currency translation losses realized on the sale.
** Excluding realized foreign currency translation losses related to BTAL.
***Includes a $200 million increase in the valuation allowance related to
deferred tax assets for the nine months ended September 30, 1999.
</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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET INTEREST REVENUE (in millions)
Book basis $ 154 $ 336 $ 651 $1,104
Tax equivalent adjustment - 7 13 23
Fully taxable basis $154 $ 343 $664 $1,127
AVERAGE BALANCES (in millions)
Interest-earning assets $48,759 $131,309 $78,003 $125,973
Interest-bearing liabilities 49,725 128,926 76,114 123,102
Earning assets financed by
noninterest-bearing funds $(966) $2,383 $1,889 $2,871
AVERAGE RATES (fully taxable basis)
Yield on interest-earning assets 6.65% 6.91% 6.21% 7.00%
Cost of interest-bearing liabilities 5.30 5.99 5.22 5.94
Interest rate spread 1.35 .92 0.99 1.06
Contribution of noninterest-bearing
funds (.10) .12 .13 .14
Net interest margin 1.25% 1.04% 1.12% 1.20%
</TABLE>
<PAGE> 14
REVENUE (continued)
The significant transfers of entities and other financial assets and
liabilities to Deutsche Bank in the second and third quarters of 1999
negatively impacted net interest revenue and levels of average interest-
bearing assets and average interest-bearing liabilities for the three
months and nine months ended September 30, 1999 as compared to prior year
periods.
Net interest revenue for the third quarter of 1999 totaled $154
million, down $182 million, or 54 percent, from the third quarter of 1998.
The $182 million decrease in net interest revenue was primarily due to a
$95 million decrease in trading-related net interest revenue, which totaled
$22 million for the third quarter of 1999. Nontrading-related net interest
revenue totaled $132 million for the third quarter of 1999 versus $219
million for the comparable period in 1998.
Net interest revenue for the first nine months of 1999 totaled $651
million, down $453 million, or 41 percent, from the first nine months of
1998. The $453 million decrease in net interest revenue was primarily due
to a $285 million decrease in trading-related net interest revenue, which
totaled $176 million for the first nine months of 1999. Nontrading-related
net interest revenue totaled $475 million for the first nine months of 1999
versus $643 million for the comparable period in 1998.
In the third quarter of 1999, the interest rate spread was 1.35
percent compared to .92 percent in the prior year period. Net interest
margin increased to 1.25 percent from 1.04 percent. The yield on interest-
earning assets decreased by 26 basis points and the cost of interest-
bearing liabilities declined by 69 basis points. Average interest-earning
assets totaled $48.8 billion for the third quarter of 1999, down $82.6
billion from the same period in 1998. The decrease was primarily
attributable to declines in trading assets and securities borrowed and
other money-market related activities. Average interest-bearing
liabilities totaled $49.7 billion for the third quarter of 1999, down $79.2
billion from the same period in 1998. The decrease was primarily
attributable to a decline in securities sold under repurchase agreements,
interest-bearing deposits and other money-market related activities.
In the first nine months of 1999, the interest rate spread was 0.99
percent compared to 1.06 percent in the prior year period. Net interest
margin fell to 1.12 percent from 1.20 percent. The yield on interest-
earning assets decreased by 79 basis points and the cost of interest-
bearing liabilities declined by 72 basis points. Average interest-earning
assets totaled $78.0 billion for the first nine months of 1999, down $48.0
billion from the same period in 1998. The decrease was primarily
attributable to a decrease in trading assets, securities borrowed and other
money-market related activities. Average interest-bearing liabilities
totaled $76.1 billion for the first nine months of 1999, down $47.0 billion
from the same period in 1998. The decrease was primarily attributable to a
decrease in interest-bearing deposits, securities sold under repurchase
agreements and other money-market related activities.
Trading Revenue
The Corporation's trading activities in the second and third quarter
of 1999 were significantly reduced, reflecting the effects of integrating
the Corporation into Deutsche Bank as well as a continuation of risk
reduction efforts begun in the third quarter of 1998. In conjunction with
the Acquisition, the Corporation anticipates further curtailment of trading-
related activities.
Combined trading revenue and trading-related net interest revenue for
the third quarter of 1999 was a gain of $34 million, up $408 million from
the third quarter of 1998. Combined trading revenue and trading-related
net interest for the first nine months of 1999 totaled $121 million, down
$77 million from the first nine months of 1998. Trading losses for the
first nine months of 1999 reflect the impact of a change in management's
intention regarding certain assets as a result of integrating the
Corporation into Deutsche Bank and other risk reduction efforts.
<PAGE> 15
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 September 30, 1999
Interest rate risk $6 $ (6) $-
Foreign exchange risk (10) - (10)
Equity and commodity risk 16 28 44
Total $12 $22 $34
Three months ended September 30, 1998
Interest rate risk $(339) $151 $(188)
Foreign exchange risk 70 - 70
Equity and commodity risk (222) (34) (256)
Total $(491) $117 $(374)
Nine months ended September 30, 1999
Interest rate risk $(237) $164 $(73)
Foreign exchange risk 144 - 144
Equity and commodity risk 38 12 50
Total $(55) $176 $121
Nine months ended September 30, 1998
Interest rate risk $(405) $513 $108
Foreign exchange risk 330 - 330
Equity and commodity risk (188) (52) (240)
Total $(263) $461 $198
</TABLE>
Third Quarter 1999 vs. Third Quarter 1998
Interest Rate Risk - Trading and trading-related net interest revenue
related to interest rate risk increased from the prior year quarter. The
third quarter of 1998 included losses in emerging markets, primarily in
Russia and Latin America. Additionally, the 1998 losses reflected widening
credit spreads in high-yield securities which resulted in mark-to-market
losses.
Foreign Exchange Risk - The decrease is primarily attributed to the
overall reduction of the trading portfolio in addition to the sale
of BTAL in the third quarter of 1999, which in the prior year quarter was
responsible for a significant portion of the foreign exchange trading
revenue.
Equity and Commodity Risk - Trading and trading-related net interest
revenue related to equity and commodity risk increased from the prior year
quarter. The third quarter of 1998 included losses in global proprietary
equity portfolios caused by increased market volatility and decreased
activity in the equity derivatives books.
Nine Months 1999 vs. Nine Months 1998
Interest Rate Risk - The decrease reflects the integration of Bankers
Trust trading assets into the Deutsche Bank entity and includes post merger
risk reduction initiatives and the impact of a change in management's
intention regarding certain trading and trading-related assets. The nine
months of 1998 included losses on high-yield securities, adverse conditions
in the Latin American and Asian markets and valuation adjustments to
trading assets for widening counterparty credit spreads.
<PAGE> 16
REVENUE (continued)
Foreign Exchange Risk - The decrease in foreign exchange revenue is
primarily related to reduced revenue in the Australian markets coupled with
the sale of BTAL in the third quarter of 1999.
Equity and Commodity Risk - The increase is attributable to third
quarter 1998 losses in global proprietary equity portfolios caused by
increased market volatility, valuation adjustments related to the
Corporation's European Equity business as well as decreased activity in the
equity derivative books.
Noninterest Revenue (Excluding Trading)
Third Quarter 1999 vs. Third Quarter 1998
Corporate finance fees of $46 million decreased $196 million from the
$242 million earned in the third quarter of 1998. The decline is primarily
attributable to lower revenue from underwriting, merger and acquisition and
loan syndication activities resulting from the transfer of BTAB to DBSI in
June 1999.
Other fees and commissions of $92 million decreased $126 million from
the prior year quarter primarily due to lower fees for brokerage services
resulting from the transfer of BTAB to DBSI in June 1999.
Net revenue from equity investments increased $136 million from the
prior year period. The current quarter reflected higher gains on direct
equity investments.
Securities available for sale losses totaled $7 million compared to
securities available for sale losses of $125 million in the prior year
period. The prior year quarter included other-than-temporary impairment
writedowns on Russian, Asian and Latin American debt securities.
Insurance premium revenue decreased $74 million from the prior year
quarter. The Corporation exited the insurance business with the sale of
its remaining stake in Consorcio in the second quarter of 1999.
Other noninterest revenue totaled $900 million compared to a negative
$35 million in the prior year period. The current quarter included the
gain on the sale of BTAL.
Nine Months 1999 vs. Nine Months 1998
Corporate finance fees of $488 million decreased $477 million, or 49
percent, from the first nine months of 1998, primarily due to lower
underwriting fees, loan syndication fees and merger and acquisition
activities, which is primarily attributable to the transfer of BTAB to DBSI
in June 1999.
Other fees and commissions of $456 million decreased $128 million from
the prior year period primarily due to lower fees for brokerage services
resulting from a decline in customer trading activity and the transfer of
BTAB to DBSI in June 1999.
Net revenue from equity investments was $243 million during the first
nine months of 1999 as compared with $203 million during the first nine
months of 1998. The current period reflected higher gains on direct equity
investments.
Securities available for sale losses totaled $150 million compared to
securities available for sale losses of $81 million in the prior year
period. The current period reflected third-party sale activity and the
transfer of Latin American debt securities to Deutsche Bank related
entities based on changes in management responsibility related to such
securities. The prior year period reflected other-than-temporary
impairment writedowns on Russian, Asian and Latin American debt securities.
Insurance premium revenue decreased $116 million from the prior year
period. The Corporation exited the isurance business with sale of its
remaining stake in Consorcio in the second quarter of 1999.
<PAGE> 17
REVENUE (continued)
Other noninterest revenue totaled $812 million compared to $139
million in the prior year period. The current period included the gain on
the sale of BTAL. The current period increase was partially offset by the
recognition of cumulative translation adjustments for certain legal
entities transferred to affiliated Deutsche Bank entities in the second
quarter of 1999.
PROVISION AND ALLOWANCES FOR CREDIT LOSSES
The allowance for credit losses represents management's estimate of
probable losses that have occurred as of the date of the financial
statements. The allowance for credit losses-loans is reported as a
reduction of loans and the allowance for credit losses for other credit-
related items is reported in other liabilities.
The Corporation recently undertook a comprehensive review of its
policies and procedures related to the determination of the allowance for
credit losses to ensure that they are appropriate within the framework of
generally accepted accounting principles. Policies and procedures were
revised and improved to ensure a systematic and adequately documented
process for the estimation of credit losses and related charge-offs.
The allowance for credit losses-loans is comprised of a specific
allowance component, a country risk component and an expected loss
component. The specific allowance component is the amount required for
impaired loans as calculated under SFAS 114, "Accounting by Creditors for
Impairment of a Loan". The country risk component is the amount provided
for exposures in countries experiencing financial stress, excluding those
exposures already identified and evaluated as impaired loans. The expected
loss component is an estimate of the remaining probable losses inherent in
the loan portfolio. This component is determined by using a statistical
model that utilizes a loan-type, risk-rated stratified approach. Loss
factors are derived by analyzing historical charge-offs and recent economic
events and applied to categories of loans by type and risk rating.
As a result of the aforementioned review of policies and procedures,
the Corporation recorded a $33 million net reversal of the allowance for
credit losses. The net reversal included a negative provision for credit
losses-loans of $49 million and a provision for credit losses for other
credit-related items of $16 million for the three months ended September
30, 1999.
At September 30, 1999, the total allowance for credit losses-loans was
$476 million, of which $171 million was the specific allowance component,
$122 million was the country risk component and $183 million was the
expected loss component. At September 30, 1999 the allowance for credit
losses for other credit-related items was $30 million, of which $17 million
was the country risk component and $13 million was the expected loss
component.
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. In July 1999, the Agencies issued a
Joint Interagency Letter to Financial Institutions which stated their
agreement on some important aspects of loan loss allowance practices. The
Corporation will continue to monitor developments in this area and will
revise its procedures as needed to conform with the guidelines when they
are finalized.
<PAGE> 18
PROVISION AND ALLOWANCES FOR CREDIT LOSSES (continued)
The provisions for credit losses and the other changes in the
allowances for credit losses are shown below (in millions).
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
Total allowance for credit losses 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Loans
Balance, beginning of period $532 $678 $652 $699
Provision for credit losses (49) 20 (74) 20
Allowance related to BTAL and transferred
entities* (10) - (39) -
Net charge-offs
Charge-offs 2 37 86 67
Recoveries 5 6 23 15
Total net charge-offs (recoveries) (3) 31 63 52
Balance, end of period $476** $667 $476** $667
* Reflects the allowance for credit losses of certain legal entities
transferred to Deutsche Bank on the date of transfer and the allowance
for credit losses of BTAL on the date of sale.
**Comprised of a specific allowance component of $171 million, a country
risk component of $122 million and an expected loss component of $183
million.
Other liabilities
Balance, beginning of period $14 $13 $18 $13
Provision for credit losses 16 - 12 -
Balance, end of period $30 $13 $30 $13
/TABLE>
Impaired loans under SFAS 114, were $615 million and $418 million at
September 30, 1999 and December 31, 1998, respectively. Included in these
amounts were $512 million and $295 million of loans which required a
specific allowance of $171 million and $61 million at those same dates,
respectively. The specific allowance component increased $110 million from
December 31, 1998 primarily due to revised policies which led to additional
loans individually evaluated for impairment.
RESTRUCTURING CHARGE
As previously mentioned, the Corporation incurred a pre-tax
restructuring charge of $459 million in conjunction with the Acquisition in
the second quarter of 1999. The restructuring charge reflected $394
million of severance and other termination-related costs as well as $65
million of other costs primarily related to lease terminations and write-
offs of fixed assets and leasehold improvements. As of September 30, 1999,
the reserve balance was $136 million which related primarily to severance
costs and other termination-related costs for further staff reductions of
approximately 500 positions.
EXPENSES
Third Quarter 1999 vs. Third Quarter 1998
As compared to the third quarter of 1998, salaries and commissions
expense decreased $173 million, or 47 percent, primarily due to a decrease
in the average number of employees resulting from the transfer of BTAB and
BTI in the second quarter of 1999, the sale of BTAL in the third quarter of
1999 and staff reductions resulting from the Acquisition.
<PAGE> 19
EXPENSES (continued)
Incentive compensation and employee benefits decreased $56 million, or
20 percent from the prior year quarter, primarily due to the vesting of
employee deferred compensation amounts on the COC date as well as to the
previously mentioned decrease in the average number of employees.
The provision for policyholder benefits decreased $92 million from the
prior year period. The Corporation exited the insurance business with the
sale of its remaining stake in Consorcio in the second quarter of 1999.
Nine Months 1999 vs. Nine Months 1998
Salaries and commission expense of $903 million in the first nine
months of 1999 decreased $160 million from the first nine months of 1998,
primarily due to the decrease in the average number of employees as
previously mentioned.
Incentive compensation and employee benefits decreased by $255 million
during the first nine months of 1999 primarily due to the decrease in the
average number of employees as previously mentioned.
The current period included $1.1 billion of change-in-control related
incentive compensation and employee benefits, primarily as a result of
accelerated amortization of deferred compensation amounts as of the COC
date.
The provision for policyholder benefits decreased $137 million from
the first nine months of 1998. The Corporation exited the insurance
business with the sale of its remaining stake in Consorcio in the second
quarter of 1999.
INCOME TAXES
Income tax expense for the third quarter of 1999 amounted to $559
million, compared to an income tax benefit of $219 million in the third
quarter of 1998. Tax expense in the current quarter included a $200 million
increase in the valuation allowance related to deferred tax assets.
For the first nine months of 1999, income tax expense was $43 million
compared with an income tax benefit of $69 million for the first nine
months of 1998. The effective tax rate was 68 percent for the current
quarter and 3 percent for the nine months ended September 30, 1999,
respectively and 31 percent and 40 percent for the prior year quarter and
nine months ended September 30, 1998, respectively.
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.
<PAGE> 20
YEAR 2000 READINESS DISCLOSURE (continued)
The Awareness, Assessment, Renovation, Validation and Implementation
Phases have been completed in accordance with applicable regulatory
milestones. The Corporation expects the remainder of this year will be used
for re-checking contingency plans and command center structure as well as the
ongoing monitoring of the Year 2000 readiness of major counterparties,
financial infrastructure service providers and the markets generally. A
change management policy that limits system modifications to the extent
possible and imposing a complete moratorium for system changes during the
transition period has been implemented. 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.
The Corporation's Year 2000 Program includes other issues not directly
related to technology. Business lines, infrastructure and other support
functions have been focusing on topics such as:
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. The Corporation
has 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's crisis management structure will leverage off
of its pre-existing Business Continuity Planning (BCP) framework and
follows the structure of its ultimate parent company, Deutsche Bank AG.
As the basis for the Corporation's existing BCP process primarily focuses
on outages and loss of facilities, data centers and applications,
contingency planning and crisis management efforts, for Year 2000 purposes,
will be supplemented for those risks unique to Year 2000.
<PAGE> 21
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 framework from that particular business
is the basis of its crisis management structure. In addition, alternate
sites that might be needed due to a Year 2000 related problem are planned
to 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 have been expanded to
include other Year 2000 specific categories, creating a Year 2000
contingency plan for each core business. Plans for the Corporation's core
business processes were updated to comply with the June 30, 1999 timeframe
established by the FFIEC. 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, plans must continue
to be updated through the end of 1999, and for as long as necessary
thereafter. The Corporation has established a methodology to validate all
plans supporting core processes and the Corporation considers such plans to
be validated by one or more of the following: 1) large-scale physical
testing; 2) business walk-throughs of contingency plans; and 3) peer
reviews by internal business management, including those managers
independent from the developers 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 validation of contingency plans supporting core processes has
been completed.
To help deal with any Year 2000 problems that might occur, the
Corporation will be a part of the command center structure Deutsche Bank
Group has established for the year-end and leap-year transition management.
The command center structure will have a Frankfurt, Germany based Global
Command Center as central hub to coordinate and manage Year 2000 events and
activities. The Corporation will operate a Regional Command Center in New
York. Regional command centers will report into the Global Command Center
on the status of the offices, financial services sector and geographic area
in which they operate.
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
measures, command centers and recovery efforts. The Corporation
anticipates that information on significant outages will be communicated to
the designated regional and global command centers to ensure appropriate
coordination for managing this effort. The command centers will be
composed of representatives from the Corporation's Year 2000 Program
Management Office (PMO), business management, technology, legal, corporate
communications and other corporate resource areas.
The Corporation incurred approximately $14 million for the third
quarter of 1999 and $45 million for the nine months ended September 30,
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 $75 million to $105 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 estimated.
The Corporation is currently evaluating its systems needs in
connection with its acquisition by Deutsche Bank. As a result of this
acquisition and ongoing restructuring, the Corporation's Year 2000
expenditures for the remainder of 1999 and 2000 could differ from current
estimates; however the Corporation does not expect this acquisition and
restructuring to materially affect its Year 2000 Program.
<PAGE> 22
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>
<TABLE>
<CAPTION>
CONDENSED AVERAGE BALANCE SHEETS
(in millions)
3rd Qtr 2nd Qtr 4th Qtr
1999 1999 1998
<S> <C> <C> <C>
ASSETS
Interest-earning
Interest-bearing deposits with banks $5,647 $ 3,693 $ 2,370
Federal funds sold 2,574 4,213 3,445
Securities purchased under resale
agreements 5,857 16,339 19,316
Securities borrowed 1,219 12,326 17,903
Trading assets 8,136 16,958 25,206
Securities available for sale
Taxable 3,762 6,775 10,038
Exempt from federal income taxes 17 1,193 1,692
Total securities available for sale 3,779 7,968 11,730
Loans
Domestic offices 12,569 13,625 12,847
Foreign offices 7,986 8,266 10,417
Total loans 20,555 21,891 23,264
Other receivables 992 1,357 1,622
Total interest-earning assets 48,759 84,745 104,856
Noninterest-earning
Cash and due from banks 2,309 1,964 2,721
Noninterest-earning trading assets 11,179 17,289 29,650
All other assets 11,015 12,101 11,853
Less: Allowance for credit losses-loans 522 581 665
Total $72,740 $115,518 $148,415
LIABILITIES
Interest-bearing
Interest-bearing deposits
Domestic offices $12,688 $ 16,520 $ 18,891
Foreign offices 10,509 15,215 16,650
Total interest-bearing deposits 23,197 31,735 35,541
Trading liabilities 887 4,258 5,918
Securities loaned and securities sold
under repurchase agreements 816 11,297 20,650
Other short-term borrowings 9,717 17,264 19,247
Long-term debt 13,683 16,143 18,645
Trust preferred capital securities 1,425 1,423 1,419
Total interest-bearing liabilities 49,725 82,120 101,420
Noninterest-bearing
Noninterest-bearing deposits 4,109 3,609 4,362
Noninterest-bearing trading liabilities 8,448 15,672 26,454
All other liabilities 6,119 9,806 11,271
Total liabilities 68,401 111,207 143,507
PREFERRED STOCK OF SUBSIDIARY - - 144
STOCKHOLDERS' EQUITY
Preferred stock 394 394 394
Common stockholders' equity 3,945 3,917 4,370
Total stockholders' equity 4,339 4,311 4,764
Total $72,740 $115,518 $148,415
</TABLE>
<PAGE> 23
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> September 30, June 30, December 31,
(in millions) 1999 1999 1998
<S> <C> <C> <C>
Fair value $3,539 $2,041 $12,748
Amortized cost 3,494 1,996 12,903
Excess of amortized cost over
fair value* $45 $ 45 $ (155)
* Components:
Unrealized gains $81 $ 71 $ 264
Unrealized losses (36) (26) (419)
$45 $ 45 $(155)
</TABLE>
The decline in the balance of securities available for sale from
December 31, 1998 was primarily due to the transfer at fair market value of
certain securities available for sale to other Deutsche Bank related
entities as well as the sale of securities available for sale to third
parties.
<PAGE> 24
TRADING DERIVATIVES
The Corporation manages trading positions in a variety of derivative
contracts, many of which are entered into to meet customers' demands. 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 September 30, Average During
1999 3rd Qtr.1999
(Liabi- (Liabi-
(in millions) Assets lities) Assets lities)
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 15,624 $(15,546) $12,997$(12,853)
Interest Rate Contracts
Forwards 14 (13) 25 (23)
Options purchased 1,096 617
Options written (1,307) (728)
Foreign Exchange Rate Contracts
Spot and Forwards 887 (931) 6,611 (6,587)
Options purchased 703 1,649
Options written (703) (1,624)
Equity-related contracts 2,061 (2,248) 3,304 (3,604)
Commodity-related and other
contracts 1,692 (1,689) 729 (824)
Exchange-Traded Options
Interest Rate - - - -
Foreign exchange - - - -
Commodity - - - -
Equity - (13) 36 -
Total Gross Fair Values 22,077 (22,450) 25,968 (26,243)
Impact of Netting Agreements (16,090) 16,090 (18,539) 18,539
$5,987(1) $(6,360)(1) $7,429 $(7,704)
<FN>
(1) As reflected on the balance sheet in "Trading Assets" and "Trading
Liabilities."
</TABLE>
The decline in the balance of trading derivatives from December 31,
1998 was primarily due to the transfer of BTI to Deutsche Bank in the
second quarter of 1999 and the sale of BTAL in the third quarter of 1999 as
well as the continuing transfer of other trading derivatives to affiliated
Deutsche Bank entities.
<PAGE> 25
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) $(15,857)(1) $21,259 $(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 losses were $199 million at
September 30, 1999 compared with unrealized gains of $264 million at
December 31, 1998. The $463 million decrease was primarily due to the
transfer of Corporation entities to affiliated Deutsche Bank entities and
changes in interest rates.
<PAGE> 26
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
stockholder's 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-
Sept 30, 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 $ - $1 $ - $ 57 $ 3 $ 44 $ - $105
Unrealized (Loss) - (2) - (201) - (108) - (311)
Pay Variable Net - (1) - (144) 3 (64) - (206)
Pay Fixed
Unrealized Gain - - - 26 6 - 32
Unrealized (Loss) - - - (15) - - (15)
Pay Fixed Net - - 11 6 - 17
Total Unrealized
Gain - 1 - 83 3 50 - 137
Total Unrealized
(Loss) - (2) - (216) - (108) - (326)
Total Net $ - $(1) $ - $(133) $ 3 $(58) $ - $(189)
Currency Swaps and Forwards
Unrealized Gain $ - $ - $ 1 $ - $ - $ 33 $ - $34
Unrealized (Loss) - (2) - - - (42) - (44)
Net $ - $(2) $ 1 $ - $ - $(9) $ - $(10)
Other Contracts
Unrealized Gain $ - $- $ - $ - $ - $ - $ - $ -
Unrealized (Loss) - - - - - - - -
Net $ - $- $ - $ - $ - $ - $ - $ -
Total Unrealized
Gain $ - $ 1 $ 1 $ 83 $ 3 $ 83 $ - $ 171
Total Unrealized
(Loss) - (4) - (216) - (150) - (370)
Total Net $ - $(3) $ 1 $ (133) $ 3 $(67) $ - $(199)
<FN>
(1) Includes trust preferred capital securities.
(2) Includes swaps with embedded options to cancel.
</TABLE>
<PAGE> 27
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
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> 28
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 September 30, 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 $21,921 5.35% 5.33% $1,046 5.47% 5.56% $22,967
2000-2001 14,087 5.53 5.32 3,799 5.12 5.55 17,886
2002-2003 2,779 5.64 5.47 201 5.47 6.38 2,980
2004 and thereafter 6,561 6.70 5.39 530 5.38 6.37 7,091
Total $45,348 $5,576 $50,924
</TABLE>
All rates were those in effect at September 30, 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> 29
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 September
30, 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
September 30, December 31, Adequacy Regulatory
1999 1998 Purposes Guidelines
<S> <C> <C> <C> <C>
Corporation
Risk-Based Capital Ratios
Tier 1 Capital 10.8% 7.5% 4.0% 6.0%
Total Capital 18.4% 13.6% 8.0% 10.0%
Leverage Ratio 6.7% 3.5% 3.0% N/A
BTCo
Risk-Based Capital Ratios
Tier 1 Capital 16.1% 10.5% 4.0% 6.0%
Total Capital 18.4% 13.4% 8.0% 10.0%
Leverage Ratio 10.6% 5.7% 3.0% 5.0%
<FN>
N/A Not Applicable
</TABLE>
<PAGE> 30
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
September 30, December 31,
(in millions) 1999 1998
<S> <C> <C>
Corporation
Tier 1 Capital $4,809 $5,069
Tier 2 Capital 3,399 3,812
Tier 3 Capital - 400
Total Capital $8,208 $9,281
Total risk-weighted assets $44,670 $67,980
BTCo
Tier 1 Capital $6,094 $ 6,682
Tier 2 Capital 877 1,858
Total Capital $6,971 $ 8,540
Total risk-weighted assets $37,860 $63,748
</TABLE>
Comparing September 30, 1999 to December 31, 1998, the Corporation's
Tier 1 Capital ratio increased 330 basis points as the slight decline in
Tier 1 Capital of $0.3 billion was offset by the significant decrease in
risk-weighted assets of $23.3 billion. The Tier 1 Capital decrease was
primarily caused by the year-to-date net operating loss of $1.5 billion and
the net decline in the other components of Tier 1 Capital of $0.2 billion,
offset by the second quarter capital contribution of $1.4 billion made by
Deutsche Bank. Risk-weighted assets decreased principally because
positions were liquidated or transferred to other Deutsche Bank affiliates.
The Total Capital ratio increased 480 basis points as the decrease in risk-
weighted assets more than offset the decline of $1.1 billion in Total
Capital. The Leverage ratio increased 320 basis points with a slight
decrease in Tier 1 Capital more than offsetting a decrease of $74.1 billion
in adjusted quarterly average assets.
The negative effect of the aforementioned operating losses and
positive effect of the asset liquidations and transfers were also the main
reasons for comparative variances in BTCo's ratios. BTCo's Tier 1 Capital
ratio increased 560 basis points as the decrease in Tier 1 Capital of $0.6
billion was more than offset by a reduction of $25.9 billion in risk-
weighted assets. Total Capital ratio increased 500 basis points as the
reduction in risk-weighted assets was more than enough to offset
the decline of $1.6 billion in Total Capital. The Leverage ratio increased
490 basis points as the decline in Tier 1 Capital was offset by the
significant reduction of $59.0 billion in quarterly average assets.
<PAGE> 31
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").
Table 1 below shows the results of statistical measures of loss for
the first nine months 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>
Third Quarter Nine Months
1998 1999 1999 December 31, September 30,
Risk Class Average Average Average 1998 1999
<S> <C> <C> <C> <C> <C>
Interest Rate $101.4 $71.1 $69.6 $ 77.4 $ 59.2
Currency 35.5 2.2 9.2 26.0 3.2
Equity 88.0 64.8 81.3 105.0 61.2
Commodity 4.2 - 2.5 3.9 -
Diversification (67.9) (31.2) (45.5) (64.7) (28.7)
Overall Portfolio $161.2 $106.9 $117.1 $147.6 $94.9
</TABLE>
<PAGE> 32
RISK MANAGEMENT (continued)
Table 2
BT Corporation Trading Ten-Day Value at Risk
(in millions)
<TABLE>
<CAPTION>
Third Quarter Nine Months
1998 1999 1999 December 31, September 30,
Risk Class Average Average Average 1998 1999
<S> <C> <C> <C> <C> <C>
Interest Rate $ 61.1 $42.4 $ 39.7 $ 52.2 $ 38.3
Currency 34.8 2.2 9.1 22.0 3.2
Equity 57.0 12.7 30.2 51.2 10.5
Commodity 4.2 - 2.5 3.9 -
Diversification (53.7) (10.9) (24.5) (47.5) (9.5)
Overall Portfolio $103.4 $46.4 $57.0 $81.8 $ 42.5
</TABLE>
Table 1 shows that the Corporation's overall market-risk exposure
declined during the first nine months of 1999 on an average and spot basis
by 27 percent and 36 percent, respectively. The overall decline was driven
by declines in all risk classes, though particularly currency risk. These
reductions reflect the continuing effects of integrating the Corporation
into Deutsche Bank Group. The primary risks remaining at September 30,
1999 are interest rate risk and equity risk. The interest rate risk stems
primarily from the loan trading, loan syndication and loan securitization
businesses. The equity risk is primarily from private equity investments
held by the Corporation.
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 45 percent and 48
percent, respectively. The decline was evident across all risk classes.
These reductions reflect the continuing effects of integrating the
Corporation into Deutsche Bank Group.
Effective October 1, 1999 the Corporation has adopted the market-risk
VAR model that is used throughout the Deutsche Bank Group. Table 3 shows
the current trading market-risk exposure of the Corporation under this
model. The relative decrease in interest rate risk and the relative
increase in equity risk are due to the reclassification of the distressed
debt trading business from interest rate risk to equity risk.
Table 3
BT Corporation Trading Ten-Day Value at Risk
(in millions)
<TABLE>
<CAPTION>
October 31, 1999
Risk Class
<S> <C>
Interest Rate $ 25.3
Currency 1.3
Equity 16.2
Commodity -
Diversification (12.7)
Overall Portfolio $30.1
</TABLE>
<PAGE> 33
LIQUIDITY
Liquidity is the ability to have funds available at all times to meet
the commitments of the Corporation. As part of the Acquisition, the
Corporation's liquidity process has now become an integral part of Deutsche
Bank's global liquidity process. The Corporation continues to have a
formal process for managing the liquidity for the Firm as a whole and for
each of its significant subsidiaries. Management's policy is designed to
maintain the Corporation's ability to fund assets and meet any contractual
financial obligations on a timely basis at a fair market cost under any
market conditions. The fundamental objective is to ensure that, even in
the event of a complete loss of access to liquidity, 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, 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 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
September 30, 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
September 30, 1999 1 year years 5 years funds Total
<S> <C> <C> <C> <C> <C>
Assets $ 36.6 $ 4.0 $ 1.0 $ 20.2 $ 61.8
Liabilities and preferred
stock (28.8) (6.9) (5.6) (16.5) (57.8)
Common stockholder's equity - - - (4.0) (4.0)
Effect of off-balance sheet
hedging instruments (1.9) 1.2 0.7 - -
Interest rate sensitivity
gap $5.9 $(1.7) $(3.9) $(0.3) $ -
</TABLE>
<PAGE> 34
NONPERFORMING ASSETS
The components of cash basis loans, renegotiated loans, other real
estate and other nonperforming assets are shown below ($ in millions).
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
CASH BASIS LOANS
Domestic
Commercial and industrial $ 309 $ 91
Secured by real estate 69 86
Financial institutions 12 15
Total domestic 390 192
International
Commercial and industrial 105 135
Secured by real estate 11 18
Foreign governments - 23
Lease financings 1 7
Other 21 17
Total international 138 200
Total cash basis loans $528 $392
Ratio of cash basis loans to total gross loans 2.9% 1.7%
Ratio of allowance for credit losses-loans to
cash basis loans 90% 166%
RENEGOTIATED LOANS
Secured by real estate $- $25
Other - 1
Total renegotiated loans $- 26
OTHER REAL ESTATE $86 $87
OTHER NONPERFORMING ASSETS $8 $8
</TABLE>
There were no loans 90 days or more past due and still accruing
interest at September 30, 1999 and December 31, 1998.
<PAGE> 35
NONPERFORMING ASSETS (continued)
An analysis of the changes in the Corporation's total cash basis loans
during the first nine months of 1999 follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1998 $392
Net transfers to cash basis loans 388
Net transfers to other real estate (11)
Net paydowns (82)
Charge-offs (86)
Transfer to Deutsche Bank* (15)
Other (58)
Balance, September 30, 1999 $528
</TABLE>
*Reflects the cash basis loans of certain legal entities transferred to
Deutsche Bank on the date of transfer.
The Corporation's total cash basis loans amounted to $528 million at
September 30, 1999, up $136 million, or 35 percent, from December 31, 1998.
The increase in cash basis loans was due to a rise in impaired loans from
$418 million at December 31, 1998 to $615 million at September 30, 1999.
Within cash basis loans, loans secured by real estate were $80 million and
$104 million at September 30, 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 September 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>
Nine Months Ended
September 30,
(in millions) 1999 1998
<S> <C> <C>
Domestic Loans
Gross amount of interest that would have
been recorded at original rate $10 $7
Less, interest, net of reversals, recognized
in interest revenue 5 2
Reduction of interest revenue 5 5
International Loans
Gross amount of interest that would have
been recorded at original rate 3 7
Less, interest, net of reversals, recognized
in interest revenue 1 3
Reduction of interest revenue 2 4
Total reduction of interest revenue $7 $9
</TABLE>
<PAGE> 36
RELATED PARTY TRANSACTIONS
In conjunction with the integration of the Corporation into Deutsche
Bank's management structure, the Corporation has entered into various
related party transactions with Deutsche Bank. As previously mentioned on
page 9, the Corporation has transferred BTAB and substantially all of its
interest in BTI to Deutsche Bank entities. In addition, the Corporation
has transferred at fair market value certain other entities and financial
assets and liabilities to Deutsche Bank entities. In order to realign the
Corporation's businesses with the Deutsche Bank management structure, the
Corporation will continue to transfer other financial assets and
liabilities and entities as necessary.
In connection with the sale of BTAL to the Principal Financial Group
("Principal"), Deutsche Bank provided various representations and
warranties to Principal.
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 137
deferred the effective date of SFAS 133 until January 1, 2001 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.
SUPERVISION AND REGULATION
On November 12, 1999, the President signed the Gramm-Leach-Bliley
Financial Modernization Act of 1999 into law. The Modernization Act will,
among other things, allow bank holding companies meeting management, capital and
CRA standards to engage in a substantially broader range of nonbanking
activities than currently is permissible, including insurance underwriting and
making merchant banking investments in commercial and financial companies;
allow insurers and other financial services companies to acquire banks;
remove various restrictions that currently apply to bank holding company
ownership of securities firms and mutual fund advisory companies; and
establish the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations. This part
of the Modernization Act will become effective in February 2000.
The Modernization Act also modifies current law related to financial
privacy and community reinvestment. The new financial privacy provisions
will generally prohibit financial institutions, including the Corporation,
from disclosing nonpublic personal financial information to third parties
unless customers have the opportunity to "opt out" of the disclosure. At
this time the Corporation is unable to predict the impact the Modernization
Act may have on it and its affiliates.
<PAGE> 37
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 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> 38
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.
(12) Statement re Computation of Ratios
(27) Financial Data Schedule
(99) Additional Exhibits
(b) Reports on Form 8-K - Bankers Trust Corporation filed one report
on Form 8-K during the quarter ended September 30, 1999.
- The report dated August 31, 1999 and filed September 15, 1999
reported: under Item 2 thereof that the Corporation sold Bankers
Trust Australia Limited, a wholly-owned subsidiary, to the
Principal Financial Group for a price of approximately $1.4
billion; under Item 7 thereof unaudited pro forma financial
information.
<PAGE> 39
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned; thereunto duly authorized, on November 15, 1999.
BANKERS TRUST CORPORATION
BY: /S/ RONALD HASSEN
RONALD HASSEN
Senior Vice President, Controller
and Principal Accounting Officer
<PAGE>
BANKERS TRUST CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 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
(99) (i) Additional Exhibits
(1) Unaudited Pro Forma Condensed Financial
Statements for the nine months ended
September 30, 1999 and 1998
[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.
<PAGE>
EXHIBIT 12(a)
BANKERS TRUST CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
(dollars in millions)
[CAPTION]
<TABLE>
Nine Months
Ended
Year Ended December 31, September 30,
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) $(1,503)
2. Add: Fixed charges
excluding
capitalized
interest
(Line 10) 3,911 5,138 5,483 5,959 6,954 3,003
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 45 28 30 (117) 15 69
4. Earnings including
interest on deposits 4,853 5,579 6,584 7,315 6,862 1,431
5. Less: Interest on
deposits 965 1,360 1,355 2,076 2,195 1,133
6. Earnings excluding
interest on deposits $3,888 $4,219 $5,229 $5,239 $4,667 $298
Fixed Charges:
7. Interest Expense $3,880 $5,105 $5,451 $5,926 $6,919 $2,971
8. Estimated interest
component of net
rental expense 31 33 32 33 35 32
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 3,003
11. Add: Capitalized
interest - - - - - -
12. Total fixed charges 3,911 5,138 5,483 5,959 6,954 3,003
13. Less: Interest on
deposits
(Line 5) 965 1,360 1,355 2,076 2,195 1,133
14. Fixed charges excluding
interest on deposits $2,946 $3,778 $4,128 $3,883 $4,759 $1,870
Consolidated Ratios of Earnings
to Fixed Charges:
Including interest on
deposits
(Line 4/Line 12) 1.24 1.09 1.20 1.23 .99 N/A
Excluding interest on
deposits
(Line 6/Line 14) 1.32 1.12 1.27 1.35 .98 N/A
<FN>
For the nine months ended September 30, 1999 and for the year ended
December 31, 1998, earnings, as defined, did not cover fixed charges,
including and excluding interest on deposits by $1,572 million and $92
million, respectively, as a result of a net loss recorded during the
period.
N/A - Not Applicable.
</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>
Nine Months
Ended
Year Ended December 31, September 30,
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) $(1,503)
2. Add: Fixed charges
excluding
capitalized
interest
(Line 13) 3,911 5,138 5,483 5,959 6,954 3,003
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 45 28 30 (117) 15 69
4. Earnings including
interest on deposits 4,853 5,579 6,584 7,315 6,862 1,431
5. Less: Interest on
deposits 965 1,360 1,355 2,076 2,195 1,133
6. Earnings excluding
interest on deposits $3,888 $4,219 $5,229 $5,239 $4,667 $ 298
Preferred Stock Dividend Requirements:
7. Preferred stock dividend
requirements $ 28 $ 51 $ 51 $ 49 $ 32 $ 17
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% 111%
9. Preferred stock dividend
requirements on a pretax
basis $ 40 $ 77 $ 75 $ 70 $ 34 $ 19
Fixed Charges:
10. Interest Expense $3,880 $5,105 $5,451 $5,926 $6,919 $2,971
11. Estimated interest
component of net
rental expense 31 33 32 33 35 32
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 3,003
14. Add: Capitalized
interest - - - - - -
15. Total fixed charges 3,911 5,138 5,483 5,959 6,954 3,003
<PAGE>
16. Add: Preferred stock
dividend require-
ments - pretax
(Line 9) 40 77 75 70 34 19
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 3,022
18. Less: Interest on
deposits
(Line 5) 965 1,360 1,355 2,076 2,195 1,133
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 $1,889
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 N/A
Excluding interest on
deposits
(Line 6/Line 19) 1.30 1.09 1.24 1.32 .97 N/A
<FN>
For the nine months ended September 30, 1999 and 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 $1,591 million and by $126 million, respectively, as a result
of a net loss recorded during the period.
N/A - Not Applicable.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from the Bankers Trust
Corporation and Subsidiaries consolidated statement of condition at September
30, 1999 and the consolidated statement of income for the nine months ended
September 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,642
<INT-BEARING-DEPOSITS> 3,357
<FED-FUNDS-SOLD> 10,057
<TRADING-ASSETS> 15,434
<INVESTMENTS-HELD-FOR-SALE> 3,539
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 18,187
<ALLOWANCE> 476
<TOTAL-ASSETS> 61,804
<DEPOSITS> 24,338
<SHORT-TERM> 6,869<F1>
<LIABILITIES-OTHER> 5,259<F2>
<LONG-TERM> 14,445
0
394
<COMMON> 0
<OTHER-SE> 4,009
<TOTAL-LIABILITIES-AND-EQUITY> 61,804
<INTEREST-LOAN> 1,135
<INTEREST-INVEST> 326
<INTEREST-OTHER> 1,391<F3>
<INTEREST-TOTAL> 3,622
<INTEREST-DEPOSIT> 1,133
<INTEREST-EXPENSE> 2,971
<INTEREST-INCOME-NET> 651
<LOAN-LOSSES> (74)
<SECURITIES-GAINS> (150)
<EXPENSE-OTHER> 4,913
<INCOME-PRETAX> (1,503)
<INCOME-PRE-EXTRAORDINARY> (1,503)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,546)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 1.12
<LOANS-NON> 528
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 652
<CHARGE-OFFS> 86
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 476<F4>
<ALLOWANCE-DOMESTIC> 151<F4>
<ALLOWANCE-FOREIGN> 20<F4>
<ALLOWANCE-UNALLOCATED> 305<F4>
<FN>
<F1>Short-term borrowings include the following:
Securities loaned and securities sold under
repurchase agreements 155
Other short-term borrowings 6,714
Total 6,869
<F2>Other liabilities include the following:
Accounts payable and accrued expenses 2,281
Other liabilities 2,904
Acceptances outstanding 74
Total 5,259
<F3>Other interest income includes the following:
Interest-bearing deposits with banks 232
Federal funds sold 111
Securities purchased under resale agreements 600
Securities borrowed 383
Customer receivables 65
Total 1,391
<F4>Amount pertains to the allowance related to loans.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.1
BANKERS TRUST CORPORATION
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following Unaudited Pro Forma Condensed Statements of Income for
the nine months ended September 30, 1999 and 1998 give effect to Bankers
Trust Corporation's ("BT" or the "Corporation") sale of its wholly-owned
subsidiary Bankers Trust Australia Limited ("BTAL") to the Principal
Financial Group for a price of approximately $1.4 billion. In addition, the
following Unaudited Pro Forma Condensed Statements of Income for the nine
months ended September 30, 1999 and 1998 give effect to the Corporation's
transfer on June 5, 1999 of its wholly-owned subsidiary BT Alex. Brown
Incorporated ("BTAB") and substantially all of its interest in Bankers
Trust International PLC ("BTI") to Deutsche Bank Securities Inc. and
Deutsche Holdings (BTI) Ltd., respectively, which are wholly-owned
subsidiaries of Deutsche Bank AG.
The pro forma information is based on the historical consolidated
financial statements of BT after giving effect to the pro forma adjustments
described in the Notes to the Unaudited Pro Forma Condensed Financial
Statements. The gain on the sale of BTAL has not been considered in the
unaudited pro forma condensed income statements due to its nonrecurring
nature. The pro forma financial data are not necessarily indicative of the
results that actually would have occurred had the sale of BTAL and transfer
of BTAB and BTI been consummated on the dates indicated or that may be
obtained in the future.
<PAGE>
BANKERS TRUST CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1999
BT BTAB, BTI Pro Forma
Consolidated and BTAL** Adjustments Pro Forma
(a) (b)
<S> <C> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $3,622 $ (1,316) $ 576 $ 2,882
Interest expense 2,971 (774) 253 2,450
NET INTEREST REVENUE 651 (542) 323 432
Provision for credit
losses-loans (74) 26 - (48)
NET INTEREST REVENUE AFTER
PROVISION FOR CREDIT
LOSSES-LOANS 725 (568) 323 480
NONINTEREST REVENUE
Trading (55) 260 (2) 203
Fiduciary and funds management 805 (178) - 627
Corporate finance fees 488 (304) - 184
Other fees and commissions 456 (186) - 270
Net revenue from equity
investments 243 - - 243
Securities available for sale gains
(losses) (150) 108 - (42)
Insurance premiums 86 - - 86
Other 812 107 212 1,131
Total noninterest revenue 2,685 (193) 210 2,702
NONINTEREST EXPENSES
Salaries and commissions 903 (310) - 593
Incentive compensation and employee
benefits* 2,046 (919) - 1,127
Agency and other professional
service fees 343 (54) 54 343
Communication and data services 172 (53) - 119
Occupancy, net 165 (35) - 130
Furniture and equipment 189 (33) - 156
Travel and entertainment 98 (48) - 50
Provision for policyholder
benefits 114 - - 114
Other 424 (153) 412 683
Restructuring charge 459 - - 459
Total noninterest expenses 4,913 (1,605) 466 3,774
Income (loss) before income taxes (1,503) 844 67 (592)
Income taxes (benefit) 43 311
NET INCOME (LOSS) $(1,546) $(903)
<FN>
* Includes charges of approximately $1.1 billion in change-in-control
related costs.
** Includes results of operations of BTAB and BTI through the transfer
date, June 5, 1999 and includes results of operations of BTAL through the
sale date, August 31, 1999.
See Notes to Unaudited Pro Forma Condensed Financial Statements.
</TABLE>
<PAGE>
BANKERS TRUST CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1998
BT BTAB, BTI Pro Forma
Consolidated and BTAL Adjustments Pro Forma
(a) (b)
<S> <C> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $6,575 $ (3,455) $1,545 $4,665
Interest expense 5,471 (2,069) 560 3,962
NET INTEREST REVENUE 1,104 (1,386) 985 703
Provision for credit
losses-loans 20 (29) - (9)
NET INTEREST REVENUE AFTER PROVISION
FOR CREDIT LOSSES-LOANS 1,084 (1,357) 985 712
NONINTEREST REVENUE
Trading (263) 390 9 136
Fiduciary and funds management 819 (211) - 608
Corporate finance fees 965 (706) - 259
Other fees and commissions 584 (335) - 249
Net revenue from equity
investments 203 (3) - 200
Securities available for sale gains
(losses) (81) 17 - (64)
Insurance premiums 202 - - 202
Other 139 (29) 314 424
Total noninterest revenue 2,568 (877) 323 2,014
NONINTEREST EXPENSES
Salaries and commissions 1,063 (320) - 743
Incentive compensation and employee
benefits 1,200 (754) - 446
Agency and other professional
service fees 374 (105) 104 373
Communication and data services 180 (75) - 105
Occupancy, net 156 (44) - 112
Furniture and equipment 175 (47) - 128
Travel and entertainment 123 (59) - 64
Provision for policyholder
benefits 251 - - 251
Other 301 (178) 419 542
Total noninterest expenses 3,823 (1,582) 523 2,764
Income (loss) before income taxes (171) (652) 785 (38)
Income taxes (benefit) (69) (129)
NET INCOME (LOSS) $ (102) $ 91
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $(128) N/A (c)
EARNING (LOSS) PER COMMON SHARE:
BASIC $(1.28) N/A (c)
DILUTED $(1.28) N/A (c)
Cash dividends declared per common share $3.00 N/A (c)
Average common and common equivalent
shares outstanding - basic 100.529 N/A (c)
Average common and common equivalent shares
outstanding - diluted 100.529 N/A (c)
<FN>
N/A - Not Available
See Notes to Unaudited Pro Forma Condensed Financial Statements.
</TABLE>
<PAGE>
BANKERS TRUST CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) Amounts represent the elimination of BTAB's, BTI's and BTAL's third-
party amounts from BT's historical consolidated financial statements
(b) Adjustments to record BTAB, BTI and BTAL intercompany amounts as third-
party revenue or expense, as applicable. Intercompany amounts were
eliminated in BT's historical consolidated financial statements.
(c) Pro forma cash dividends declared per common share, the pro forma
earnings per common share calculations and the pro forma average
common and common equivalent shares outstanding amounts are not
meaningful, and therefore not presented, since Deutsche Bank AG
acquired all of the outstanding shares of common stock of the
Corporation from its shareholders at a price of $93.00 per share on
June 4, 1999.
