<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-5920
BANKERS TRUST CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-6180473
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
130 Liberty Street
New York, New York 10006
(Address of principal executive offices) (Zip code)
(212) 250-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No _______
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of July 31, 1999: Common Stock, $1 par value, 1
share.
<PAGE> 1
BANKERS TRUST CORPORATION
JUNE 30, 1999 FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income
Three Months Ended June 30, 1999 and 1998 2
Six Months Ended June 30, 1999 and 1998 3
Consolidated Statement of Comprehensive Income
Three Months Ended June 30, 1999 and 1998 and
Six Months Ended June 30, 1999 and 1998 4
Consolidated Balance Sheet
At June 30, 1999 and December 31, 1998 5
Consolidated Statement of Changes in Stockholders'
Equity
Six Months Ended June 30, 1999 and 1998 6
Consolidated Statement of Cash Flows
Six Months Ended June 30, 1999 and 1998 7
Consolidated Schedule of Net Interest Revenue
Three Months and Six Months Ended
June 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 six months ended June 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 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 38
PART II. OTHER INFORMATION
Item 5. Other Information 39
Item 6. Exhibits and Reports on Form 8-K 39
SIGNATURE 41
<PAGE> 2
PART I. FINANCIAL INFORMATION
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Increase
THREE MONTHS ENDED JUNE 30, 1999 1998 (Decrease)
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $1,293 $2,305 $(1,012)
Interest expense 1,057 1,939 (882)
Net interest revenue 236 366 (130)
Provision for credit losses-loans (25) - (25)
Net interest revenue after provision for
credit losses-loans 261 366 (105)
NONINTEREST REVENUE
Trading (407) 37 (444)
Fiduciary and funds management 284 285 (1)
Corporate finance fees 245 392 (147)
Other fees and commissions 153 206 (53)
Net revenue from equity investments 9 73 (64)
Securities available for sale gains (losses) (139) 50 (189)
Insurance premiums 38 59 (21)
Other (175) 80 (255)
Total noninterest revenue 8 1,182 (1,174)
NONINTEREST EXPENSES
Salaries and commissions 337 361 (24)
Incentive compensation and employee benefits 283 417 (134)
Change in control related incentive
compensation and employee benefits 1,101 - 1,101
Agency and other professional service fees 159 147 12
Communication and data services 66 61 5
Occupancy, net 62 54 8
Furniture and equipment 69 56 13
Travel and entertainment 54 42 12
Provision for policyholder benefits 51 74 (23)
Other 161 108 53
Restructuring charge 459 - 459
Total noninterest expenses 2,802 1,320 1,482
Income (loss) before income taxes (2,533) 228 (2,761)
Income taxes (benefit) (585) 64 (649)
NET INCOME (LOSS) $(1,948) $ 164 $(2,112)
<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
SIX MONTHS ENDED JUNE 30, 1999 1998 (Decrease)
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $2,804 $4,294 $(1,490)
Interest expense 2,307 3,526 (1,219)
Net interest revenue 497 768 (271)
Provision for credit losses-loans (25) - (25)
Net interest revenue after provision for
credit losses-loans 522 768 (246)
NONINTEREST REVENUE
Trading (67) 228 (295)
Fiduciary and funds management 555 546 9
Corporate finance fees 442 723 (281)
Other fees and commissions 364 366 (2)
Net revenue from equity investments 108 204 (96)
Securities available for sale gains (losses) (143) 44 (187)
Insurance premiums 86 128 (42)
Other (88) 174 (262)
Total noninterest revenue 1,257 2,413 (1,156)
NONINTEREST EXPENSES
Salaries and commissions 710 697 13
Incentive compensation and employee benefits 715 914 (199)
Change in control related incentive
compensation and employee benefits 1,101 - 1,101
Agency and other professional service fees 250 252 (2)
Communication and data services 132 115 17
Occupancy, net 120 100 20
Furniture and equipment 138 110 28
Travel and entertainment 84 79 5
Provision for policyholder benefits 114 159 (45)
Other 280 219 61
Restructuring charge 459 - 459
Total noninterest expenses 4,103 2,645 1,458
Income (loss) before income taxes (2,324) 536 (2,860)
Income taxes (benefit) (516) 150 (666)
NET INCOME (LOSS) $(1,808) $ 386 $(2,194)
<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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $(1,948) $164 $(1,808) $386
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized foreign currency translation
gains (losses) arising during period,
net of tax(a) 27 (9) (3) (18)
Reclassification adjustment for realized
foreign currency translation (gains)
losses, net of tax(b) 172 - 172 -
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during period, net of tax(c) (24) 17 (24) (3)
Reclassification adjustment for realized
(gains) losses, net of tax(d) 117 (31) 117 (31)
Total other comprehensive income (loss) 292 (23) 262 (52)
COMPREHENSIVE INCOME (LOSS) $(1,656) $141 $(1,546) $334
<FN>
(a) Amounts are net of income tax expense (benefit) of $4 million and $17
million for the three months ended June 30, 1999 and June 30, 1998,
respectively and $(19) million and $8 million for the six months ended
June 30, 1999 and June 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. Amounts are net of income tax expense of $9 million for the
three months and six months ended June 30, 1999.
(c) Amounts are net of income tax expense (benefit) of $(8) million and $13
million for the three months ended June 30, 1999 and June 30, 1998,
respectively and $8 million and $(3) million for the six months ended
June 30, 1999 and June 30, 1998, respectively.
(d) Amounts are net of income tax expense (benefit) of $(22) million and
$19 million for the three months ended June 30, 1999 and June 30, 1998,
respectively and $(26) million and $13 million for the six months ended
June 30, 1999 and June 30, 1998, respectively.
</TABLE>
Certain prior period amounts have been reclassified to conform to the
current presentation.
<PAGE> 5
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in millions, except par value)
<TABLE>
<CAPTION>
June 30, December 31,
1999* 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,152 $ 2,837
Interest-bearing deposits with banks 7,412 2,382
Federal funds sold 708 2,484
Securities purchased under resale
agreements 18,841 17,053
Securities borrowed 156 14,709
Trading assets:
Government securities 5,424 5,731
Corporate debt securities 1,087 5,519
Equity securities 2,168 5,810
Swaps, options and other derivatives 12,805 17,376
Other trading assets 4,891 11,734
Total trading assets 26,375 46,170
Securities available for sale 2,041 12,748
Loans, net of allowance for credit losses
of $532 at June 30, 1999 and $652
at December 31, 1998 23,711 22,633
Customer receivables 4 1,524
Accounts receivable and accrued interest 2,485 3,815
Other assets 8,068 6,760
Total $91,953 $133,115
LIABILITIES
Noninterest-bearing deposits
Domestic offices $ 2,463 $ 2,784
Foreign offices 3,106 1,689
Interest-bearing deposits
Domestic offices 14,870 18,259
Foreign offices 12,717 14,602
Total deposits 33,156 37,334
Trading liabilities:
Securities sold, not yet purchased
Government securities 2,298 4,149
Equity securities 1,419 6,458
Other trading liabilities 159 789
Swaps, options and other derivatives 13,067 15,857
Total trading liabilities 16,943 27,253
Securities loaned and securities sold under
repurchase agreements 1,871 17,420
Other short-term borrowings 12,029 16,313
Accounts payable and accrued expenses 5,062 5,210
Other liabilities, including allowance for
credit losses of $14 at June 30, 1999
and $18 at December 31, 1998 3,664 5,466
Long-term debt not included in risk-based capital 11,298 14,890
Long-term debt included in risk-based capital 2,504 3,113
Mandatorily redeemable capital securities of
subsidiary trusts holding solely junior
subordinated deferrable interest debentures
included in risk-based capital 1,423 1,420
Total liabilities 87,950 128,419
STOCKHOLDERS' EQUITY
Preferred stock 394 394
Common stock, $1 par value
Authorized, 200 shares at June 30, 1999 and
300,000,000 shares at December 31, 1998
Issued, 1 share at June 30, 1999 and
105,380,175 at December 31, 1998 - 105
Capital surplus 2,317 1,613
Retained earnings 1,493 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 28 (65)
Foreign currency translation, net of taxes (229) (398)
Total stockholders' equity 4,003 4,696
Total $91,953 $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>
SIX MONTHS ENDED JUNE 30, 1999 1998
<S> <C> <C>
PREFERRED STOCK
Balance, January 1 $ 394 $ 658
Preferred stock redeemed - (149)
Preferred stock repurchased - (16)
Balance, June 30 394 493
COMMON STOCK
Balance, January 1 105 105
Retirement of common stock (105) -
Issuance of common stock* - -
Balance, June 30 - 105
CAPITAL SURPLUS
Balance, January 1 1,613 1,563
Common stock distributed under employee
benefit plans 4 44
Capital transactions related to change in control (700) -
Capital contribution from parent 1,400 -
Balance, June 30 2,317 1,607
RETAINED EARNINGS
Balance, January 1 3,504 4,202
Net income (loss) (1,808) 386
Cash dividends declared
Preferred stock (10) (21)
Common stock (98) (194)
Treasury stock distributed under employee benefit plans (95) (133)
Balance, June 30 1,493 4,240
COMMON STOCK IN TREASURY, AT COST
Balance, January 1 (1,056) (889)
Purchases of stock (71) (428)
Treasury stock distributed under employee benefit plans 322 332
Capital transactions related to change in control 805 -
Balance, June 30 - (985)
COMMON STOCK ISSUABLE - STOCK AWARDS
Balance, January 1 817 901
Deferred stock awards granted, net 557 116
Deferred stock distributed (216) (91)
Capital transactions related to change in control (1,158) -
Balance, June 30 - 926
DEFERRED COMPENSATION - STOCK AWARDS
Balance, January 1 (218) (438)
Deferred stock awards granted, net (556) (117)
Amortization of deferred compensation, net 749 174
Other 25 -
Balance, June 30 - (381)
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, January 1 (398) (362)
Translation adjustments 141 (10)
Income taxes applicable to translation adjustments 28 (8)
Balance, June 30 (229) (380)
SECURITIES VALUATION ALLOWANCE
Balance, January 1 (65) (32)
Change in unrealized net gains (losses), after applicable
income taxes and minority interest 93 (34)
Balance, June 30 28 (66)
TOTAL STOCKHOLDERS' EQUITY, JUNE 30 $4,003 $5,559
<FN>
* 1 share, $1 par value.
</TABLE>
<PAGE> 7
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,808) $ 386
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for credit losses - loans (25) -
Provision for policyholder benefits 114 159
Deferred income taxes, net (228) (8)
Depreciation and other amortization
and accretion 869 164
Other, net 117 21
Earnings adjusted for noncash charges and credits (961) 722
Net change in:
Trading assets (16,407) (6,712)
Trading liabilities 26,708 7,852
Receivables and payables from securities
transactions 1,080 (1,500)
Customer receivables (808) (154)
Other operating assets and liabilities, net 250 (565)
Securities available for sale losses (gains) 143 (44)
Net cash provided by (used in) operating activities 10,005 (401)
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits with banks (6,197) 2,610
Federal funds sold 1,776 (2,063)
Securities purchased under resale agreements (13,898) (8,164)
Securities borrowed (8,763) (8,883)
Loans (1,617) (3,367)
Securities available for sale:
Purchases (4,052) (11,730)
Maturities and other redemptions 991 1,402
Sales 7,986 5,617
Acquisitions of premises and equipment (68) (171)
Other, net (465) 1,543
Proceeds from transfer of legal entities 1,828 -
Net cash used in investing activities (22,479) (23,206)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in:
Deposits 1,231 3,845
Securities loaned and securities sold under
repurchase agreements 13,588 8,349
Other short-term borrowings (3,138) 7,825
Issuances of long-term debt 1,841 4,885
Repayments of long-term debt (2,883) (885)
Issuance of preferred stock of subsidiary - 304
Redemptions and repurchases of preferred stock - (165)
Purchases of treasury stock (71) (428)
Cash dividends paid (204) (216)
Capital contribution from parent 1,400 -
Other, net 25 108
Net cash provided by financing activities 11,789 23,622
Net effect of exchange rate changes on cash - 18
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS (685) 33
Cash and due from banks, beginning of period 2,837 2,188
Cash and due from banks, end of period $ 2,152 $ 2,221
Interest paid $ 2,761 $ 3,166
Income taxes paid, net $31 $183
Noncash investing activities:
Transfer of legal entity in exchange for shares
in affiliate $792 $ -
Other 24 (3)
Total noncash investing activities $816 $(3)
Noncash financing activities:
Conversion of debt to equity $- $12
<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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
INTEREST REVENUE
Interest-bearing deposits with banks $ 72 $ 85 $ 132 $ 183
Federal funds sold 51 60 77 112
Securities purchased under resale agreements 223 459 517 789
Securities borrowed 146 389 369 664
Trading assets 283 671 612 1,305
Securities available for sale
Taxable 112 181 254 318
Exempt from federal income taxes 6 10 18 20
Loans 373 414 767 832
Customer receivables 27 36 58 71
Total interest revenue 1,293 2,305 2,804 4,294
INTEREST EXPENSE
Interest-bearing deposits
Domestic offices 195 334 388 646
Foreign offices 198 286 427 545
Trading liabilities 54 135 122 234
Securities loaned and securities sold under
repurchase agreements 183 569 526 955
Other short-term borrowings 257 344 485 630
Long-term debt 141 241 302 456
Trust preferred capital securities 29 30 57 60
Total interest expense 1,057 1,939 2,307 3,526
NET INTEREST REVENUE $ 236 $ 366 $ 497 $ 768
</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 will be 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, the parent of DBSI. Bankers Trust, as part of
an ongoing reorganization, intends to transfer, by dividend or otherwise,
the shares received to Taunus. The transfer of substantially all of
Bankers Trust's interest in BTI was for cash in the amount of approximately
$1.7 billion.
On June 18, 1999, Deutsche Bank announced that it had agreed to sell
Bankers Trust Australia Limited ("BTAL"), a wholly-owned subsidiary of
Bankers Trust for a price of approximately $1.4 billion. The sale, which
is expected to close in the third quarter of 1999, is conditional upon
regulatory approvals in Australia and the United States.
<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.
RESULTS OF OPERATIONS
The Corporation reported a loss of $1,948 million for the three months
ended June 30, 1999 and a loss of $1,808 million for the first six months
of 1999. 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 earned $164 million for the three months ended June 30, 1998
and $386 million for the first six months of 1998.
During the second quarter of 1999, the Corporation completed the sale
of its remaining stake in Consorcio. 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 and the aforementioned other charges reflecting
changes in management intent and responsibility in the second 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 standards, 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 June 30, 1999 Total Net interest Income/ Income/
(in millions) Revenue* Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Retail and Private Banking $ 46 $ 65 $ (19)$ (14)
Asset Management 47 46 1 1
Global Corporates and Institutions (347) 1,325 (1,672) (1,288)
Global Technology and Services 243 331 (88) (68)
Other Business Segments** 161 254 (93) (72)
Total Business Segments 150 2,021 (1,871) (1,441)
Corporate Items*** 119 781 (662) (507)
Total $ 269 $2,802 $(2,533)$(1,948)
<FN>
* There were no material intersegment revenues among the business
segments.
** Due to its impending sale, the results of BTAL are included in Other
Business Segments.
*** Includes restructuring charges of $459 million.
</TABLE>
<TABLE>
<CAPTION>
Total Non- Pretax Net
Three Months Ended June 30, 1998 Total Net interest Income/ Income/
(in millions) Revenue* Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Retail and Private Banking $ 54 $ 45 $ 9 $ 6
Asset Management 43 27 16 12
Global Corporates and Institutions 920 715 205 148
Global Technology and Services 248 243 5 4
Other Business Segments** 212 187 25 18
Total Business Segments 1,477 1,217 260 188
Corporate Items 71 103 (32) (24)
Total $1,548 $1,320 $ 228 $164
<FN>
* There were no material intersegment revenues among the business
segments.
** Due to its impending sale, the results of BTAL are included in Other
Business Segments.
</TABLE>
<TABLE>
<CAPTION> Total Non- Pretax Net
Six Months Ended June 30, 1999 Total Net interest Income/ Income/
(in millions) Revenue* Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Retail and Private Banking $ 93 $ 109 $ (16)$ (13)
Asset Management 94 72 22 17
Global Corporates and Institutions 513 2,069 (1,556) (1,214)
Global Technology and Services 482 541 (59) (46)
Other Business Segments** 359 425 (66) (52)
Total Business Segments 1,541 3,216 (1,675) (1,308)
Corporate Items*** 238 887 (649) (500)
Total $1,779 $4,103 $(2,324)$(1,808)
<FN>
* There were no material intersegment revenues among the business
segments.
** Due to its impending sale, the results of BTAL are included in Other
Business Segments.
*** Includes restructuring charges of $459 million.
</TABLE>
<PAGE> 12
BUSINESS SEGMENT RESULTS (continued)
<TABLE>
<CAPTION> Total Non- Pretax Net
Six Months Ended June 30, 1998 Total Net interest Income/ Income/
(in millions) Revenue* Expenses (Loss) (Loss)
<S> <C> <C> <C> <C>
Retail and Private Banking $ 98 $ 89 $ 9 $ 7
Asset Management 82 51 31 22
Global Corporates and Institutions 1,975 1,470 505 363
Global Technology and Services 491 477 14 10
Other Business Segments** 432 380 52 37
Total Business Segments 3,078 2,467 611 439
Corporate Items 103 178 (75) (53)
Total $3,181 $2,645 $536 $386
<FN>
* There were no material intersegment revenues among the business
segments.
** Due to its impending sale, the results of BTAL are included in Other
Business Segments.
</TABLE>
The Retail and Private Banking business recorded a net loss of $14
million in the second quarter of 1999, compared to net income of $6 million
in the prior year quarter. For the first six months of 1999, net loss was
$13 million as compared to net income of $7 million in the prior year
period. The current quarter and year-to-date results contain pre-tax COC-
related costs of approximately $21 million.
Asset Management recorded net income of $1 million in the second
quarter of 1999, compared to net income of $12 million in the 1998 second
quarter. Net income was $17 million for the first six months of 1999
versus $22 million for the first six months of 1998. The current quarter
and year-to-date results contain pre-tax COC-related costs of approximately
$16 million.
The Global Corporates and Institutions business recorded a net loss of
$1,288 million in the second quarter of 1999, compared to net income of
$148 million in the 1998 second quarter. Net loss was $1,214 million for
the first six months of 1999 versus net income of $363 million for the
first six months of 1998. The current quarter and year-to-date results
contain pre-tax COC-related costs of approximately $770 million. Trading
losses for the second quarter of 1999 negatively impacted both the current
quarter and year-to-date results. Total net revenue 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 current quarter and first six months of 1999 also reflect
lower revenue from corporate finance fees.
The Corporation's Global Technology and Services business recorded a
net loss of $68 million for the current quarter compared to net income of
$4 million in the prior year quarter. For the first six months of 1999, net
loss was $46 million as compared to net income of $10 million in the prior
year period. The current quarter and year-to-date results contain pre-tax
COC-related costs of approximately $90 million.
Other business segments primarily include the income and expenses of
BTAL and Consorcio, and the results of smaller businesses that are not
included in the main business segments. Due to its impending sale, the
results of BTAL are not included as a reportable business segment.
Corporate Items include revenue and expenses that have not been allocated
to business segments and restructuring charges of approximately $459
million.
<PAGE> 13
BUSINESS SEGMENT RESULTS (continued)
The following table reconciles total net income (loss) for business
segments to consolidated net income (loss) (in millions):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 1998
<S> <C> <C>
Total net income (loss) reported for business segments$(1,308) $439
Restructuring charges (358) -
Realized foreign currency translation losses (172) -
Earnings associated with unassigned capital 16 30
Loan net charge-offs in excess of the total provision
for credit losses - ans 71 18
Unallocated costs of corporate staff (71) (19)
Other unallocated amounts 14 (82)
Consolidated net income(loss) $(1,808) $386
</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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET INTEREST REVENUE (in millions)
Book basis $ 236 $ 366 $ 497 $768
Tax equivalent adjustment 4 7 13 16
Fully taxable basis $ 240 $ 373 $ 510 $784
AVERAGE BALANCES (in millions)
Interest-earning assets $84,745 $133,364 $92,410 $123,260
Interest-bearing liabilities 82,120 129,915 89,527 120,142
Earning assets financed by
noninterest-bearing funds $ 2,625 $ 3,449 $2,883 $3,118
AVERAGE RATES (fully taxable basis)
Yield on interest-earning assets 6.14% 6.95% 6.15% 7.05%
Cost of interest-bearing liabilities 5.16 5.99 5.20 5.92
Interest rate spread .98 .96 .95 1.13
Contribution of noninterest-bearing
funds .16 .16 .16 .15
Net interest margin 1.14% 1.12% 1.11% 1.28%
</TABLE>
<PAGE> 14
REVENUE (continued)
The significant transfers of entities and other financial assets and
liabilities to Deutsche Bank in the second quarter of 1999 negatively
impacted net interest revenue and levels of average interest-bearing assets
and average interest-bearing liabilities for the three months and six
months ended June 30, 1999 as compared to prior year periods.
Net interest revenue for the second quarter of 1999 totaled $236
million, down $130 million, or 36 percent, from the second quarter of 1998.
The $130 million decrease in net interest revenue was primarily due to a
$68 million decrease in trading-related net interest revenue, which totaled
$77 million for the second quarter of 1999. Nontrading-related net
interest revenue totaled $159 million for the second quarter of 1999 versus
$221 million for the comparable period in 1998.
Net interest revenue for the first half of 1999 totaled $497 million,
down $271 million, or 35 percent, from the first half of 1998. The $271
million decrease in net interest revenue was primarily due to a $190
million decrease in trading-related net interest revenue, which totaled
$154 million for the first half of 1999. Nontrading-related net interest
revenue totaled $343 million for the first half of 1999 versus $424 million
for the comparable period in 1998.
In the second quarter of 1999, the interest rate spread was .98
percent compared to .96 percent in the prior year period. Net interest
margin increased to 1.14 percent from 1.12 percent. The yield on interest-
earning assets decreased by 81 basis points and the cost of interest-
bearing liabilities declined by 83 basis points. Average interest-earning
assets totaled $84.7 billion for the second quarter of 1999, down $48.6
billion from the same period in 1998. The decrease was primarily
attributable to declines in trading assets and securities borrowed.
Average interest-bearing liabilities totaled $82.1 billion for the second
quarter of 1999, down $47.8 billion from the same period in 1998. The
decrease was primarily attributable to a decline in securities sold under
repurchase agreements and interest-bearing deposits.
In the first six months of 1999, the interest rate spread was .95
percent compared to 1.13 percent in the prior year period. Net interest
margin fell to 1.11 percent from 1.28 percent. The yield on interest-
earning assets decreased by 90 basis points and the cost of interest-
bearing liabilities declined by 72 basis points. Average interest-earning
assets totaled $92.4 billion for the first six months of 1999, down $30.9
billion from the same period in 1998. The decrease was primarily
attributable to a decrease in trading assets and securities borrowed.
Average interest-bearing liabilities totaled $89.5 billion for the first
six months of 1999, down $30.6 billion from the same period in 1998. The
decrease was primarily attributable to a decrease in interest-bearing
deposits and securities sold under repurchase agreements.
Trading Revenue
The Firm's trading and risk management activities include significant
transactions in interest rate instruments and related derivatives. These
activities can periodically shift revenue between trading and net interest,
depending on a variety of factors, including risk management strategies.
Therefore, the Corporation has historically viewed trading revenue and
trading-related net interest revenue together.
The Corporation's trading activities in the second 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 second quarter of 1999 was a loss of $330 million, down $512 million
from the second quarter of 1998. Combined trading revenue and trading-
related net interest for the first six months of 1999 totaled $87 million,
down $485 million from the first six months of 1998. Trading losses for
the quarter and first six 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 June 30, 1999
Interest rate risk $(378) $ 66 $(312)
Foreign exchange risk 48 - 48
Equity and commodity risk (77) 11 (66)
Total $(407) $ 77 $(330)
Three months ended June 30, 1998
Interest rate risk $(69) $182 $113
Foreign exchange risk 143 - 143
Equity and commodity risk (37) (37) (74)
Total $ 37 $145 $182
Six months ended June 30, 1999
Interest rate risk $(243) $170 $(73)
Foreign exchange risk 154 - 154
Equity and commodity risk 22 (16) 6
Total $ (67) $154 $ 87
Six months ended June 30, 1998
Interest rate risk $(66) $362 $296
Foreign exchange risk 260 - 260
Equity and commodity risk 34 (18) 16
Total $228 $344 $572
</TABLE>
Second Quarter 1999 vs. Second Quarter 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.
Foreign Exchange Risk - The decrease in foreign exchange is primarily
related to reduced revenue in the Australian markets.
Equity and Commodity Risk - Equity and commodity revenue increased
slightly from the prior year quarter.
Six Months 1999 vs. Six 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.
<PAGE> 16
REVENUE (continued)
Foreign Exchange Risk - The decrease in foreign exchange revenue is
primarily related to reduced revenue in the Australian markets.
Equity and Commodity Risk - The year-to-date decrease in equity and
commodity revenue is principally due to risk reduction initiatives.
Noninterest Revenue (Excluding Trading)
Second Quarter 1999 vs. Second Quarter 1998
Corporate finance fees of $245 million decreased $147 million from the
$392 million earned in the second quarter of 1998. The decline is
primarily attributable to lower revenue from underwriting and merger and
acquisition activities and is further attributable to the transfer of BTAB
to DBSI in June 1999.
Other fees and commissions of $153 million decreased $53 million from
the prior year quarter. A decline in customer trading activity resulted in
lower fees for brokerage services.
Net revenue from equity investments decreased $64 million from the
prior year quarter.
Securities available for sale losses totaled $139 million compared to
securities available for sale gains of $50 million in the prior year
period. The current quarter reflected third-party sale activity and the
transfer of Latin American debt securities to related Deutsche Bank
entities based on changes in management responsibility related to such
securities.
Insurance premium revenue decreased $21 million from the prior year
quarter. The decrease reflects the sale of the Corporation's remaining
stake in Consorcio in the second quarter of 1999.
Other noninterest revenue was a negative $175 million compared to $80
million in the prior year period. The current quarter included the
recognition of cumulative translation adjustments for certain legal
entities transferred to affiliated Deutsche Bank entities.
Six Months 1999 vs. Six Months 1998
Corporate finance fees of $442 million decreased $281 million, or 39
percent, from the first half of 1998, primarily due to lower underwriting
fees, loan syndication fees and merger and acquisition activities and is
further attributable to the transfer of BTAB to DBSI in June 1999.
Net revenue from equity investments was $108 million during the first
half of 1999 as compared with $204 million during the first half of 1998.
The current period reflected lower gains on direct equity investments.
Securities available for sale losses totaled $143 million compared to
securities available for sale gains of $44 million in the prior year
period. The current period reflected third-party sale activity and the
transfer of Latin American debt securities to related Deutsche Bank
entities based on changes in management responsibility related to such
securities.
Insurance premium revenue decreased $42 million from the prior year
period. The decrease reflects the general decline in the Chilean annuities
market and the sale of the Corporation's remaining stake in Consorcio in
the second quarter of 1999.
Other noninterest revenue was a negative $88 million compared to $174
million in the prior year period. The current period included the
recognition of cumulative translation adjustments for certain legal
entities transferred to affiliated Deutsche Bank entities.
<PAGE> 17
PROVISION AND ALLOWANCES FOR CREDIT LOSSES
The allowance for credit losses-loans represents management's estimate
of probable loan losses that have occurred as of the date of the financial
statements. For a more detailed discussion of this topic, refer to page 31
of the Corporation's 1998 Annual Report on Form 10-K.
The Corporation is undertaking a comprehensive review of its
accounting policies and procedures related to the determination of the
allowance for credit losses-loans to ensure that they are appropriate
within the framework of generally accepted accounting principles. These
policies and procedures will be revised, as necessary, to improve and
ensure a systematic, consistently applied and adequately documented
process. More specifically, the Corporation intends to revise certain
procedures and enhance its documentation governing the estimation of credit
losses and related charge-offs.
In November 1998, the Securities and Exchange Commission, Federal
Deposit Insurance Corporation, Federal Reserve Board, Office of the
Comptroller of the Currency, and Office of Thrift Supervision (the
"Agencies") issued a Joint Interagency Statement which underscored the
requirement that depository institutions record and report their allowance
for loan and lease losses in accordance with generally accepted accounting
principles. In March 1999, the Agencies announced the establishment of a
Joint Working Group to gain a better understanding of the procedures and
processes, including sound practices, used by banking organizations to
determine the allowance for credit losses with the objective of issuing
parallel guidelines on the appropriate methodologies and supporting
documentation and enhanced disclosures regarding the allowance for credit
losses.
In April 1999, the FASB staff issued a Viewpoints article,
"Application of FASB Statements 5 and 114 to a Loan Portfolio". The
article describes the requirements of these Statements and how they relate
to each other and responds to questions about the detailed application of
those Statements to a loan portfolio. 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.
The provisions for credit losses and the other changes in the
allowances for credit losses are shown below (in millions).
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
Total allowance for credit losses 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Loans
Balance, beginning of period $603 $695 $652 $699
Provision for credit losses (25) - (25) -
Transfer to Deutsche Bank * (29) - (29) -
Net charge-offs
Charge-offs 24 23 84 30
Recoveries 7 6 18 9
Total net charge-offs 17 17 66 21
Balance, end of period $532 $678 $532 $678
* Reflects the allowance for credit losses of BTI on the date of transfer.
Other liabilities
Balance, beginning of period $18 $13 $18 $13
Provision for credit losses (4) - (4) -
Balance, end of period $14 $13 $14 $13
</TABLE>
<PAGE> 18
PROVISION AND ALLOWANCES FOR CREDIT LOSSES (continued)
Impaired loans under SFAS 114, were $363 million and $418 million at
June 30, 1999 and December 31, 1998, respectively. Included in these
amounts were $275 million and $295 million of loans which required a
valuation allowance of $66 million and $61 million at those same dates,
respectively.
RESTRUCTURING CHARGE
As previously mentioned, the Corporation incurred a pre-tax
restructuring charge of $459 million in conjunction with the Acquisition.
The restructuring charge reflected $394 million of severance and other
termination-related costs for approximately 2,200 positions as well as $65
million of other costs primarily related to lease terminations and write-
offs of fixed assets and leasehold improvements. As of June 30, 1999, no
significant payments have been made with regards to this restructuring
accrual.
EXPENSES
Second Quarter 1999 vs. Second Quarter 1998
Total noninterest expenses of $2.802 billion increased by $1.482
billion from the second quarter of 1998. Included in noninterest expenses
were integration costs of approximately $70 million in connection with the
Acquisition and the previously mentioned restructuring charge of $459
million. In addition, noninterest expenses for 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.
Six Months 1999 vs. Six Months 1998
Total noninterest expenses of $4.103 billion increased by $1.458
billion from the first six months of 1998. Included in noninterest
expenses were integration costs of approximately $73 million in connection
with the Acquisition and the previously mentioned restructuring charge of
$459 million. In addition, noninterest expenses for 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.
INCOME TAXES
The income tax benefit for the second quarter of 1999 amounted to $585
million, compared to income tax expense of $64 million in the second
quarter of 1998. For the first six months of 1999, the income tax benefit
was $516 million compared with income tax expense of $150 million in the
first half of 1998. The effective tax rate was 23 percent for the current
quarter and 22 percent for the six months ended June 30, 1999, and 28
percent for the prior year quarter and six months ended June 30, 1998.
<PAGE> 19
YEAR 2000 READINESS DISCLOSURE
As discussed on page 18 in the Corporation's 1998 Annual Report on
Form 10-K, the Corporation maintains a firm-wide program (the "Year 2000
Program") to prepare its computer systems, applications and infrastructure
for properly processing dates after December 31, 1999. The Corporation's
Year 2000 Program is proceeding on schedule in accordance with regulatory
guidelines.
Based on the Federal Financial Institutions Examination Council
("FFIEC") guidelines, the Corporation's Year 2000 Program consists of the
following phases related to technology:
1) Awareness Phase - A strategic approach was developed to address the
Year 2000 problem in mid 1996.
2) Assessment Phase - Detailed plans and target dates were developed.
3) Renovation Phase - This phase includes code enhancements, hardware and
software upgrades, system replacements, vendor certification, and other
associated changes.
4) Validation Phase - This phase includes testing and conversion of
system applications.
5) Implementation Phase - This phase includes a review of Year 2000
compliance and user acceptance.
The Awareness, Assessment, Renovation and Validation Phases have been
completed. The Corporation expects the Implementation Phase to continue
through the third quarter of 1999. The remainder of 1999 will focus on the
completion of firm-wide risk mitigation and contingency planning. Although
the priority given to Year 2000 issues may cause other technology projects
to be deferred, the deferral of these other projects is not expected to
have a material impact on the Corporation's business or operational
controls.
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. At June 30, 1999,
the Corporation had substantially completed its assessment of the Year
2000 readiness of its material customers in accordance with FFIEC
guidelines. The counterparty assessment program is an ongoing process,
which will continue throughout 1999, and for as long as necessary
thereafter.
<PAGE> 20
YEAR 2000 READINESS DISCLOSURE (continued)
Critical Vendor/Service Provider Program - This program assesses the
Year 2000 readiness of the Corporation's critical vendors and service
providers, as well as dealing with related contractual issues. These
third parties are providers in such areas as telecommunications,
hardware and software, office equipment and market data as well as
correspondent financial services. Risk mitigation actions are in the
process of being identified for any critical vendor/service provider
deficient in its Year 2000 readiness.
The Corporation is continuing to communicate with its significant
obligors, counterparties, other credit clients, vendors and entities in
which the Corporation holds a significant interest to determine the likely
extent to which the Corporation may be affected by third parties' Year 2000
plans and target dates. In this regard, while the Corporation does not
currently expect a material loss as a result of the Year 2000 problem,
there can be no guarantee that the systems of other companies and
counterparties on which the Corporation relies will be remediated on a
timely basis, or that a failure to remediate by another party, or a
remediation or conversion that is incompatible with the Corporation's
systems, would not have a material adverse effect on the Corporation.
The Corporation's Year 2000 Program considers crisis management
efforts for Year 2000 as part of its overall Year 2000 Risk Mitigation and
Contingency Planning Program. As with Year 2000 contingency planning
generally, the Corporation anticipates that any crisis management structure
would leverage off of its pre-existing Business Continuity Planning (BCP)
framework and would likely follow 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, it is anticipated that, for Year 2000 purposes,
contingency planning, and thus crisis management efforts, will be
supplemented for those risks unique to Year 2000.
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
will likely be the basis of its crisis management structure. In addition,
alternate sites that might be needed due to a Year 2000 related problem
will likely be the same sites included and utilized in existing BCPs. All
businesses are required to ensure that these sites are Year 2000 compliant.
As mentioned above, the existing BCP plans 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 have been updated to comply with the timeframe
established by the FFIEC as of June 30, 1999. 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 substantially completed. The
Corporation's goal is to complete the validation of all plans supporting
core processes by the end of third quarter.
<PAGE> 21
YEAR 2000 READINESS DISCLOSURE (continued)
The Corporation envisions that a Year 2000 specific crisis management
structure will be in place by the end of the third quarter of 1999. As
noted above, the Corporation will leverage off of its existing BCP process,
which already includes concepts such as Business Recovery Intersect During
General Emergencies (BRIDGE) teams, employee notification measures, command
centers and recovery efforts. The Corporation anticipates that information
on significant outages will be communicated to designated command centers
in a similar manner as during the EMU conversion. This group will likely
be composed of representation from the Corporation's Year 2000 Program
Management Office (PMO), business management, and corporate resource areas.
The Corporation incurred approximately $15 million for the second
quarter of 1999 and $31 million for the six months ended June 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 plans.
The Corporation is currently evaluating its systems needs in
connection with its acquisition by Deutsche Bank. As a result of this
acquisition and subsequent restructuring, the Corporation's Year 2000
expenditures for the remainder of 1999 and 2000 could differ from current
estimates.
<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>
<CAPTION>
CONDENSED AVERAGE BALANCE SHEETS
(in millions)
2nd Qtr 1st Qtr 4th Qtr
1999 1999 1998
<S> <C> <C> <C>
ASSETS
Interest-earning
Interest-bearing deposits with banks $ 3,693 $ 2,878 $ 2,370
Federal funds sold 4,213 2,182 3,445
Securities purchased under resale
agreements 16,339 19,165 19,316
Securities borrowed 12,326 18,516 17,903
Trading assets 16,958 21,402 25,206
Securities available for sale
Taxable 6,775 9,573 10,038
Exempt from federal income taxes 1,193 1,645 1,692
Total securities available for sale 7,968 11,218 11,730
Loans
Domestic offices 13,625 12,953 12,847
Foreign offices 8,266 10,094 10,417
Total loans 21,891 23,047 23,264
Customer receivables 1,357 1,752 1,622
Total interest-earning assets 84,745 100,160 104,856
Noninterest-earning
Cash and due from banks 1,964 3,053 2,721
Noninterest-earning trading assets 17,289 23,224 29,650
All other assets 12,101 11,390 11,853
Less: Allowance for credit losses-loans 581 647 665
Total $115,518 $137,180 $148,415
LIABILITIES
Interest-bearing
Interest-bearing deposits
Domestic offices $16,520 $ 16,854 $ 18,891
Foreign offices 15,215 17,988 16,650
Total interest-bearing deposits 31,735 34,842 35,541
Trading liabilities 4,258 5,211 5,918
Securities loaned and securities sold
under repurchase agreements 11,297 21,032 20,650
Other short-term borrowings 17,264 17,006 19,247
Long-term debt 16,143 17,505 18,645
Trust preferred capital securities 1,423 1,420 1,419
Total interest-bearing liabilities 82,120 97,016 101,420
Noninterest-bearing
Noninterest-bearing deposits 3,609 4,253 4,362
Noninterest-bearing trading liabilities 15,672 19,962 26,454
All other liabilities 9,806 11,182 11,271
Total liabilities 111,207 132,413 143,507
PREFERRED STOCK OF SUBSIDIARY - - 144
STOCKHOLDERS' EQUITY
Preferred stock 394 394 394
Common stockholders' equity 3,917 4,373 4,370
Total stockholders' equity 4,311 4,767 4,764
Total $115,518 $137,180 $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> June 30, March 31, December 31,
(in millions) 1999 1999 1998
<S> <C> <C> <C>
Fair value $2,041 $10,371 $12,748
Amortized cost 1,996 10,472 12,903
Excess of amortized cost over
fair value* $ 45 $ (101) $ (155)
* Components:
Unrealized gains $ 71 $ 205 $ 264
Unrealized losses (26) (306) (419)
$ 45 $(101) $(155)
</TABLE>
The decline in the balance of securities available for sale from March
31, 1999 and 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 actively manages trading positions in a variety of
derivative contracts. Many of the Corporation's trading positions are
established as a result of providing derivative products to meet customers'
demands. To anticipate customer demand for such transactions, the
Corporation also carries an inventory of capital markets instruments and
maintains its access to market liquidity by quoting bid and offer prices
to, and trading with, other market makers. These two activities are
essential to provide customers with capital market products at competitive
prices. All positions are reported at fair value and changes in fair
values are reflected in trading revenue as they occur.
The following tables reflect the gross fair values and balance sheet
amounts of trading derivative financial instruments:
<TABLE>
<CAPTION>
At June 30, Average During
1999 2nd Qtr. 1999
(Liabi- (Liabi-
(in millions) Assets lities) Assets lities)
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 12,905 $(13,273) $ 24,274 $(24,088)
Interest Rate Contracts
Forwards 46 (29) 283 (300)
Options purchased 1,167 1,588
Options written (1,361) (1,616)
Foreign Exchange Rate Contracts
Spot and Forwards 12,185 (12,035) 8,959 (8,739)
Options purchased 1,677 1,047
Options written (1,587) (880)
Equity-related contracts 3,993 (3,944) 6,521 (6,630)
Commodity-related and other contracts 1,265 (1,351) 789 (884)
Exchange-Traded Options
Interest Rate 5 (3)
Foreign exchange 1 (2)
Commodity 16 (15) 5 (11)
Equity 130 (51) 212 (142)
Total Gross Fair Values 33,384 (33,646) 43,684 (43,295)
Impact of Netting Agreements (20,579) 20,579 (32,604) 32,604
$ 12,805(1) $11,080
$(13,067)(1) $(10,691)
<FN>
(1) As reflected on the balance sheet in "Trading Assets" and "Trading
Liabilities."
</TABLE>
<PAGE> 25
TRADING DERIVATIVES (continued)
<TABLE>
<CAPTION>
At December 31, AverageDuring
1998 4th Qtr. 1998
(Liabi- (Liabi-
(in millions) Assets lities) Assets lities)
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 26,923 $(26,401) $29,422$(27,742)
Interest Rate Contracts
Forwards 188 (193) 326 (319)
Options purchased 2,236 2,156
Options written (2,111) (2,155)
Foreign Exchange Rate Contracts
Spot and Forwards 17,851 (17,169) 18,364 (18,097)
Options purchased 1,254 1,350
Options written (1,048) (1,152)
Equity-related contracts 5,508 (5,672) 4,956 (5,424)
Commodity-related and other contracts 966 (970) 824 (808)
Exchange-Traded Options
Interest Rate 12 (4) 9 (7)
Foreign exchange 30 (39) 33 (32)
Commodity 8 (9) 2 (5)
Equity 531 (372) 652 (421)
Total Gross Fair Values 55,507 (53,988) 58,094 (56,162)
Impact of Netting Agreements (38,131) 38,131 (36,835) 36,835
$17,376(1) $21,259
$(15,857)(1) $(19,327)
<FN>
(1) As reflected on the balance sheet in "Trading Assets" and "Trading
Liabilities."
</TABLE>
END-USER DERIVATIVES
The Corporation, as an end user, utilizes various types of derivative
products (principally interest rate and currency swaps) to manage the
interest rate, currency and other market risks associated with certain
liabilities and assets such as interest-bearing deposits, short-term
borrowings and long-term debt, as well as securities available for sale,
loans, investments in non-marketable equity instruments and net investments
in foreign entities. Revenue or expense pertaining to management of
interest rate exposure is predominantly recognized over the life of the
contract as an adjustment to interest revenue or expense.
Total net end-user derivative unrealized losses were $164 million at
June 30, 1999 compared with unrealized gains of $264 million at December
31, 1998. The $428 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
stockholders' equity. Gross unrealized gains and losses for hedges of
loans, other assets, interest-bearing deposits, other short-term
borrowings, long-term debt, and net investments in foreign subsidiaries are
not yet recognized in the financial statements.
<TABLE>
<CAPTION>
Other Net invest-
short- ents in
Securities Interest- term Long- foreign
(in millions) available Other bearing borrow- term subsi-
June 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 $ - $ 5 $ - $ 68 $ 6 $ 80 $ - $ 159
Unrealized (Loss) - (8) - (141) (3) (82) - (234)
Pay Variable Net - (3) - (73) 3 (2) - (75)
Pay Fixed
Unrealized Gain - - - 34 24 5 - 63
Unrealized (Loss) - (61) - (41) (8) (10) - (120)
Pay Fixed Net - (61) - (7) 16 (5) - (57)
Total Unrealized
Gain - 5 - 102 30 85 - 222
Total Unrealized
(Loss) - (69) - (182) (11) (92) - (354)
Total Net $ - $(64) $ - $ (80) $ 19 $ (7) $ -$(132)
Currency Swaps and Forwards
Unrealized Gain $ - $ - $ 1 $ - $ - $ 15 $ 18 $ 34
Unrealized (Loss) - (2) - - - (47) (17) (66)
Net $ - $(2) $ 1 $ - $ - $(32) $ 1 $(32)
Other Contracts
Unrealized Gain $ - $- $ - $ - $ - $ - $ - $ -
Unrealized (Loss) - - - - - - -
Net $ - $- $ - $ - $ - $ - $ - $ -
Total Unrealized
Gain $ - $ 5 $ 1 $ 102 $ 30 $ 100 $ 18 $ 256
Total Unrealized
(Loss) (71) - (182) (11) (139) (17) (420)
Total Net $ - $(66) $ 1 $ (80) $ 19$ (39) $ 1$(164)
<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 June 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 $33,653 5.11% 5.00% $4,052 5.11% 5.42% $37,705
2000-2001 14,022 5.37 4.97 4,137 4.83 6.25 18,159
2002-2003 2,815 5.41 5.14 412 5.21 6.29 3,227
2004 and thereafter 6,617 6.75 5.04 810 5.05 6.37 7,427
Total $57,107 $9,411 $66,518
</TABLE>
All rates were those in effect at June 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.
In conjunction with the Acquisition and to strengthen the
Corporation's capital base, Deutsche Bank made a capital contribution of
$1.4 billion.
Based on their respective regulatory capital ratios as of June 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
June 30, December 31, Adequacy Regulatory
1999 1998 Purposes Guidelines
<S> <C> <C> <C> <C>
Corporation
Risk-Based Capital Ratios
Tier 1 Capital 7.1% 7.5% 4.0% 6.0%
Total Capital 13.7% 13.6% 8.0% 10.0%
Leverage Ratio 3.4% 3.5% 3.0% N/A
BTCo
Risk-Based Capital Ratios
Tier 1 Capital 11.3% 10.5% 4.0% 6.0%
Total Capital 13.2% 13.4% 8.0% 10.0%
Leverage Ratio 5.9% 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
June 30, December 31,
(in millions) 1999 1998
<S> <C> <C>
Corporation
Tier 1 Capital $3,929 $5,069
Tier 2 Capital 3,622 3,812
Tier 3 Capital - 400
Total Capital $7,551 $9,281
Total risk-weighted assets $55,174 $67,980
BTCo
Tier 1 Capital $5,384 $ 6,682
Tier 2 Capital 941 1,858
Total Capital $6,296 $ 8,540
Total risk-weighted assets $47,590 $63,748
</TABLE>
Comparing June 30, 1999 to December 31, 1998, the Corporation's Tier 1
Capital ratio decreased 40 basis points as a decline in Tier 1 Capital of
$1.1 billion was only partly offset by a decrease in risk-weighted assets
of $12.8 billion. The $1.4 billion capital contribution by Deutsche Bank
strengthens the Corporation's Tier 1 Capital base which was impacted by
losses for the period. Risk-weighted assets decreased principally because
positions were liquidated or transferred to other Deutsche Bank affiliates.
The Total Capital ratio increased 10 basis points as the decrease in risk-
weighted assets more than offset the decline of $1.7 billion in Total
Capital. The Leverage ratio decreased 10 basis points as the decrease in
Tier 1 Capital related to the operating losses more than offset the
favorable impact of a $31.6 billion decline in 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 80 basis points as the decrease in Tier 1 Capital of $1.3
billion was more than offset by a reduction of $16.2 billion in risk-
weighted assets. Total Capital ratio declined 20 basis points due to a
reduction in subordinated debt qualifying as Tier 2 Capital that
was provided by the Corporation to BTCo. The Leverage ratio increased 20
basis points as the reduction in Tier 1 Capital was more than offset by the
decline in quarterly average assets of $24.9 billion.
<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 six 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>
Six Months
1998 1999 December 31, June 30,
Risk Class Average Average 1998 1999
<S> <C> <C> <C> <C>
Interest Rate $101.4 $68.8 $ 77.4 $ 68.6
Currency 35.5 12.7 26.0 2.5
Equity 88.0 89.5 105.0 61.7
Commodity 4.2 3.8 3.9 1.1
Diversification (67.9) (52.7) (64.7) (31.6)
Overall Portfolio $161.2 $122.1 $147.6 $102.3
</TABLE>
<PAGE> 32
RISK MANAGEMENT (continued)
Table 2
BT Corporation Trading Ten-Day Value at Risk
(in millions)
<TABLE>
<CAPTION>
Six Months
1998 1999 December 31, June 30,
Risk Class Average Average 1998 1999
<S> <C> <C> <C> <C>
Interest Rate $ 61.1 $ 38.4 $ 52.2 $ 31.7
Currency 34.8 12.6 22.0 2.5
Equity 57.0 39.0 51.2 13.5
Commodity 4.2 3.8 3.9 1.1
Diversification (53.7) (31.6) (47.5) (11.0)
Overall Portfolio 103.4 $62.2 $81.8 $ 37.8
</TABLE>
Table 1 shows that the Corporation's overall market-risk exposure
declined during the first six months of 1999 on an average and spot basis
by 24 percent and 31 percent, respectively. The overall decline was
driven by declines in interest rate and currency risk. Although average
equity risk rose by 2 percent during the six months in comparison with the
1998 average, the six months average declined by 15 percent from the
December 31 level. On a spot basis, equity risk declined by 41 percent as
of June 30 in comparison with the December 31 level. These reductions
reflect the effects of integrating the Corporation into Deutsche Bank Group
as well as a continuation of risk reduction efforts begun in the third
quarter of 1998.
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 40 percent and 54
percent, respectively. The decline was evident across all significant risk
areas.
<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 June
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
June 30, 1999 1 year years 5 years funds Total
<S> <C> <C> <C> <C> <C>
Assets $ 58.6 $ 3.4 $ 1.3 $ 28.7 $ 92.0
Liabilities and preferred
stock (45.8) (7.0) (6.8) (28.8) (88.4)
Common stockholder's equity - - - (3.6) (3.6)
Effect of off-balance sheet
hedging instruments (2.3) 1.5 0.8 - -
Interest rate sensitivity
gap $10.5 $(2.1) $(4.7) $(3.7) $ -
</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>
June 30, December 31,
1999 1998
<S> <C> <C>
CASH BASIS LOANS
Domestic
Commercial and industrial $ 45 $ 91
Secured by real estate 75 86
Financial institutions 13 15
Total domestic 133 192
International
Commercial and industrial 83 135
Secured by real estate 11 18
Foreign governments 3 23
Lease financings 2 7
Other 20 17
Total international 119 200
Total cash basis loans $252 $392
Ratio of cash basis loans to total gross loans 1.0% 1.7%
Ratio of allowance for credit losses-loans to
cash basis loans 211% 166%
RENEGOTIATED LOANS
Secured by real estate $- $25
Other - 1
Total renegotiated loans $- 26
OTHER REAL ESTATE $92 $87
OTHER NONPERFORMING ASSETS $8 $8
</TABLE>
There were no loans 90 days or more past due and still accruing
interest at June 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 six months of 1999 follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1998 $392
Net transfers to cash basis loans 63
Net transfers to other real estate (11)
Net paydowns (70)
Charge-offs (84)
Other (38)
Balance, June 30, 1999 $252
</TABLE>
The Corporation's total cash basis loans amounted to $252 million at
June 30, 1999, down $140 million, or 36 percent, from December 31, 1998.
Within cash basis loans, loans secured by real estate were $86 million
and $104 million at June 30, 1999 and December 31, 1998, respectively.
Commercial and industrial loans to highly leveraged borrowers were $36
million and $66 million at June 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 June 30 of each year.
The rates used in determining the gross amount of interest which would have
been recorded at the original rate were not necessarily representative of
current market rates.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(in millions) 1999 1998
<S> <C> <C>
Domestic Loans
Gross amount of interest that would have
been recorded at original rate $5 $4
Less, interest, net of reversals, recognized
in interest revenue 2 1
Reduction of interest revenue 3 3
International Loans
Gross amount of interest that would have
been recorded at original rate 11 5
Less, interest, net of reversals, recognized
in interest revenue 8 2
Reduction of interest revenue 3 3
Total reduction of interest revenue $6 $6
</TABLE>
<PAGE> 36
EMERGING MARKETS CROSS-BORDER EXPOSURES(1)
<TABLE>
<CAPTION>
% Change from
June 30, December 31, December 31,
($ in billions) 1999 1998 1998
<S> <C> <C> <C>
Korea, Republic of $0.6 $0.8 (25)%
Indonesia - 0.4 (100)%
Hong Kong 0.1 0.4 (75)%
Thailand - 0.2 (100)%
Malaysia - 0.1 (100)%
Other(2) 0.3 0.8 (63)%
Total Emerging Asia $1.0 $2.7 (63)%
Brazil $0.3 $0.7 (57)%
Mexico 0.4 0.6 (33)%
Argentina 0.2 0.5 (60)%
Venezuela - 0.1 (100)%
Other(3) 0.3 0.6 (50)%
Total Latin America $1.2 $2.5 (52)%
Russian Federation $0.2 $0.2 -%
Total $2.4 $5.4 (56)%
As a % of Total Assets 2.6% 4.1%
<FN>
(1) Based on FFIEC instructions. Shown by country of ultimate risk.
Excludes local country claims on local residents.
(2) Includes Peoples Republic of China, Republic of Taiwan, India,
Philippines, Singapore and Sri Lanka.
(3) Includes Chile, Colombia, Peru, Ecuador, Nicaragua, Panama and Uruguay.
</TABLE>
The decline in emerging markets cross-border exposures was partly due
to the transfer of BTI.
<PAGE> 37
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.
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.
<PAGE> 38
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> 39
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
On June 15, 1999, Richard H. Daniel, the Chief Financial Officer of
the Corporation resigned to pursue other interests. On June 30, 1999,
Frank N. Newman, the Chairman of the Board, Chief Executive Officer, and
President of the Corporation, resigned.
The Corporation at its Board meeting held on July 21, 1999, elected
Dr. Josef Ackermann, a director of the Corporation, as the Chairman of the
Board, Chief Executive Officer and President effective as of July 1, 1999,
to succeed Mr. Frank N. Newman.
At the same meeting, the resignation of Mr. Robert B. Allardice III as
a director of the Corporation was accepted effective as of July 21, 1999.
Mr. Hans H. Angermueller and Dr. Ronaldo H. Schmitz were elected as
directors of the Corporation effective as of July 21, 1999, to fill the
vacancies created by the resignations of Messrs. Newman and Allardice.
The current directors of the Corporation are as follows:
Dr. Josef Ackermann
Mr. Hans H. Angermueller
Mr. George B. Beitzel
Mr. William R. Howell
Mr. Hermann-Josef Lamberti
Mr. John A. Ross
Dr. Ronaldo H. Schmitz
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(4) Instruments Defining the Rights of Security Holders,
Including Indentures
(v) - The Corporation hereby agrees to furnish to the
Commission, upon request, a copy of any instru-
ments defining the rights of security holders
issued by Bankers Trust Corporation or its
subsidiaries.
(10) Material Contracts
iii (a) - Management Contracts and Compensation Plans
(12) Statement re Computation of Ratios
(27) Financial Data Schedule
(99) Additional Exhibits
(b) Reports on Form 8-K - Bankers Trust Corporation filed five reports
on Form 8-K during the quarter ended June 30, 1999.
- The report dated June 4, 1999 and filed June 21, 1999 reported:
under Item 1 thereof that Deutsche Bank AG acquired all of the
outstanding shares of common stock of Bankers Trust Corporation
from its shareholders at a price of $93.00 per share; under Item 2
thereof the transfer of certain wholly-owned subsidiaries to
Deutsche Bank AG and the proposed sale of Bankers Trust
Australia Limited; under Item 5 thereof the resignations of all
directors of Bankers Trust Corporation other than Frank N. Newman
and certain other events; under Item 7 thereof unaudited pro forma
financial information.
<PAGE> 40
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
- The report dated and filed June 4, 1999 filed a Press Release
issued by Deutsche Bank AG which announced the merger of the
Corporation with a wholly-owned subsidiary of Deutsche Bank AG.
- The report filed May 21, 1999, filed the Corporation's Press
Release dated May 20, 1999 that announced that the Federal
Reserve Board approved the Company's merger with Deutsche Bank.
- The report filed April 28, 1999, filed the Corporation's Press
Release dated April 27, 1999 that announced that its shareholders
voted to approve the Company's merger with Deutsche Bank.
- The report filed April 26, 1999, filed the Corporation's Press
Release dated April 26, 1999, which announced earnings for the
first quarter of 1999.
<PAGE> 41
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on August 16, 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 JUNE 30, 1999
EXHIBIT INDEX
(4) Instruments Defining the Rights of Security
Holders, Including Indentures
(v) - Long-Term Debt Indentures (a)
(10) Material Contracts
iii(a) Management Contracts and Compensation Plans
(1) Severance Agreement with Frank N. Newman
(2) Severance Agreement with Richard H. Daniel
(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 six months ended
June 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 10 iii(a)(1)
SEPARATION AGREEMENT
This Separation Agreement (this "Agreement) is made on June 29, 1999,
by and between Frank N. Newman (the "Executive") and Bankers Trust
Corporation (the "Company").
1. Termination of Employment. The Executive and the Company agree
that the Executive's employment with the Company shall terminate effective
as of June 30, 1999 (the "Termination Date"). The Executive hereby
resigns, effective as of the Termination Date, all positions, titles,
duties, authorities and responsibilities with, arising out of or relating
to his employment with the Company and its affiliates.
2. Payments. (a) On the first business day following the Effective
Time (as such term is hereinafter defined), the Company shall pay the
Executive his earned but unpaid base salary through the Termination Date at
an annual rate of nine-hundred thousand dollars ($900,000).
(b) On the first business day following the Effective Time, the
Company shall pay the Executive, by wire transfer to an account designated
by the Executive, fifty-two million seven hundred fifty thousand seven
hundred fifty eight dollars, ($52,750,758.00).
(c) On July 1 (or such later date not after the first business day
following the Effective Time on which such payments are distributed
generally to executives of the Company), the Company shall also pay to the
Executive, by wire transfer to an account designated by the Executive,
twenty-one million three hundred eight thousand five hundred six dollars
and thirty-one cents ($21,308,506.31), in cash in a lump sum, in full
satisfaction of the Executive's entitlement under various incentive plans
of the Company.
(d) The Company shall continue to provide the Executive and his spouse
with medical and dental benefits on the same basis and terms as the Company
provides generally to its senior executive officers from time to time, for
the period from the Termination Date through the earlier of June 30, 2002,
or such date as the Executive is entitled to receive substantially similar
benefits from any new employer of the Executive. Such benefit continuation
shall not satisfy the Company's obligation to offer to continue the
Executive's medical benefits at the Executive's own expense under the
federal law commonly referred to as COBRA.
(e) For the period from the Effective Time through the earlier of
December 31, 2003, or the date on which the Executive commences new
employment (i) the Company shall continue to provide the Executive with a
car and driver for his personal use; and (ii) the Company will continue to
provide the Executive with an office that is reasonably acceptable to the
Executive and the Company and with a secretary, who may be his current
secretary or another secretary of his choosing, provided that the annual
cost of such secretary does not exceed $75,000, increased each year by the
increase in the Consumer Price Index for the New York City area.
(f) The payment provided for in Section 2(b) hereof shall not be taken
into account as compensation under, and no service credit shall be given
after the Termination Date for purposes of determining the benefits payable
under, any employee benefit plan, program, agreement or arrangement of the
Company.
3. Other Agreements. (a) Following the Effective Time, the Executive
shall have the honorary title "Chairman Emeritus of Bankers Trust
Corporation."
(b) The Executive acknowledges and agrees to comply as of the
Effective Date with the agreements set forth in Section 6 and 7 (concerning
confidentiality and competition) of the Employment Agreement dated as of
November 30, 1998, between the Company and the Executive (the "Employment
Agreement").
<PAGE>
(c) The Company and the Executive acknowledge and reaffirm their
agreements set forth in Section 9 of the Employment Agreement (concerning
excise taxes). The Company and the Executive agree that the payments
referred to in Section 9(a) of the Employment Agreement include the
payments referred to in this Agreement. The Company and the Executive also
agree that, in lieu of the agreements set forth in Section 9(b) of the
Employment Agreement the Company shall make all of the determinations
required by Section 9(a) of the Employment Agreement and, subject to
Sections 9(c) and (d) of the Employment Agreement, the Executive agrees not
to take any position inconsistent with such determinations.
(d) The Executive agrees to reasonably cooperate (including attending
meetings) with respect to any claim, arbitral, hearing, lawsuit, action or
governmental or internal investigation relating to the conduct of the
business of the Company or its affiliates. The Executive agrees to provide
full and complete disclosure in response to any inquiry in connection with
any such matters. The Company agrees to reimburse the Executive for his
reasonable expenses incurred in connection with such cooperation,
(e) The Executive and the Company agree that Deutsche Bank AG will
issue the press release attached hereto as Exhibit A as soon as practical
after the date hereof.
(f) Executive shall not intentionally make any public statements,
encourage others to make statements or release information intended to
disparage or defame the Company, any of its affiliates or any of their
respective directors or officers. The Company shall cause its senior
executives and the senior executives and directors of Deutsche Bank AG not
to intentionally make, or cause or encourage others to make, any public
statements or release information intended to disparage or defame the
Executive's reputation, and the Company shall not take any such action on
its own behalf. Notwithstanding the foregoing, nothing in this Section
3(f) shall prohibit any person from making truthful statements when
required by order of a court or other body having jurisdiction or as
required by law.
(g) The Company agrees to continue to maintain a directors' and
officers' liability insurance policy covering the Executive until such time
as suits against the executive with respect to his employment with the
Company are no longer permitted by law.
4. General Release and Waiver (a) The Executive hereby releases,
remises and acquits the Company and all of its affiliates, and their
respective officers, directors, shareholders, members, agents, executives,
consultants, independent contractors, attorneys, advisers, successors and
assigns, jointly and severally, from any and all claims, known or unknown,
which the Executive or the Executive's heirs, successors or assigns have or
may have against any of such parties arising on or prior to this date of
this Agreement and any and all liability which any of such parties may have
to the Executive, whether denominated claims, demands, causes of action,
obligations, damages or liabilities arising from any and all bases, however
denominated, including but not limited to all contractual claims and any
claims, under the Age Discrimination in Employment Act, the Americans With
Disabilities Act of 1990, the Family and Medical Leave Act of 1993, Title
VII of the United States Civil Rights Act of 1964, 42 U.S.C. S 1981 or any
other Federal, State or local law and any workers' compensation or
disability claim under any such law. This release relates to claims arising
from and during the Executive's employment relationship with the Company or
as a result of the termination of such relationship. The Executive further
agrees that the Executive will not file or permit to be filed on the
Executive's behalf any such claim. Notwithstanding the preceding sentence
or any other provision of this Agreement, this release is not intended to
interfere with the Executive's right to file a charge with the Equal
Employment Opportunity Commission in connection with any claim he believes
he may have against the Company. However, by executing this Agreement the
Executive hereby waives the right to recover in any proceeding the
Executive may bring before the Equal Employment Opportunity Commission or
any State human rights commission or in any proceeding brought by the Equal
Employment Opportunity Commission or any State human rights commission on
the Executive's behalf. This release is for any relief no matter how
denominated, including, but not limited to,
<PAGE>
injunctive relief, wages, back pay, front pay, compensatory damages, or
punitive damages. This release shall not apply to any obligation of the
Company pursuant to this Agreement any benefit to which the Executive may
be entitled under any tax qualified pension plan of the Company or its
affiliates, COBRA continuation coverage benefits or any other similar
benefits required to be provided by law, any rights in the nature of
indemnification which the Executive may have with respect to claims against
the Executive relating to or arising out of his employment with the Company
or any rights that the Executive may have to obtain contribution in the
event of the entry of judgment against him as a result of any act or
failure to act for which both the Executive and the Company or any of its
affiliates are jointly responsible.
(b) The Executive acknowledges that the agreements of the Company
hereunder are being provided in consideration of the foregoing release and
that the Executive may not otherwise be entitled to certain of the benefits
described herein. The Executive agrees not to make any claim or take any
position inconsistent with the preceding sentence.
(c) The Company hereby releases, remises and acquits the Executive
and his successors, heirs and advisers, jointly and severally, from any and
all claims, known or unknown, which the Company or its affiliates,
successors or assigns have or may have against any of such parties arising
on or prior to the date of this Agreement and any and all liability which
any of such parties may have to the Company, whether denominated claims,
demands, causes of action, obligations, damages or liabilities arising from
any and all bases, however denominated, including but not limited to all
contractual claims and any claims under law, excluding any claim relating
to intentional gross misconduct by the Executive damaging in a material way
to the Company or one of its affiliates. The Company further agrees that
the Company will not file or permit to be filed any such claim. This
release is for any relief no matter how denominated, including, but not
limited to, injunctive relief, compensatory damages or punitive damages.
This release shall not apply to any obligation of the Executive pursuant to
this Agreement or any rights that the Company or its affiliates may have to
obtain contribution in the event of the entry of judgment against the
Company or any such affiliate as a result of any act or failure to act for
which both the Executive and the Company or such affiliate are jointly
responsible.
5. No Admission. This Agreement does not constitute an admission of
liability or wrongdoing of any kind by the Company or its affiliates or
Executive.
6. Reirs and Assigns. The terms of this Agreement shall be binding
on the parties hereto and their respective successors and assigns.
7. Confidentially. (a) For the period during which this Agreement
has not been publicly disclosed by the Company, the Executive agrees to
keep in full confidence all information concerning this Agreement except
(i) to the extent disclosure is or may be required by a statute, by a court
of law, by any governmental agency having supervisory authority over the
business of the Company or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order him to
divulge, disclose or make accessible such information, (ii) to the extent
disclosure to the Executive's legal counsel and personal financial advisors
is reasonably necessary in connection Executive's consideration of the
terms of this Agreement or Executive's personal financial dealings and
(iii) to members of his immediate family.
(b) The Company agrees to keep in full confidence all information
concerning this Agreement, except (i) to the extent disclosure is or may be
required by the Company or any of its affiliates by a statute, by a court
of law, by any governmental agency having supervisory authority over the
business of the Company or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order the
Company or its affiliate to divulge, disclose or make accessible such
information, (ii) to the extent disclosure to the legal counsel and
auditors by the Company or its affiliates is reasonably necessary and (iii)
to those persons within the Company and its affiliates who, as reasonably
determined by the Company, must, know about it in carrying out their
duties.
<PAGE>
(c) The Executive and the Company acknowledge and agree that each
shall be entitled to enforce specifically the covenants in this Section 7
by seeking an injunction to prevent violation thereof in addition to any
other remedies available at law or in equity.
8. General Provisions. (a) This Agreement constitutes the entire
understanding of the Company and the Executive with respect to the subject
matter hereof and supersedes all prior understandings, written or oral,
with respect thereto. The terms of this Agreement may be changed, modified
or discharged only by an instrument in writing signed by the parties
hereto. A failure of the Company or the Executive to insist on strict
compliance with any provision of this Agreement shall not be deemed a
waiver of such provision or any other provision hereof. In the event that
any provision of this Agreement is determined to be so broad as to be
unenforceable, such provision shall be interpreted to be only so broad as
is enforceable.
(b) This Agreement shall be construed enforced and interpreted in
accordance with and governed by the laws of the State of New York. The
Company and the Executive irrevocably and unconditionally submit to the
exclusive jurisdiction of the United States District Court for the Southern
District of New York located in the borough of Manhattan in the City of New
York or the Supreme Court of the State of New York, New York County for the
purposes of any suit, action or other proceeding arising out of or relating
to this Agreement and each party agrees that any such suit, action or other
proceeding shall be heard without a jury and hereby waives any right to a
trial by jury in connection therewith.
(c) The parties hereto acknowledge and agree that each party has
reviewed and negotiated the terms and provisions of this Agreement and has
had the opportunity to contribute to its revision. Accordingly, the rule
of construction to the effect that ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this
Agreement. Rather, the terms of this Agreement shall be construed fairly
as to both parties hereto and not in favor or against either party.
(d) This Agreement may be executed in any number of counterparts and
by different parties on separate counterparts, each of which counterpart,
when so executed and delivered, shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the
same Agreement
(e) All notice, requests, demands or other communications under this
Agreement shall be in writing and shall be deemed to have been duly given
when delivered in person or when received by facsimile or overnight express
to the party to whom such notice is being given as follows:
As to Executive:
Frank N. Newman
927 Fifth Avenue
New York, New York 10021
As to the Company:
Dr. Klaus Kohler
Deutsche Bank AG
Paunusanlage 12
60262 Frankfurt-am-Main, Germany
Either party may change his or its address or the name of the person to
whose attention the notice or other communication shall be directed from
time to time by serving notice thereof upon the other party as provided
herein.
<PAGE>
(f) The Company represents and warrants to the Executive that the
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly
authorized and that all corporate action required to be taken by the
Company for the execution, delivery and performance of this Agreement has
been duly and effectively taken. The Company acknowledges that the
Executive has relied upon such representations and warranties in entering
into this Agreement.
(g) All payments and benefits payable pursuant hereto shall be paid
subject to all required tax withholdings.
9. Knowing and Voluntary Waiver. The Executive acknowledges that by
the Executive's free and voluntary act of signing below, the Executive
agrees to all of the terms of this Agreement and intends to be legally
bound thereby.
The Executive understands that he may consider whether to agree to the
terms contained herein for a period of twenty-one days after the date
hereof. Accordingly, the Executive may execute this Agreement by July 20,
1999, to acknowledge his understanding of and agreement with the foregoing.
The Executive acknowledges that he has been advised to consult with an
attorney prior to executing this Agreement.
<PAGE>
This Agreement will become effective, enforceable and irrevocable at 5
p.m. (eastern time) on the seventh day after the date on which it is
executed by the Executive (the "Effective Time"). During the seven-day
period prior to the Effective Time, the Executive may revoke his agreement
to accept the terms hereof by notifying the Company of his intention to
revoke. If the Executive exercises his right to revoke hereunder, he shall
forfeit his right to receive any of the benefits provided for herein.
BANKERS TRUST CORPORATION
/S/ James T. Byrne
By: James T. Byrne, Secretary-Bankers Trust
Corporation
/S/ Frank N. Newman
Frank N. Newman
Acknowledgment
STATE OF NEW YORK )
ss:
COUNTY OF NEW YORK )
On the 29th day of June, 1999, before me personally came Frank N. Newman
who, being by me duly sworn, did depose and say that he resides at 927
Fifth Avenue, New York, New York; and did acknowledge and represent that he
has had an opportunity to consult with attorneys and other advisers of his
choosing regarding the Separation Agreement attached hereto, that he has
reviewed all of the terms of the Separation Agreement and that he fully
understands all of its provisions, including, without limitation, the
general release and waiver set forth therein.
/S/ Joan S. Montello
Notary Public
Date: June 29, 1999
JOAN S. MONTELLO
NOTARY PUBLIC, STATE OF NEW YORK
NO. 31-MO4867292
QUALIFIED IN NEW YORK COUNTY
COMMISSION EXPIRES AUGUST 11, 2000
<PAGE>
PRESS RELEASE DEUTSCHE BANK
Frankfurt am Main, June 29, 1999
Frank Newman, Co-Chairman of Global Corporates and Institutions (GCI)
Division of the Deutsche Bank Group and Chairman of the Board of Directors
and Chief Executive Officer of Bankers Trust Corp. will be leaving the
Deutsche Bank Group after the recent successful acquisition of Bankers
Trust by Deutsche Bank. His resignation will be on amicable terms and will
take effect on June 30,1999. With the closing having occurred and the
smooth integration process well on its way, Frank Newman has attained his
goals of achieving maximum value for the Bankers Trust shareholders and
delivering the Bankers Trust franchise into a secure future. He is now
planning to devote his future time on new projects. Dr. Rolf-E. Breuer,
Spokesman of the Board of Managing Directors of Deutsche Bank thanked Frank
Newman for his constructive cooperation and his essential contribution to
the closing and to the smooth integration of Bankers Trust's businesses and
employees.
Frank Newman stated: "BT has now been delivered into sound hands. Much has
already been accomplished, as a result of active integration planning over
the past several months. Combined operations are off to an excellent start.
At this point, I concluded that the role originally envisioned for me will
not be necessary. I thought it made sense for me to step aside at this
time, and let the continuing management team carry on with the momentum
already initiated. I expect the expanded DB to be very successful, and take
my leave on excellent terms with Rolf Breuer, for whom I have a great deal
of respect, as well as the other members of the Management Board. I'll also
take this opportunity to once again thank the exceptional people of BT, who
have helped so much to build and transform the company over these past few
years; I wish them great success in their new roles."
<PAGE>
BANKERS TRUST CORPORATION
130 Liberty Street
New York, New York 10006
June 29, 1999
Frank N. Newman
927 Fifth Avenue
New York, New York 10021
Dear Mr. Newman:
This letter confirms that Bankers Trust Corporation agrees to
contribute the sum of five million dollars ($5,000,000) to a charitable
foundation or trust that is qualified under Section 170(c) of the U.S.
Internal Revenue Code of 1986 (the "Charitable Trust") specified by you.
It is understood that you or your designees will act as trustees of the
Charitable Trust and will designate the non-profit organizations to receive
funds from the Charitable Trust over time. While the Charitable Trust may
pay administrative costs, no funds of the Charitable Trust may be paid to
you or any member of your family. Bankers Trust Corporation's contribution
to the Charitable Trust will be made on the business day following the
Effective Date under your Separation Agreement, or any subsequent date
specified by you, provided that you provide the Corporate Secretary of
Bankers Trust Corporation or its successor with at least three business
days' notice.
Sincerely,
/S/_James Byrne__________________
James Byrne, Secretary-Bankers
Trust Corporation
<PAGE>
EXHIBIT 10 iii(a)(2)
SETTLEMENT AND NON-DISCLOSURE AGREEMENT
RICHARD H. DANIEL, on his own behalf and on behalf of his heirs,
executors, administrators, attorneys, successors and assigns (hereinafter
collectively referred to as "Daniel"), and BANKERS TRUST CORPORATION on its
own behalf and on behalf of its, domestic and international subsidiaries,
divisions, and affiliates and its and their successors (including without
limitation, Deutsche Bank AG) and assigns, respective officers, directors,
agents, representatives and employees (hereinafter collectively referred to
as "Bankers Trust" or the "Corporation"), have reached the within agreement
("Agreement") in settlement of any and all issues related to Daniel's
employment with, and separation from the employ of, Bankers Trust, such
Agreement being reached on the following terms and conditions:
1 . Daniel's employment with Bankers Trust will end on June l5, 1999
(the "Termination Date").
2. In full and complete satisfaction of all known and unknown claims
against Bankers Trust, and in consideration for executing this Agreement
and a second original of this Agreement reaffirming its terms and
conditions including the waiver and release provisions contained herein on
his last day on the Corporation's premises, Daniel will receive payments
and benefits in accordance with the following provisions, together with all
deferred compensation and other payments due him pursuant to the so-called
"Trigger 1 Change of Control Payout" (as detailed in Exhibit 1),
immediately following his off payroll date but not before the eighth day
following his execution and return to the Corporation of this Agreement:
(i) In full satisfaction of the benefits available under the
Change in Control Severance Plan I ("COC-1"), Daniel will be paid a lump
sum of 7.5 million dollars;
(ii) Daniel will receive a lump sum payment of 6.75 million
dollars, less $1,296,212.12, an amount equal to any compensation
received by him for 1999 up to and including the Termination Date, provided
that his off payroll date is June 14, 1999, as full payment of all
compensation under the December 17, 1998 Retention Agreement between Daniel
and Bankers Trust, which is hereby mutually rescinded. To the extent that
Daniel's off payroll date is subsequent to June 14, 1999, the amount deducted
from the lump sum payment will increase by $1,325.76 per day;
(iii) Daniel's 401(k) Savings Plan and Cash Balance
Retirement Plan Accounts were fully vested as of the Change of Control date.
All additional accruals subsequent to this date will vest and be
distributable on the Termination Date. The 401(k) Savings Plan will have an
additional trailing contribution at year end, which will be available
immediately at that time;
(iv) Daniel will receive the cash value of his 1999 accrued and
unused vacation days;
(v) As provided for under the COC-1, Daniel's group medical and
dental benefits will continue for a period of three (3) years following the
Termination Date, or until Daniel is reemployed by another employer and
eligible to receive the welfare benefits from such an employer, whichever
first occurs. Daniel shall share the costs of such coverage on the same
tax effective basis as in effect prior to the date of his termination. At
the end of the three (3) year period, Daniel will be offered the
opportunity to continue his group health insurance at his own expense
through COBRA.
<PAGE>
(vi) The Corporation will arrange for Daniel to be provided with
the use of Off-premises office facilities for the initial period of three
(3) months which thereafter may be extended by mutual agreement in separate
one (1) month increments. The extended period(s) will be provided in the
event that Daniel has not obtained employment at the conclusion of the initial
period or at the conclusion of each of the individual extensions.
Daniel acknowledges that the payments and benefits set forth above
shall be subject to applicable federal, state and local taxes, and all
other deductions as required by applicable laws and Bankers Trust policy.
Daniel shall have no duty to seek other employment or to become self-
employed to mitigate any payments or benefits to which he is entitled
pursuant to this Agreement nor shall there be any offset against such
payments or benefits in the event of such employment or self-employment.
In the event that it is determined that any payment or distribution by
the Corporation to Daniel is subject to the excise tax imposed by Section
4999 of the Internal Revenue Code, Daniel shall be entitled to receive an
additional cash payment (a "Gross-Up Payment") in an amount such that after
payment by Daniel of all taxes, he retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the payments provided
hereunder.
3. Daniel agrees that he will not publicly or privately disparage
Bankers Trust or any of the Corporation's products, services, divisions,
affiliates, related companies or current or former officers, directors,
trustees, employees, agents, administrators, representatives or
fiduciaries. Notwithstanding the foregoing, neither Daniel nor the
Corporation will be restricted from providing information about the other
as required by a court or governmental agency or by applicable law.
Further, the Corporation and Daniel shall not be restricted from reporting
information regarding his performance while employed by the Corporation to
internal or external auditors, special counsel or investigators, any
applicable enforcement agencies, regulatory agencies, insurance carriers or
in litigation involving Daniel or the Corporation. The Corporation agrees
that it will not publicly or privately disparage Daniel.
4. In exchange for the consideration described in Paragraph 2, Daniel
hereby releases Bankers Trust from any and all liability arising from any
and all acts or omissions including, but not limited to, those arising out
of his employment relationship with the Corporation or under any contract,
tort, federal, state, or local fair employment practices or civil rights
law including, but not limited to, Title VII of the Civil Rights Act of
1964, the Civil Rights Act of 1991, the Age Discrimination in Employment
Act of 1967, the Older Worker Benefits Protection Act of 1990, the Civil
Rights Act of 1866, the Americans With Disabilities Act of 1990, the
Employee Retirement Income Security Act of 1974, the New York State and New
York City Civil Rights Laws, or any claim for physical or emotional
distress or injuries, or any other duty or obligation of any kind or
description.
This release shall apply to all known, unknown, unsuspected and
unanticipated claims, liens, injuries and damages including, but not
limited to, claims of employment discrimination, indemnity for discharge,
or claims sounding in tort or in contract, express or implied, as of the
date of the execution of this Agreement, and including any claims for
wages, bonuses or separation allowance or severance payments including
under the Bankers Trust Corporation's Change In Control Severance Plan 1,
or any other form of compensation or benefits. Notwithstanding the
foregoing, Daniel does not release his right to have the Corporation
perform its obligations under this Agreement, including without limitation,
his right to (i) indemnification pursuant to this paragraph 4, or any other
right to indemnification by the Corporation, (ii) any compensation or
benefits pursuant to any plan or program that is part of the subject matter
of this Agreement, including the amounts shown on Exhibit 1, (iii) pension,
health or similar benefits under the Corporation's retirement programs.
<PAGE>
Daniel also agrees not to initiate any legal action, charges or
complaints against Bankers Trust in any forum whatsoever, in connection
with the claims released by him pursuant to this paragraph 4. In the event
any such actions, charges or complaints are asserted in the future by or on
behalf of Daniel, a material violation of a material provision of this
Agreement shall be deemed to have occurred, entitling Bankers Trust to the
return of the consideration set forth in this Agreement which is over and
above the 7.5 million dollar separation allowance to which Daniel is
normally entitled under Bankers Trust's Change in Control Severance Plan 1,
the compensation received by him for 1999 up to and including the
Termination Date and the pro rata bonus paid in conjunction with the Change
in Control, as well as the attorneys' fees incurred by Bankers Trust in
defending such action, charge or complaint.
Bankers Trust expressly denies that it has violated any law, statute,
ordinance, contract, duty or obligation whatsoever, or that it committed
any tort or engaged in any wrongful conduct with respect to Daniel. Daniel
acknowledges that the consideration described in this Agreement is in
excess of that to which he was otherwise entitled upon his termination
under either applicable law, Corporation policy, or pursuant to any
contractual agreement he may have with Bankers Trust. Daniel also
acknowledges that the consideration provided herein is good and sufficient
consideration to support the waivers and releases in this Agreement and the
second original of this Agreement he will be executing on his last day on
Corporation premises.
Bankers Trust agrees that Daniel is entitled to indemnification to the
fullest extent provided by the Corporation to officers, as set forth in the
Corporation's by-laws as may exist from time to time. Daniel shall also be
entitled to officers' liability insurance in accordance with the terms of
the policy provided by the Corporation for its officers, as amended from
time to time.
5. The terms of this Agreement, the claims that have been or could
have been raised against Bankers Trust as of the date of this Agreement,
and the facts and circumstances underlying any such claim shall not be
admissible by Daniel in any litigation or proceeding in any forum, except
as required by law, for any purpose other than to secure enforcement of the
terms and conditions of this Agreement.
6. Neither Daniel nor the Corporation will publish, publicize, or
disseminate or cause to be published, publicized or disseminated or permit
to be published, publicized or disseminated, directly or indirectly, and
will keep entirely confidential any information, data or documents (1)
relating to Daniel's employment with and separation from Bankers Trust,
except that (a) either party may discuss the fact that he was employed by
Bankers Trust, his title, responsibilities and that he resigned his
position and (b) the parties shall agree in advance to the wording of an
announcement concerning Daniel's departure from the Corporation; or (2)
relating to the terms of this Agreement or the fact that this Agreement
exists, except for (a) the purpose of enforcing this Agreement should that
ever become necessary; or (b) disclosures required by a court or
governmental agency or by applicable law, or to any investigatory or
regulatory agency with authority over the Corporation. Daniel may disclose
the terms of this Agreement to his spouse, outplacement firms, accountants,
attorneys or tax preparers, or prospective employers, provided that
disclosures to prospective employers shall be limited according to the
provisions of paragraphs 3 and 6, and, the Corporation may disclose the
terms of this Agreement to its accountants, attorneys, tax preparers, its
employees who have a need to know such terms, and as otherwise set forth
above.
<PAGE>
Daniel further agrees that he will not publish, publicize or
disseminate, or cause to be published, publicized or disseminated or permit
to be published, publicized or disseminated, directly or indirectly, and
will keep entirely confidential any confidential information, data or
documents relating to the operations of the Corporation, including any
trade secrets or other proprietary information, except as may be required
by a court or governmental agency. Confidential information shall mean all
information that is not known or available to the public concerning the
business of the Corporation relating to its financial products, product
development, trade secrets, customers, suppliers, finances, and business
plans and strategies, including know-how, financial information concerning
the Corporation and its customers and specifications, programs,
documentation and manuals relating to all financial models,
telecommunications and computer systems, software, hardware and
applications developed or used by Bankers Trust. Confidential information
shall include information that is, or becomes, known to the public as a
result of a breach by Daniel of the provisions of this paragraph 6.
Bankers Trust reserves the right to seek appropriate damages, including
attorneys' fees and injunctive relief, should Daniel violate this
Agreement.
7. Daniel agrees that during his employment and for the six-month
period following his termination, he will not, directly or indirectly,
personally solicit or induce or cause any third party to solicit or induce
any Bankers Trust employees to work for him or any competitor of the
Corporation, it being understood that if any such employee contacts Daniel
on his or her own initiative, Daniel may thereafter discuss with such
employee his or her working for him or a competitor, provided that in such
situations, Daniel agrees to notify the Chief Legal or Human Resources
Officer of Bankers Trust and advise either executive of such contact and of
the employee(s) making such contact, before extending any offer of
employment to such individual(s).
8. The failure of either party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver
thereof or deprive such party of the right thereafter to insist upon strict
adherence to that term or any other term of the Agreement. Any waiver must
be in writing and signed by Daniel or any authorized officer of the
Corporation, as the case may be.
9. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to its
conflicts of laws provisions.
10. If any of the provisions, terms, clauses, or waivers or releases
of claims or rights contained in this Agreement are declared illegal,
unenforceable, or ineffective in a legal forum, such provisions, terms,
clauses, waivers, releases or claims or rights shall be deemed severable,
such that all other provisions, terms, clauses, waivers, releases of claims
and rights contained in this Agreement shall remain valid and binding upon
both parties.
11. Daniel agrees to voluntarily cooperate with the Corporation in
connection with any threatened, actual or future litigation or
investigations by federal, state, or local agencies involving the
Corporation, whether administrative, civil or criminal in nature, in which
and to the extent his cooperation is deemed necessary by the Corporation in
its discretion. The Corporation agrees to reimburse Daniel for reasonable
and necessary out-of-pocket expenses incurred in connection with providing
such cooperation. This shall cover transportation, meals, and lodging, if
required.
12. Daniel acknowledges that he has had at least (21) days from the
date he received this Agreement to consider the terms of this Agreement and
further, acknowledges that he is fully aware of its contents and of its
legal effects. Daniel is also hereby advised in writing by Bankers Trust to
consult with an attorney regarding this Agreement.
<PAGE>
The Corporation agrees to pay Daniel's counsel up to Five Thousand ($5,000)
Dollars for such services. In the event that Daniel's attorneys' fees
appear that they will exceed this amount, Daniel agrees to notify the
Corporation prior to such time the fees exceed Five Thousand ($5,000) and
seek prior approval for the payment of an additional sum certain. Further,
Daniel may revoke either this Agreement, or the second original of this
Agreement he will be executing on his last day on Corporation premises,
within seven (7) days after Daniel executes the same, by notifying Perry
Capitani of Deutsche Bank AG, in writing, during this seven (7) day period.
Daniel's failure to execute the second original of this Agreement on his
last day on Corporation premises, or his revocation of same will not affect
the validity of the waivers and releases given by Daniel as a result of his
initial execution of this Agreement.
13. This Agreement has been executed freely, knowingly and voluntarily
by Daniel without duress, coercion, or undue influence, with a full and
free understanding of its terms.
<PAGE>
14. This Agreement supersedes all prior oral and written agreements,
if any, with respect to the subject matter hereof between the parties. This
Agreement may not be changed except by a writing signed by Daniel and an
authorized management representative of Bankers Trust.
AGREED:
/S/ Richard H. Daniel
Richard H. Daniel
15 June 99
Date
On this 15th day of June 1999,
before me personally came Richard H.
Daniel to me known to be the individual
described in and who executed the fore-
going Settlement and Non-disclosure
Agreement, and duly acknowledged to me
that he executed the same.
/S/ Perry V. Capitani
Notary Public
AGREED:
BANKERS TRUST CORPORATION
By: /S/ Frank N. Newman
Frank N. Newman
Chairman and Chief Executive Officer
Date 15 June 99
On this 15th day of June 1999,
before me personally came Frank N.
Newman, authorized representative for
Bankers Trust Corporation to me known to
be the individual described in and who
executed the foregoing Settlement and
Non-disclosure Agreement, and duly
acknowledged to me that he executed the
same.
/S/ Perry V. Capitani
Notary Public
PERRY V. CAPITANI
NOTARY PUBLIC, STATE OF NEW YORK
NO.4863442
OUALIFIED IN NASSAU COUNTY
CERTIFICATE FILED IN NEW YORK COUNTY
COMMISSION EXPIRES OCTOBER 27, 19 _____
<PAGE>
Richard Daniel
Exhibit I - Trigger I Change of Control Payout
Stock Options:
[CAPTION]
<TABLE>
Grant Date Option Price ISO NQSO Total Payout at $93
<S> <C> <C> <C> <C> <C> <C>
2/1/96 64.5625 1,548 18,452 20,000 568,750.00
6/18/96 76.4375 0 60,000 60,000 993,750.00
6/17/97 90.7500 1,101 58,899 60,000 135,000.00
Total 2,649 137,351 140,000 $1,697,500.00
</TABLE>
Partnership Equity Plan (PEP):
[CAPTION]
<TABLE>
Vested Unvested Total Shares
Award Year Shares Shares Outstanding Payout at $93
<S> <C> <C> <C> <C> <C>
1996 23,305.1831 1,334.0261 24,639.2092 2,291,446.46
1997 16,373.4287 250.9058 16,624.3345 1,546,063.11
Total 39,678.6118 1,584.9319 41,263.5437 $3,837,509.56
</TABLE>
EPP:
Total Shares
Award Year Outstanding Payout at $93
1996 4,702.4246 $437,325.49
1997 6,821.7055 634,418.61
1998 22,464.3379 2,089,183.42
Total 33,988.4680 $3,160,927.52
POP: (As of 7/1/99)
POP 1 $1,443,750.00
Interest $256,275.51
POP 11 $2,741,666.67
$4,441,692.18
Prorata Bonus: (As of 6/4/99)
$1,137,121.21
ADCAP:
$331,363.91*
Total Payout at COC $14,606,114.39
* This amount is as of March 31,1999 and will be adjusted to reflect
performance through June 4, 1999
<PAGE>
EXHIBIT 12(a)
BANKERS TRUST CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
(dollars in millions)
[CAPTION]
<TABLE>
Six Months
Ended
Year Ended December 31, June 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) $(2,324)
2. Add: Fixed charges
excluding
capitalized
interest
(Line 10) 3,911 5,138 5,483 5,959 6,954 2,328
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 45 28 30 (117) 15 52
4. Earnings including
interest on deposits 4,853 5,579 6,584 7,315 6,862 (48)
5. Less: Interest on
deposits 965 1,360 1,355 2,076 2,195 815
6. Earnings excluding
interest on deposits $3,888 $4,219 $5,229 $5,239 $4,667 $ (863)
Fixed Charges:
7. Interest Expense $3,880 $5,105 $5,451 $5,926 $6,919 $2,307
8. Estimated interest
component of net
rental expense 31 33 32 33 35 21
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 2,328
11. Add: Capitalized
interest - - - - - -
12. Total fixed charges 3,911 5,138 5,483 5,959 6,954 2,328
13. Less: Interest on
deposits
(Line 5) 965 1,360 1,355 2,076 2,195 815
14. Fixed charges excluding
interest on deposits $2,946 $3,778 $4,128 $3,883 $4,759 $1,513
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 six months ended June 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 $2,376 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>
Six Months
Ended
Year Ended December 31, June 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) $(2,324)
2. Add: Fixed charges
excluding
capitalized
interest
(Line 13) 3,911 5,138 5,483 5,959 6,954 2,328
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 45 28 30 (117) 15 52
4. Earnings including
interest on deposits 4,853 5,579 6,584 7,315 6,862 (48)
5. Less: Interest on
deposits 965 1,360 1,355 2,076 2,195 815
6. Earnings excluding
interest on deposits $3,888 $4,219 $5,229 $5,239 $4,667 $ (863)
Preferred Stock Dividend Requirements:
7. Preferred stock dividend
requirements $ 28 $ 51 $ 51 $ 49 $ 32 $ 11
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% 129%
9. Preferred stock dividend
requirements on a pretax
basis $ 40 $ 77 $ 75 $ 70 $ 34 $ 14
Fixed Charges:
10. Interest Expense $3,880 $5,105 $5,451 $5,926 $6,919 $2,307
11. Estimated interest
component of net
rental expense 31 33 32 33 35 21
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 2,328
14. Add: Capitalized
interest - - - - - -
15. Total fixed charges 3,911 5,138 5,483 5,959 6,954 2,328
<PAGE>
16. Add: Preferred stock
dividend require-
ments - pretax
(Line 9) 40 77 75 70 34 14
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 2,342
18. Less: Interest on
deposits
(Line 5) 965 1,360 1,355 2,076 2,195 815
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 $1,527
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 six months ended June 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 $2,390 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 June 30,
1999 and the consolidated statement of income for the six months ended June
30, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,152
<INT-BEARING-DEPOSITS> 7,412
<FED-FUNDS-SOLD> 19,549
<TRADING-ASSETS> 26,375
<INVESTMENTS-HELD-FOR-SALE> 2,041
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 24,243
<ALLOWANCE> 532
<TOTAL-ASSETS> 91,953
<DEPOSITS> 33,156
<SHORT-TERM> 13,900<F1>
<LIABILITIES-OTHER> 8,726<F2>
<LONG-TERM> 15,225
0
394
<COMMON> 0
<OTHER-SE> 3,609
<TOTAL-LIABILITIES-AND-EQUITY> 91,953
<INTEREST-LOAN> 767
<INTEREST-INVEST> 272
<INTEREST-OTHER> 1,153<F3>
<INTEREST-TOTAL> 2,804
<INTEREST-DEPOSIT> 815
<INTEREST-EXPENSE> 2,307
<INTEREST-INCOME-NET> 497
<LOAN-LOSSES> (25)
<SECURITIES-GAINS> (143)
<EXPENSE-OTHER> 4,103
<INCOME-PRETAX> (2,324)
<INCOME-PRE-EXTRAORDINARY> (2,324)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,808)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 1.11
<LOANS-NON> 252
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 652
<CHARGE-OFFS> 84
<RECOVERIES> 18
<ALLOWANCE-CLOSE> 532<F4>
<ALLOWANCE-DOMESTIC> 159<F4>
<ALLOWANCE-FOREIGN> 203<F4>
<ALLOWANCE-UNALLOCATED> 170<F4>
<FN>
<F1>Short-term borrowings include the following:
Securities loand and securities sold under
repurchase agreements 1,871
Other short-term borrowings 12,029
Total 13,900
<F2>Other liabilities include the following:
Accounts payable and accrued expenses 5,062
Other liabilities 3,434
Acceptances outstanding 230
Total 8,726
<F3>Other interest income includes the following:
Interest-bearing deposits with banks 132
Federal funds sold 77
Securities purchased under resale agreements 517
Securities borrowed 369
Customer receivables 58
Total 1,153
<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 six months ended June 30, 1999 and 1998 give effect to Bankers Trust
Corporation's ("BT" or the "Corporation") transfer 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. ("DBSI") and Deutsche Holdings (BTI) Ltd., respectively,
which are wholly-owned subsidiaries of Deutsche Bank AG ("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 the Corporation
received shares of DB U.S. Financial Markets Holding Corporation ("DBUS"),
the parent of DBSI. The Corporation, as part of an ongoing reorganization,
intends to transfer, by dividend or otherwise, the shares received to
Taunus Corporation ("Taunus"), a U.S. holding corporation for Deutsche
Bank.
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 pro forma financial data are not necessarily indicative of
the results that actually would have occurred had the 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, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1999
BT BTAB and Pro Forma
Consolidated BTI** Adjustments** Pro Forma
(a) (b)
<S> <C> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $ 2,804 $(1,022) $557 $ 2,339
Interest expense 2,307 (554) 235 1,988
NET INTEREST REVENUE 497 (468) 322 351
Provision for credit losses-loans (25) 26 - 1
NET INTEREST REVENUE AFTER
PROVISION FOR CREDIT LOSSES-LOANS 522 (494) 322 350
NONINTEREST REVENUE
Trading (67) 305 2 240
Fiduciary and funds management 555 (24) - 531
Corporate finance fees 442 (285) - 157
Other fees and commissions 364 (175) - 189
Net revenue from equity investments 108 - - 108
Securities available for sale gains
(losses) (143) 108 - (35)
Insurance premiums 86 - - 86
Other (88) 13 207 132
Total noninterest revenue 1,257 (58) 209 1,408
NONINTEREST EXPENSES
Salaries and commissions 710 (226) - 484
Incentive compensation and employee
benefits* 1,816 (776) - 1,040
Agency and other professional
service fees 250 (34) 54 270
Communication and data services 132 (44) - 88
Occupancy, net 120 (20) - 100
Furniture and equipment 138 (16) - 122
Travel and entertainment 84 (40) - 44
Provision for policyholder benefits 114 - - 114
Other 280 (119) 400 561
Restructuring charge 459 - - 459
Total noninterest expenses 4,103 (1,275) 454 3,282
Income (loss) before income taxes (2,324) 723 77 (1,524)
Income taxes (benefit) (516) (516)
NET INCOME (LOSS) $(1,808) $(1,008)
<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.
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 Six Months Ended June 30, 1998
BT BTAB and Pro Forma
Consolidated BTI Adjustments Pro Forma
(a) (b)
<S> <C> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $4,294 $(2,044) $1,044 $3,294
Interest expense 3,526 (1,142) 358 2,742
NET INTEREST REVENUE 768 (902) 686 552
Provision (recoveries) for
credit losses-loans - (29) - (29)
NET INTEREST REVENUE AFTER PROVISION
(RECOVERIES) FOR CREDIT LOSSES-LOANS 768 (873) 686 581
NONINTEREST REVENUE
Trading 228 132 11 371
Fiduciary and funds management 546 (26) - 520
Corporate finance fees 723 (504) - 219
Other fees and commissions 366 (197) - 169
Net revenue from equity investments 204 (3) - 201
Securities available for sale gains
(losses) 44 (25) - 19
Insurance premiums 128 - - 128
Other 174 (23) 183 334
Total noninterest revenue 2,413 (646) 194 1,961
NONINTEREST EXPENSES
Salaries and commissions 697 (233) - 464
Incentive compensation and employee
benefits 914 (399) - 515
Agency and other professional
service fees 252 (49) 80 283
Communication and data services 115 (41) - 74
Occupancy, net 100 (18) - 82
Furniture and equipment 110 (17) - 93
Travel and entertainment 79 (32) - 47
Provision for policyholder benefits 159 - - 159
Other 219 (104) 279 394
Total noninterest expenses 2,645 (893) 359 2,111
Income before income taxes 536 (626) 521 431
Income taxes 150 150
NET INCOME $ 386 $ 281
<FN>
See Notes to Unaudited Pro Forma Condensed Financial Statements.
</TABLE>
<PAGE>
BANKERS TRUST CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) Elimination of BTAB's & BTI's third-party amounts from BT's historical
consolidated financial statements.
(b) Adjustment to record BTAB & BTI intercompany amounts as third-party
assets, liabilities, revenue or expense, as applicable. Intercompany
amounts were eliminated in BT's historical consolidated financial
statements.
