- --------------------------------------------------------------------------------
United States Securities and Exchange Commission Washington, D.C. 20549
Form 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 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, NY 10006
(Address of Principal (Zip Code)
Executive Offices)
(212) 250-2500
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name Of Each
Exchange On
Title of Each Class Which Registered
Adjustable Rate Cumulative Preferred Stock, Series Q New York Stock Exchange
Depositary Shares representing a one-hundredth interest
in a share of Adjustable Rate Cumulative Preferred
Stock, Series Q ($2,500 Liquidation Preference) New York Stock Exchange
Adjustable Rate Cumulative Preferred Stock, Series R New York Stock Exchange
Depositary Shares representing a one-hundredth interest
in a share of Adjustable Rate Cumulative Preferred
Stock, Series R ($2,500 Liquidation Preference) New York Stock Exchange
7 3/4% Cumulative Preferred Stock, Series S ($2,500
Liquidation Preference) New York Stock Exchange
Depositary Shares representing a one-hundredth interest
in a share of 7 3/4% Cumulative Preferred Stock,
Series S ($2,500 Liquidation Preference) New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Because the registrant is a wholly-owned subsidiary of Deutsche Bank AG,
none of the registrant's outstanding voting stock is held by non-affiliates of
the registrant. As of the date hereof, 1 share of the registrant's common stock,
$1 par value, was issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
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Form 10-K Cross-Reference Index
Part I
Item No. Pages
1. Business
Description of Business 67
Supplemental Financial Data
International Operations 9, 47
Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates and
Interest Differential 62-64
Investment Portfolio 32-33
Loan Portfolio 19-23, 31, 33-34
Summary of Credit Loss Experience 16-18, 31, 35
Deposits 66
Return on Equity and Assets 2
Short-Term Borrowings 35
2. Properties 70
3. Legal Proceedings 70
4. Submission of Matters to a Vote of Security Holders *
Part II
5. Market for Registrant's Common Equity and
Related Stockholder Matters 39-40, 61
6. Selected Financial Data 2
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
7a. Quantitative and Qualitative Disclosures
About Market Risk 12-14
8. Financial Statements and Supplementary Data
Bankers Trust Corporation and Subsidiaries
(Consolidated) 24-28
Notes to Financial Statements 29-59
Independent Auditors' Report 60
Selected Quarterly Financial Data 61
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure *
Part III
10. Directors and Executive Officers of the Registrant
Directors 71
Executive Officers 72
Section 16(a) Beneficial Ownership
Reporting Compliance *
11. Executive Compensation 75-77
12. Security Ownership of Certain Beneficial Owners
and Management *
13. Certain Relationships and Related Transactions 73
Part IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
(a) (1) Financial Statements-See Item 8.
(2) Financial Statement Schedules
All schedules normally required by Form 10-K are omitted
since they are either not applicable or the required
information is shown in the financial statements or the
notes thereto.
(3) Exhibits
3. Articles of Incorporation and By-laws,
as amended **
4. Instruments Defining the Rights of
Security Holders, Including Indentures
(i) Long-Term Debt Indentures ***
10. Material Contracts
(i) Contracts not made in the ordinary course
of business **
(ii) (C) Acquisition or Sale of any Property,
Plant or Equipment **
(ii) (D) Leases for Principal Premises
described on page 70 **
(iii) (A) Management Contracts and
Compensation Plans **
12. Statements Re Computation of Ratios **
21. Subsidiaries of the Registrant **
23. Consent of Experts **
24. Power of Attorney **
27. Financial Data Schedule
99. Additional Exhibits
(1) Unaudited Pro Forma Condensed Financial Statements for **
the year ended December 31, 1999.
(b) Reports on Form 8-K-The Corporation did not file any reports on Form
8-K during the quarter ended December 31, 1999.
- --------------------------------------------------------------------------------
* Not applicable.
** A copy of any exhibit not contained herein may be obtained by writing to
James T. Byrne, Jr., Office of the Secretary, Bankers Trust Corporation,
130 Liberty Street, Mail Stop 2310, New York, NY 10006.
*** The Corporation hereby agrees to furnish to the Commission, upon request,
a copy of any instruments defining the rights of holders of long-term debt
issued by Bankers Trust Corporation or its subsidiaries.
This report on Form 10-K has not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this report.
Bankers Trust Corporation and its Subsidiaries 1
<PAGE>
Table 1 Five-Year Summary of Selected Financial Data*
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
($ in millions, except per share data) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year
Net interest revenue $ 807 $ 1,372 $ 1,359 $ 1,057 $ 884
Noninterest revenue 3,500 3,757 4,861 4,117 3,129
Net income (loss) $(1,603) $ (73) $ 866 $ 766 $ 311
============================================================================================================================
Per Common Share
Basic Earnings (Loss) Per Share N/A $ (1.05) $ 8.15 $ 7.12 $ 2.62
Diluted Earnings (Loss) Per Share N/A $ (1.05) $ 7.66 $ 6.76 $ 2.54
Cash dividends declared $1.00 $ 4.00 $ 4.00 $ 4.00 $ 4.00
--as a percentage of net income N/M N/M 52% 59% 157%
Book value, end of year N/A 42.66 49.06 49.21 45.73
Market price
High N/A 136 7/16 133 5/8 90 7/8 72
Low N/A 45 74 61 49 3/4
End of year N/A 85 7/16 112 7/16 86 1/4 66 1/2
Price/earnings ratio, end of year N/A N/M 13.8x 12.1x 25.4x
Cash dividend yield, end of year N/A 4.7% 3.6% 4.6% 6.0%
At Year End
Total assets $68,157 $133,115 $140,102 $122,543 $106,199
Long-term debt not included in risk-based capital 12,582 14,890 11,275 8,732 7,127
Long-term debt included in risk-based capital 2,424 3,113 3,312 2,576 2,360
Mandatorily redeemable capital securities
of subsidiary trusts holding
solely junior subordinated deferrable interest
debentures included in risk-based capital 1,428 1,420 1,472 730 --
Preferred stock of subsidiary -- -- -- 250 250
Preferred stock (Corporation) 376 394 658 810 865
Common stockholders' equity 3,974 4,302 5,050 5,068 4,608
Total stockholders' equity 4,350 4,696 5,708 5,878 5,473
Profitability Ratios
Return on average common stockholders' equity N/M N/M 15.6% 14.5% 5.7%
Return on average total stockholders' equity N/M N/M 14.6% 13.3% 5.9%
Return on average total assets N/M N/M .63% .63% .28%
Capital Ratios
Common stockholders' equity to total assets,
end of year 5.8% 3.2% 3.6% 4.1% 4.3%
Total stockholders' equity to total assets,
end of year 6.4% 3.5% 4.1% 4.8% 5.2%
Average total stockholders' equity to average
total assets 4.6% 3.3% 4.4% 4.7% 4.7%
Bankers Trust Corporation:
Risk-Based Capital Ratios
Tier 1 Capital 10.4% 7.5% 8.3% 9.3% 9.0%
Total Capital 18.4% 13.6% 14.1% 13.8% 14.0%
Leverage Ratio 7.3% 3.5% 4.4% 5.9% 5.4%
Bankers Trust Company:
Risk-Based Capital Ratios
Tier 1 Capital 16.5% 10.5% 9.0% 9.3% 9.5%
Total Capital 18.9% 13.4% 12.3% 12.9% 12.8%
Leverage Ratio 12.3% 5.7% 5.4% 5.3% 5.1%
Employees, at December 31
In domestic offices 6,342 11,005 10,585 11,055 10,137
In foreign offices 1,433 9,536 8,070 6,881 6,365
- ----------------------------------------------------------------------------------------------------------------------------
Total 7,775 20,541 18,655 17,936 16,502
============================================================================================================================
</TABLE>
* Certain 1999 amounts are not comparable to prior year periods due to
significant business and net financial asset transfers to Deutsche Bank
entities, charges reflecting changes in management intent and responsibility
regarding certain assets and the sale of Bankers Trust Australia Limited in
1999.
N/M Not Meaningful.
N/A--Information is not applicable as Deutsche Bank AG acquired all outstanding
shares of common stock of Bankers Trust Corporation from its shareholders at a
price of $93.00 per share on June 4, 1999.
2 Bankers Trust Corporation and its Subsidiaries
<PAGE>
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FINANCIAL REVIEW
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Management's discussion and analysis of Bankers Trust Corporation's results of
operations and financial condition appears on pages 3 through 23. The discussion
and analysis should be read in conjunction with the financial statements and
supplemental financial data, which begin on page 24.
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"), 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"). Deutsche Bank accounted for the
Acquisition as a purchase. No purchase accounting adjustments were pushed down
to Bankers Trust.
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, during the second quarter of 1999
Bankers Trust Corporation together with its subsidiaries (the "Corporation" or
the "Firm") incurred pre-tax charges of approximately $1.1 billion in
COC-related costs, principally due to the aforementioned vesting of all employee
deferred compensation amounts and related pro-rata bonus awards as well as a
pre-tax restructuring charge of $459 million. Also, in connection with the
Acquisition, the Corporation incurred other charges reflecting a change in
management's intention regarding certain assets as a result of integrating the
Corporation into Deutsche Bank, a change in certain pricing methodologies in
order to conform to those of Deutsche Bank, and the transfer of certain
available for sale securities to Deutsche Bank related entities based on changes
in management responsibility. These one-time charges are included in Deutsche
Bank's consolidated financial statements as of June 30, 1999 as part of the
goodwill associated with the Acquisition. The goodwill is being amortized over
15 years.
Disposition of Assets
On June 5, 1999, Bankers Trust transferred its wholly-owned subsidiary BT Alex.
Brown Incorporated ("BTAB") and substantially all of its interest in Bankers
Trust International PLC ("BTI") to Deutsche Bank Securities Inc. ("DBSI") and
Deutsche Holdings (BTI) Ltd., respectively, which are wholly-owned subsidiaries
of Deutsche Bank. The transfer of BTAB to DBSI took the form of an exchange of
stock pursuant to which BTAB became a wholly-owned subsidiary of DBSI and
Bankers Trust received shares of DB U.S. Financial Markets Holding Corporation
("DBUSH"), the parent of DBSI. In the third quarter of 1999, the Corporation
sold its shares of DBUSH to Taunus for approximately $800 million. The transfer
of substantially all of Bankers Trust's interest in BTI was for cash in the
amount of approximately $1.7 billion.
On August 31, 1999, the Corporation completed the sale of Bankers Trust
Australia Limited ("BTAL"), a wholly-owned subsidiary, to the Principal
Financial Group for a price of approximately $1.3 billion. Prior to the sale,
BTAL remitted to the Corporation a dividend for accumulated retained earnings
that included proceeds from BTAL's sale of its investment banking division to
Macquarie Bank. The Corporation also received cash for the assumption of certain
BTAL long-term debt. In addition, according to the sale agreement, the
Corporation is entitled to receive an additional payment. The amount and timing
of such payment is not known at this time. When such payment is received, it
will be reflected in the Corporation's results of operations. The Corporation
recognized a pre-tax gain of approximately $779 million in the third quarter of
1999 on the sale of BTAL.
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.
Prior to the Acquisition, the Corporation was a global financial
institution, providing products and services to its clients worldwide.
Subsequent to the Acquisition and associated reorganization activities, the
Corporation and its subsidiaries conduct their business primarily in the
Americas, focusing their activities principally in the asset management,
lending, institutional services, private equity, and private banking businesses.
Capital Contribution
In conjunction with the Acquisition and to strengthen the Corporation's capital
base, Deutsche Bank made a capital contribution of $1.4 billion in the second
quarter of 1999.
Results of Operations
Summary of 1999 Results
For the year 1999, the Corporation reported a net loss of $1,603 million,
compared to a net loss of $73 million in 1998.
For the year, total net revenue (net interest revenue after provision for
credit losses related to loans plus noninterest revenue) of $4.365 billion was
down $724 million, from 1998 revenue of $5.089 billion. Total noninterest
expenses for the year increased $614 million, or 12 percent, from 1998. As
previously mentioned, in the second quarter of 1999 the Corporation incurred
pre-tax charges of
Bankers Trust Corporation and its Subsidiaries 3
<PAGE>
- --------------------------------------------------------------------------------
approximately $1.1 billion in COC-related costs and a pre-tax restruc turing
charge of $459 million. During the fourth quarter of 1999, the Corporation
recorded additional charges related to restructuring and other related
activities of $174 million in connection with its continuing efforts to
streamline support functions and realign certain business activities. The
results for 1999 also include the aforementioned gain on the sale of BTAL.
At December 31, 1999, total cash basis loans amounted to $737 million, up
from $392 million at December 31, 1998.
Prior to the Acquisition in the second quarter of 1999, the Corporation
completed the sale of its remaining stake in Consorcio, a Chilean insurance
company. The impact of the sale was immaterial to the Corporation's results of
operations.
Because of the significant business and net financial asset transfers to
Deutsche Bank entities, the aforementioned other charges reflecting changes in
management intent and responsibility in the second quarter of 1999 and the sale
of BTAL in the third quarter of 1999, the Corporation's historical financial
statements are not fully comparable for all periods presented.
Business Segments
Business segments results, which are presented in accordance with U.S. generally
accepted accounting principles, are derived from internal management reports.
In conjunction with the Acquisition, the Corporation realigned its
business activities to conform to Deutsche Bank's management structure. In this
regard, Retail and Private Banking focuses on the Corporation's private banking
activities. The Asset Management division combines the Corporation's
institutional asset management and retail investment fund businesses. 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. Refer to Note 22
of Notes to Financial Statements for further discussion of the business
segments' activities. Corporate Items include revenue and expenses that have not
been allocated to business segments.
Prior period results have been restated for changes in management
structure.
The information presented below reflects the results by business segment (in
millions):
Total Non- Pretax
Year Ended Total Net interest Income/
December 31, 1999 Revenue Expenses (Loss)
- --------------------------------------------------------------------------------
Retail and Private Banking $ 169 $ 189 $ (20)
Asset Management 241 221 20
Global Corporates and Institutions 1,378 2,653 (1,275)
Global Technology and Services 922 970 (48)
- --------------------------------------------------------------------------------
Total Business Segments 2,710 4,033 (1,323)
- --------------------------------------------------------------------------------
Corporate Items 1,655 1,747 (92)
- --------------------------------------------------------------------------------
Total $ 4,365 $ 5,780 $(1,415)
================================================================================
Total Non- Pretax
Year Ended Total Net interest Income/
December 31, 1998 Revenue Expenses (Loss)
- --------------------------------------------------------------------------------
Retail and Private Banking $ 187 $ 175 $ 12
Asset Management 253 155 98
Global Corporates and Institutions 2,567 3,058 (491)
Global Technology and Services 946 900 46
- --------------------------------------------------------------------------------
Total Business Segments 3,953 4,288 (335)
- --------------------------------------------------------------------------------
Corporate Items 1,136 878 258
- --------------------------------------------------------------------------------
Total $5,089 $5,166 $ (77)
================================================================================
Total Non- Pretax
Year Ended Total Net interest Income/
December 31, 1997 Revenue Expenses (Loss)
- --------------------------------------------------------------------------------
Retail and Private Banking $ 173 $ 176 $ (3)
Asset Management 191 137 54
Global Corporates and Institutions 3,499 2,739 760
Global Technology and Services 915 832 83
- --------------------------------------------------------------------------------
Total Business Segments 4,778 3,884 894
- --------------------------------------------------------------------------------
Corporate Items 1,442 1,097 345
- --------------------------------------------------------------------------------
Total $ 6,220 $ 4,981 $ 1,239
================================================================================
The Retail and Private Banking business recorded a pre-tax loss of $20
million in 1999, compared to pre-tax income of $12 million in 1998. The 1999
results contain COC-related costs of approximately $21 million and reflect lower
revenue from commissions. In 1998, Retail and Private Banking reported pre-tax
income of $12 million, up $15 million from 1997. The increase reflected higher
revenue from fiduciary and funds management activities.
4 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
Asset Management recorded pre-tax income of $20 million in 1999, compared
to pre-tax income of $98 million in 1998. The 1999 results contain COC-related
costs of approximately $18 million and higher personnel-related costs. Asset
Management pre-tax income of $98 million in 1998 increased $44 million from 1997
primarily due to higher revenue from fiduciary and funds management activities.
The Global Corporates and Institutions business recorded a pre-tax loss of
$1,275 million in 1999, compared to a pre-tax loss of $491 million in 1998. The
1999 results contain COC-related costs of approximately $848 million. Trading
losses also negatively impacted the 1999 results. Total net revenue for 1999
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. Global Corporates and Institutions recorded a pre-tax loss of $491
million in 1998 compared to pre-tax income of $760 million in 1997. The 1998
results included losses related to widening credit spreads on high-yield debt
securities, mark-to-market losses on investments in the unit's private equity
portfolio and losses on securities available for sale resulting from the
economic turmoil experienced in the third quarter of 1998.
The Corporation's Global Technology and Services business recorded a
pre-tax loss of $48 million for 1999 compared to pre-tax income of $46 million
in 1998. The 1999 results contain COC-related costs of approximately $86
million. Global Technology and Services pre-tax income of $46 million in 1998
decreased $37 million from 1997.
Corporate Items include revenue and expenses that have not been allocated
to business segments, the operating income and expenses of BTAL and Consorcio,
and the results of smaller businesses that are not included in the main business
segments. Due to the sale of BTAL in the third quarter of 1999, its results are
not included as a reportable segment. Corporate Items also includes charges of
$633 million for restructuring and other related activities for the year ended
December 31, 1999.
Financial Reporting Matters
On January 1, 1999, the Corporation adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). SOP 98-1 provides guidance as to when it is or is not
appropriate to capitalize the cost of software developed or obtained for
internal use. 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.
As used throughout this Annual Report, the term "International" signifies
information based on the domicile of the customer, whereas the term "Foreign
Office" refers to the location in which the transaction is recorded.
Statement of Income Analysis
Net Interest Revenue
Net interest revenue for 1999 was $807 million, down $565 million from 1998. Net
interest revenue for 1998 was $1.372 billion, up $13 million from 1997. The
significant transfers of entities and other financial assets and liabilities to
Deutsche Bank in the second half of 1999 negatively impacted net interest
revenue and levels of average interest-bearing assets and average
interest-bearing liabilities for the year ended December 31, 1999 as compared to
prior periods.
The Firm's trading and risk management businesses include the use of
interest rate instruments and related derivatives. These activities can
periodically shift revenue between trading and net interest, depending on a
variety of factors, including risk management strategies. Therefore, the
Corporation views trading revenue and trading-related net interest revenue
together, which is discussed in the trading revenue section below.
The Firm's nontrading-related net interest revenue, generally a more
stable component of overall net interest revenue than trading-related net
interest revenue, was $630 million in 1999, compared to $787 million in 1998.
This decrease was primarily due to the decrease in securities borrowed and
securities purchased under resale agreements. Nontrading-related net interest
revenue was $787 million in 1998 compared to $818 million in 1997.
In 1999, the interest rate spread was 1.06 percent compared to 1.02
percent in 1998. Net interest margin increased to 1.18 percent from 1.16 percent
in 1998. The yield on interest-earning assets declined by 51 basis points. The
cost of interest-bearing liabilities declined by 55 basis points. Average
interest-earning assets totaled $69.4 billion at December 31, 1999, down $51.2
billion from December 31, 1998. The decrease was primarily attributable to the
decrease in trading account assets, securities borrowed and securities purchased
under resale agreements. Average interest-bearing liabilities totaled $67.8
billion at December 31, 1999, down $49.8 billion from December 31, 1998. The
decrease was primarily attributable to the decrease in securi ties sold under
repurchase agreements and interest-bearing deposits.
Bankers Trust Corporation and its Subsidiaries 5
<PAGE>
- --------------------------------------------------------------------------------
In 1998, the interest rate spread was 1.02 percent compared to 1.09
percent in 1997. Net interest margin decreased to 1.16 percent from 1.33
percent. The yield on interest-earning assets declined by 11 basis points. The
cost of interest-bearing liabilities declined by 4 basis points. Average
interest-earning assets totaled $120.7 billion at December 31, 1998, up $16.3
billion from December 31, 1997. The increase was primarily attributable to
increases in securities borrowed and securities available for sale. Average
interest-bearing liabilities totaled $117.6 billion at December 31, 1998, up
$17.5 billion from December 31, 1997. The increase was primarily attributable to
a rise in securities sold under repurchase agreements, long-term debt and
interest-bearing deposits in domestic offices.
Table 2 Net Interest Revenue Analysis
The table below presents the Corporation's trend of net interest revenue,
average balances and rates. For further details on these statistics, see pages
62 through 64.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
($ in millions) Year Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest revenue
Book basis $ 807 $ 1,372 $ 1,359
Tax equivalent adjustment* 15 31 26
- -----------------------------------------------------------------------------------------------
Fully taxable basis $ 822 $ 1,403 $ 1,385
===============================================================================================
Average balances
Interest-earning assets $69,411 $120,650 $104,334
Interest-bearing liabilities 67,803 117,637 100,154
- -----------------------------------------------------------------------------------------------
Earning assets financed by noninterest-bearing funds $ 1,608 $ 3,013 $ 4,180
===============================================================================================
Average rates (fully taxable basis)
Yield on interest-earning assets 6.39% 6.90% 7.01%
Cost of interest-bearing liabilities 5.33 5.88 5.92
- -----------------------------------------------------------------------------------------------
Interest rate spread 1.06 1.02 1.09
Contribution of noninterest-bearing funds .12 .14 .24
- -----------------------------------------------------------------------------------------------
Net interest margin 1.18% 1.16% 1.33%
===============================================================================================
</TABLE>
* The applicable combined federal, state and local incremental tax rate used
to determine the amounts of the tax equivalent adjustments (which
recognize the income tax savings on tax-exempt assets) was 41 percent for
1999, 41 percent for 1998 and 41 percent for 1997.
Provision for Credit Losses -- Loans
The Corporation recorded a negative provision for credit losses related to loans
of $58 million for the year ended December 31, 1999. The provision for credit
losses related to loans amounted to $40 million in 1998 as compared with no
provision for 1997. A discussion of the Corporation's allowance for credit
losses--loans appears on page 16.
Trading Revenue
The Corporation's trading activities in 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.
Trading-related net interest revenue represents interest earned on cash
instruments held in the trading accounts less the cost to fund both cash and
derivatives positions.
6 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
The table below presents the Firm's trading revenue and trading-related
net interest revenue by major category of market risk. These categories are
based on management's view of the predominant underlying risk exposure of each
of the Firm's trading positions.
Trading-
Related
Net
Trading Interest
(in millions) Revenue Revenue Total
- --------------------------------------------------------------------------------
Year Ended December 31, 1999
Interest rate risk $ (165) $244 $ 79
Foreign exchange risk 139 -- 139
Equity and commodity risk 68 (67) 1
- --------------------------------------------------------------------------------
Total $ 42 $177 $ 219
================================================================================
Year Ended December 31, 1998
Interest rate risk $ (427) $593 $ 166
Foreign exchange risk 426 -- 426
Equity and commodity risk (183) (8) (191)
- --------------------------------------------------------------------------------
Total $ (184) $585 $ 401
================================================================================
Year Ended December 31, 1997
Interest rate risk $ 433 $603 $1,036
Foreign exchange risk 277 -- 277
Equity and commodity risk 345 (62) 283
- --------------------------------------------------------------------------------
Total $1,055 $541 $1,596
================================================================================
Interest Rate Risk
As indicated above, a portion of the Firm's trading and risk man agement
activities involve positions in interest rate instruments and related
derivatives. The revenue from these activities can periodically shift between
trading and trading-related net interest revenue, depending on a variety of
factors, including risk management activities.
In 1999, trading and trading-related net interest revenue was $79 million
compared to $166 million in 1998. The decrease reflects the integration of the
Corporation's trading assets into the Deutsche Bank entity and includes post
merger risk reduction initiatives.
In 1998 trading and trading-related net interest revenue was $166 million
compared to $1.036 billion in 1997. The decrease was primarily attributable to
losses on high-yield securities, adverse market conditions in Latin America and
Asia, valuation adjustments to trading assets for widening counterparty credit
spreads, and Russian-related trading losses.
Foreign Exchange Risk
In 1999, trading revenue related to foreign exchange risk was $139 million,
compared to $426 million in 1998. The decrease in foreign exchange revenue is
primarily related to reduced revenue in Australian markets in the first six
months of 1999 coupled with the sale of BTAL in the third quarter of 1999.
In 1998 trading revenue related to foreign exchange risk was $426 million,
up $149 million, or 54 percent, compared to 1997. The increase was principally
due to gains in the Asian and Australian foreign exchange markets.
Equity and Commodity Risk
Total trading and trading-related net interest revenue related to equity and
commodity risk was $1 million in 1999, an increase of $192 million from 1998
which decreased $474 million from 1997. The third quarter of 1998 included
losses in global proprietary equity portfolios caused by increased market
volatility, valuation adjustments related to the Corporation's European Equity
business as well as decreased activity in the equity derivative books.
Noninterest Revenue (Excluding Trading)
The following table presents noninterest revenue (in millions):
Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Fiduciary and funds management $1,017 $1,108 $1,059
Corporate finance fees 542 1,255 1,113
Other fees and commissions 538 817 606
Net revenue from equity
investments 356 302 224
Securities available for sale gains (losses) (89) (56) 158
Insurance premiums 86 256 287
Other 1,008 259 359
- --------------------------------------------------------------------------------
Total $3,458 $3,941 $3,806
================================================================================
Fiduciary and funds management revenue was down $91 million, or 8 percent,
from 1998, which was up $49 million from 1997. The decrease in 1999 is due
primarily to the sale of BTAL in the third quarter of 1999. Higher global
private banking commissions and improved funds management revenue contributed to
the increase in 1998.
Corporate finance fees were down $713 million, or 57 percent, from 1998,
which were up $142 million from 1997. Lower underwriting fees, loan syndication
fees and merger and acquisition activities, which is primarily attributable to
the transfer of BTAB to DBSI in June 1999, contributed to the decline in 1999.
Higher merger and acquisition fees in addition to higher financial advisory and
commitment fees contributed to the increase in 1998.
Other fees and commissions were down $279 million, or 34 percent, from
1998, which were up $211 million from 1997. The decline in 1999 was primarily
due to lower fees for brokerage services resulting from the transfer of BTAB and
BTI to Deutsche Bank related entities. The increase in 1998 was primarily due to
higher fees for brokerage services principally resulting from the acquisition of
NatWest Markets' European equities business.
Net revenue from equity investments was up $54 million, or 18 percent,
from 1998, which was up $78 million from 1997. Higher gains on sales of direct
equity investments contributed to the increase in both 1999 and 1998.
Bankers Trust Corporation and its Subsidiaries 7
<PAGE>
- --------------------------------------------------------------------------------
Securities available for sale losses were $89 million compared to
securities available for sale losses of $56 million in 1998. The 1999 results
reflect third party sale activity and the transfer of certain Latin American
debt securities to Deutsche Bank related entities based on changes in management
responsibility related to such securities following the COC date. Securities
available for sale losses in 1998 decreased $214 million from 1997. The 1998
results included losses on Russian, Asian and Latin American securities.
Insurance premiums decreased $170 million, or 66 percent, from 1998. The
Corporation exited the insurance business with the sale of its remaining stake
in Consorcio, the Corporation's 50 percent owned Chilean insurance company, in
the second quarter of 1999. Insurance premiums in 1998 decreased $31 million, or
11 percent, from 1997. This decrease was mainly due to decreasing annuity sales
at Consorcio.
Other noninterest revenue was $1.008 billion in 1999, an increase of $749
million from 1998 which decreased $100 million, or 28 percent, from 1997. The
1999 results included the pre-tax gain on the sale of BTAL. The current year
increase was partially offset by the recognition of cumulative translation
adjustments for certain legal entities transferred to affiliated Deutsche Bank
entities during 1999. The 1997 results included a pre-tax gain of $76 million on
the sale of a midtown Manhattan office building that was previously the
headquarters of the Corporation, a pre-tax gain of $62 million on the sale of
the Corporation's defined contribution recordkeeping and participant services
business, as well as a gain on the sale of 50 percent of the Corporation's stake
in Consorcio. The Corporation also recognized in 1997 a decline in value for
certain Southeast Asian investments that partially offset these gains.
Noninterest Expenses
The following table presents noninterest expenses (in millions):
Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Salaries and commissions $1,039 $1,421 $1,273
Incentive compensation and
employee benefits 1,088 1,530 1,726
Change in control related incentive
compensation and employee benefits 1,101 -- --
Agency and other professional
service fees 430 501 391
Communication and data services 206 252 231
Occupancy, net 198 218 181
Furniture and equipment 221 252 224
Travel and entertainment 114 171 142
Provision for policyholder benefits 114 322 333
Other 636 499 423
Restructuring and other related activities 633 -- 57
- --------------------------------------------------------------------------------
Total $5,780 $5,166 $4,981
================================================================================
Total noninterest expenses for 1999 increased $614 million, or 12 percent,
from 1998. Salaries and commissions expense decreased by $382 million, or 27
percent, in 1999, primarily due to a decrease in the average number of employees
resulting from the transfer of BTAB and BTI in the second quarter of 1999, the
sale of BTAL in the third quarter of 1999 and staff reductions resulting from
the Acquisition. Incentive compensation and employee benefits decreased by $442
million, or 29 percent, primarily due to the decrease in the average number of
employees as previously mentioned. The number of full-time staff at December 31,
1999 was 7,775 compared to 20,541 at December 31, 1998.
The 1999 results also 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.
All other noninterest expenses totaled $2.552 billion compared with $2.215
billion in 1998. During 1999, the Corporation recorded pre-tax charges for
restructuring and other related activities totaling $633 million. Of this
amount, $459 million related to a restructur ing charge recorded in the second
quarter in conjunction with the Acquisition. This charge reflected $394 million
of severance and other termination-related costs as well as $65 million of other
costs primarily related to lease terminations and write-offs of fixed assets and
leasehold improvements. During the fourth quarter, the Corporation recorded
additional charges related to restructuring and other related activities of $174
million in connection with its con tinuing efforts to streamline support
functions and realign certain business activities. These charges reflected $116
million of severance and other termination-related costs, as well as $58 million
of other costs primarily related to the intended liquidation of certain
financial assets.
The provision for policyholder benefits decreased $208 million from 1998.
The Corporation exited the insurance business with the sale of its remaining
stake in Consorcio in the second quarter of 1999.
Total noninterest expenses for 1998 increased $185 million, or 4 percent,
from 1997. Salaries and commissions expense increased by $148 million, or 12
percent, in 1998, primarily due to an increase in the average number of
employees and higher annual salaries. Incentive compensation and employee
benefits decreased by $196 million, or 11 percent, due to the decline in
financial performance, partly offset by employee stock awards granted in 1997.
The number of full-time staff at December 31, 1998 was 20,541 compared to 18,655
at December 31, 1997.
All other noninterest expenses totaled $2.215 billion in 1998 compared
with $1.982 billion in 1997. The 1998 results reflected a $60 million fine to
federal authorities and a $3.5 million payment to the State of New York as part
of an agreement to resolve an investigation concerning inappropriate transfers
of unclaimed funds and related recordkeeping problems that occurred between 1994
and early 1996. Included in the 1998 amount were additional costs for agency and
other professional service fees due to integration and continuing costs
associated with the acquisition of NatWest Markets' European equities business.
8 Bankers Trust and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
Taxes
Income tax expense for 1999 amounted to $188 million, compared to an income tax
benefit of $4 million in 1998 and income tax expense of $373 million in 1997.
The effective tax rate for 1999 was (13) percent, while the 1998 and 1997
effective tax rates were 5 percent and 30 percent, respectively.
Year 2000
The Corporation's computer systems, applications and infrastructure operated
successfully on the first business day of the new millennium. It did not become
necessary for the Corporation to invoke any of its contingency plans, including
those related to possible failures by third parties. The Corporation's Year 2000
expenditures during 1999 aggregated approximately $56 million and largely
represented the redeployment of existing operations and information technology
resources. The cost of any remaining efforts related to the Year 2000 is not
expected to be material.
International Operations
The Corporation's assets and results of operations for 1999, 1998 and 1997 have
been allocated between domestic and international operations in Note 23 of Notes
to Financial Statements. This analysis, which is based on the domicile of the
customer, incorporates numerous subjective assumptions and, as a result, is
different from legal entity and segment results shown elsewhere in this report.
Management views the operation of the Corporation on a segment basis, as
disclosed on page 4.
International net loss for 1999 and 1998 totaled $1,134 million and $211
million, respectively. Net income from domestic operations was a negative $469
million during 1999 and a positive $138 million for 1998, therefore, the ratio
of international to total net income is not meaningful. This ratio for 1997 was
26 percent.
International total assets were $18.6 billion at December 31, 1999
compared to $63.1 billion at December 31, 1998, which represented 27 percent and
47 percent of total consolidated assets, respectively.
The transfer of most of the Corporation's international operations to
Deutsche Bank is the primary reason for the decline in international total
assets during 1999. Much of the net loss in 1999 is due to the allocation of a
significant portion of the COC-related and restructuring charges to
international operations.
The overall losses during 1998 from international operations were
primarily due to Asia and the Western Hemisphere. During 1998, the Asian region
suffered a loss of $210 million as compared to a loss of $44 million during
1997. This loss was primarily due to trading losses. In 1998 the Western
Hemisphere had a loss of $96 million versus net income of $81 million in 1997.
This loss was attributable to losses on trading assets and losses on securities
available for sale.
Domestic income decreased from $638 million in 1997 to $138 million in
1998. This decrease was primarily due to trading losses and a decrease in net
interest margins.
International total assets were $63.1 billion at December 31, 1998
compared to $72.7 billion at December 31, 1997, which represented 47 percent and
52 percent of total consolidated assets, respectively. The $9.6 billion decrease
was primarily due to a reduction in Asian trading assets, partially offset by an
increase in European assets.
Bankers Trust Corporation and its Subsidiaries 9
<PAGE>
- --------------------------------------------------------------------------------
Changes in Financial Condition
Balance Sheet Analysis
Table 3 below highlights the trends in the balance sheet over the past two
years. Because annual averages may tend to conceal trends and year-end balances
can be distorted by one-day fluctuations, fourth quarter averages for each year
are provided to give a better indication of trends in the balance sheet.
Table 3 Condensed Balance Sheets -- Fourth Quarter Averages
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(in millions) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Interest-earning
Interest-bearing deposits with banks $ 3,867 $ 2,370 $ 6,211
Federal funds sold 3,608 3,445 4,950
Securities purchased under resale agreements 5,478 19,316 23,074
Securities borrowed -- 17,903 16,588
Trading assets 6,221 25,206 30,447
Securities available for sale
Taxable 3,412 10,038 6,876
Exempt from federal income taxes 16 1,692 1,237
- ----------------------------------------------------------------------------------------------------------------
Total securities available for sale 3,428 11,730 8,113
Loans
Domestic offices 16,132 12,847 10,800
Foreign offices 4,613 10,417 9,580
- ----------------------------------------------------------------------------------------------------------------
Total loans 20,745 23,264 20,380
Customer receivables 569 1,622 1,612
- ----------------------------------------------------------------------------------------------------------------
Total interest-earning assets 43,916 104,856 111,375
Noninterest-earning
Cash and due from banks 1,745 2,721 1,476
Noninterest-earning trading assets 8,541 29,650 25,157
All other assets 8,774 11,853 10,694
Allowance for credit losses--loans (508) (665) (780)
- ----------------------------------------------------------------------------------------------------------------
Total $62,468 $148,415 $147,922
================================================================================================================
Liabilities
Interest-bearing
Interest-bearing deposits
Domestic offices $12,200 $ 18,891 $ 21,881
Foreign offices 7,659 16,650 20,966
- ----------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 19,859 35,541 42,847
Trading liabilities 39 5,918 5,587
Securities loaned and securities sold under repurchase agreements 210 20,650 24,200
Other short-term borrowings 7,691 19,247 20,078
Long-term debt 13,915 18,645 13,050
Mandatorily redeemable capital securities of subsidiary trusts
holding solely junior subordinated deferrable interest debentures 1,427 1,419 1,472
- ----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 43,141 101,420 107,234
Noninterest-bearing
Noninterest-bearing deposits 4,724 4,362 3,366
Noninterest-bearing trading liabilities 4,516 26,454 20,803
All other liabilities 5,542 11,271 10,591
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities 57,923 143,507 141,994
Preferred Stock of Subsidiary -- 144 --
- ----------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock 392 394 688
Common stockholders' equity 4,153 4,370 5,240
- ----------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 4,545 4,764 5,928
- ----------------------------------------------------------------------------------------------------------------
Total $62,468 $148,415 $147,922
================================================================================================================
</TABLE>
10 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
Management believes that the Corporation has sufficient liquidity and capital
resources to meet the needs of its business operations.
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 become an integral part of Deutsche Bank's global
liquidity process. Management's policy is designed to maintain Deutsche Bank's
ability to fund assets and meet any contractual financial obligations on a
timely basis at a fair market cost under any market conditions. While Deutsche
Bank and the Corporation manage their liquidity positions on a day-to-day basis
to meet ongoing funding needs, Deutsche Bank's planning and management process
also encompasses contingency planning to address even the most severe liquidity
events.
Short-term unsecured financing for the Corporation is available under an
uncommitted credit line with its parent, Deutsche Bank. At December 31, 1999,
this credit line totaled over $5 billion. Of this amount, approximately $2
billion was drawn.
The Corporation's consolidated long-term debt and mandatorily redeemable
capital securities of subsidiary trusts holding solely junior subordinated
deferrable interest debentures included in risk-based capital ("trust preferred
capital securities"), at December 31, 1999 totaled $16.4 billion, most of which
was unsecured, and consisted of $11.5 billion in senior borrowings, $3.5 billion
of subordinated debt, and $1.4 billion of trust preferred capital securities.
These liabilities mature between 2000 and 2037, as detailed in Notes 9 and 10 of
Notes to Financial Statements.
Capital Resources
The Corporation pursues capital management with the objective of enhancing its
ability to execute its global strategic business plans while retaining financial
flexibility. Management believes that a strong capital base is critical to
achieving these objectives.
Consolidated total stockholder's equity totaled $4.350 billion on December
31, 1999, down $346 million, or 7 percent, from year end 1998, which was down
$1.012 million, or 18 percent, from year end 1997. The current year's decrease
was primarily due to the net operating loss of $1.6 billion offset in part by a
capital contribution from Deutsche Bank of $1.4 billion. The decrease in 1998
was primarily due to dividends declared on common and preferred stock and the
repurchase of common and preferred stock.
The Corporation actively monitors compliance with bank regulatory capital
requirements, focusing primarily on the risk-based capital guidelines. The
Corporation manages its capital base and on- and off-balance sheet items to
ensure that it remains strongly capitalized.
The Federal Reserve Board's risk-based capital guidelines 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 qualifying capital by its risk-weighted
assets. The Federal Reserve Board also has a minimum Leverage ratio that 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 had previously adopted the market risk amendment to the
risk-based capital guidelines issued by the Federal Reserve, which requires the
use of internal models to measure market risk in the calculation of the
risk-weighted assets for trading accounts. This amendment is consistent with the
amendment to the Basle Capital Accord adopted by the Basle Committee on Banking
Supervision at the Bank for International Settlements ("the BIS").
The following discussion of the risk-based capital and leverage ratios
should be read in conjunction with Note 15 of the Notes to Financial Statements,
which defines the components of Tier 1, Tier 2 and Tier 3 Capital, as well as
the regulatory guidelines for well- capitalized banks and bank holding
companies.
The Corporation's and BTCo's regulatory capital ratios are presented in
Table 4.
During 1999, the Corporation's Tier 1 Capital ratio increased 290 basis
points as the slight decline in Tier 1 Capital of $607 million was offset by the
significant decrease in risk-weighted assets of $25.1 billion. The Tier 1
Capital decrease was primarily caused by the 1999 net operating loss of $1.6
billion and the net decline in the other components of Tier 1 Capital of $.4
billion, partially offset by the capital contribution of $1.4 billion made by
Deutsche Bank in the second quarter of 1999. Risk-weighted assets decreased
principally because positions were liquidated or transferred to other Deutsche
Bank affiliates. The Total Capital ratio increased 480 basis points as the
decrease in risk-weighted assets more than offset the decline of $1.4 billion in
Total Capital. The Leverage ratio increased 380 basis points with the decrease
in Tier 1 Capital more than offsetting a decrease of $84.6 billion in adjusted
quarterly average assets.
The negative effect of the aforementioned operating losses and positive
effect of the asset liquidations and transfers were also the main reasons for
comparative variances in BTCo's ratios. During 1999, BTCo's Tier 1 Capital ratio
increased 600 basis points as the decrease in Tier 1 Capital of $972 million was
more than offset by a reduction of $29.1 billion in risk-weighted assets. Total
Capital ratio increased 550 basis points as the reduction in risk-weighted
assets was more than enough to offset the decline of $2 billion in Total
Capital. The Leverage ratio increased 660 basis points as the decline in Tier 1
Capital was offset by the significant reduction of $69.7 billion in quarterly
average assets.
Table 4 presents the regulatory capital ratios of the Corporation and BTCo
at December 31, 1999 and 1998 and the well-capitalized guidelines.
Bankers Trust Corporation and its Subsidiaries 11
<PAGE>
- --------------------------------------------------------------------------------
Table 4 Regulatory Capital Ratios
Well
December 31, December 31, Capitalized
1999 1998 Guidelines
- --------------------------------------------------------------------------------
Corporation
Risk-Based Ratios
Tier 1 Capital 10.4% 7.5% 6.0%
Total Capital 18.4% 13.6% 10.0%
Leverage Ratio 7.3% 3.5% N/A
BTCo
Risk-Based Ratios
Tier 1 Capital 16.5% 10.5% 6.0%
Total Capital 18.9% 13.4% 10.0%
Leverage Ratio 12.3% 5.7% 5.0%
N/A Not Applicable.
The following were the essential components (in millions) used in
calculating the Corporation's and BTCo's risk-based capital ratios:
December 31, 1999 1998
- --------------------------------------------------------------------------------
Corporation
Tier 1 Capital $ 4,462 $ 5,069
Tier 2 Capital 3,399 3,812
Tier 3 Capital -- 400
- --------------------------------------------------------------------------------
Total Capital $ 7,861 $ 9,281
================================================================================
Total risk-weighted assets $42,823 $67,980
================================================================================
BTCo
Tier 1 Capital $ 5,710 $ 6,682
Tier 2 Capital 851 1,858
- --------------------------------------------------------------------------------
Total Capital $ 6,561 $ 8,540
================================================================================
Total risk-weighted assets $34,657 $63,748
================================================================================
Risk Management
Market Risk
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.
One summary measure of market risk is Daily Price Volatility ("DPV"). The
Daily Price Volatility of a portfolio is the potential loss in fair value that
statistically would be exceeded only 1 percent of the time if that portfolio
were held unchanged for one day. As such, Daily Price Volatility falls within a
general class of risk measures that are referred to as Value at Risk ("VaR").
The Corporation's Daily Price Volatility is calculated using proprietary
simulation and risk modeling techniques. Table 5 provides information on the
Daily Price Volatility associated with the Corporation's market risk positions
during 1999. The table shows this information for the set of financial assets
and liabilities whose values are functions of market-traded variables
irrespective of accounting classification. This set of figures is labeled Total
Daily Price Volatility in the table. The table also reports information on the
Daily Price Volatility from the subset of market risk positions that are
reported as trading assets and liabilities. This set of figures is labeled
Trading Daily Price Volatility. Finally, the table reports information on the
Daily Price Volatility associated with the non-trading, market-sensitive
positions. This set of positions is labeled Non-Trading Daily Price Volatility,
and the information in this portion of the table reflects the incremental
contribution these positions have on the Corporation's Total Daily Price
Volatility.
Effective October 1, 1999 the Corporation adopted the market risk VaR
models and methodologies that are used throughout the Deutsche Bank Group for
various purposes, including regulatory capital. Although the methodologies
employed by the former and current models differ in some respects, both models
meet the regulatory requirements and have been approved by the banking
regulators in the United States for use in risk-based capital. Therefore, the
1999 Daily Price Volatility Statistics for the overall portfolio in Table 5 are
generally comparable with the 1998 Daily Price Volatility Statistics for the
overall portfolio in Table 6.
The prior period amounts have not been restated due to the complexities of
VaR models and of the correlation effects across risk classifications. In
addition, the quantitative risk measures presented for 1999 are not comparable
to those presented for 1998 due to the significant business and net financial
asset transfers to Deutsche Bank entities, as well as continued risk reduction
efforts begun in the third quarter of 1998. The Corporation's market risks at
December 31, 1999 were primarily from its private equity investments and
high-yield distressed debt positions, as well as positions arising from loan
trading, loan syndication and loan securitization businesses.
12 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
Table 5 BTC Daily Price Volatility Statistics for 1999 (in millions)
Total Daily Price Volatility
- --------------------------------------------------------------------------------
Average Minimum Maximum December 31,
Risk Class 1999 1999 1999 1999
- --------------------------------------------------------------------------------
Interest Rate $ 18.0 $ 4.3 $30.7 $ 5.1
Currency 2.5 0.1 11.2 0.6
Equity 22.6 10.2 37.7 11.7
Commodity 0.6 -- 1.8 --
Diversification (12.4) -- -- (4.6)
- --------------------------------------------------------------------------------
Overall Portfolio $ 31.3 * * $12.8
================================================================================
Trading Daily Price Volatility
- --------------------------------------------------------------------------------
Average Minimum Maximum December 31,
Risk Class 1999 1999 1999 1999
- --------------------------------------------------------------------------------
Interest Rate $11.1 $ 4.2 $18.4 $ 5.0
Currency 2.3 0.1 7.8 0.6
Equity 8.7 3.4 18.8 5.8
Commodity 0.6 -- 1.8 --
Diversification (7.0) -- -- (3.7)
- --------------------------------------------------------------------------------
Overall Portfolio $15.7 * * $ 7.7
================================================================================
Non-Trading Daily Price Volatility: Incremental impact of non-trading positions
on Total Daily Price Volatility
- --------------------------------------------------------------------------------
Average Minimum Maximum December 31,
Risk Class 1999 1999 1999 1999
- --------------------------------------------------------------------------------
Interest Rate $ 6.9 $ -- $16.3 $ 0.1
Currency 0.2 -- 9.1 --
Equity 13.9 5.0 20.2 5.9
Commodity -- -- 0.4 --
Diversification (5.4) -- -- (0.9)
- --------------------------------------------------------------------------------
Overall Portfolio $15.6 * * $ 5.1
================================================================================
* The minimum (maximum) for each risk category occurred on different days so
it is not meaningful to sum the risk class amounts presented above. For
example, during 1999 the minimum Trading Daily Price Volatility was $7.6
million and the maximum Trading Daily Price Volatility was $28.7 million.
Table 6 BTC Daily Price Volatility Statistics for 1998 (in millions)
Total Daily Price Volatility
- -------------------------------------------------------------------------------
Average Minimum Maximum December 31,
Risk Class 1998 1998 1998 1998
- -------------------------------------------------------------------------------
Interest Rate $ 31.9 $19.2 $45.8 $ 25.0
Currency 11.3 5.1 20.9 8.5
Equity 28.5 16.2 36.7 33.9
Commodity 1.3 0.6 3.4 1.2
Diversification (21.7) -- -- (21.3)
- -------------------------------------------------------------------------------
Overall Portfolio $ 51.3 * * $ 47.3
===============================================================================
Bankers Trust Corporation and its Subsidiaries 13
<PAGE>
- --------------------------------------------------------------------------------
Trading Daily Price Volatility
- --------------------------------------------------------------------------------
Average Minimum Maximum December 31,
Risk Class 1998 1998 1998 1998
- --------------------------------------------------------------------------------
Interest Rate $19.3 $11.3 $31.4 $16.8
Currency 11.1 5.0 20.7 7.2
Equity 18.4 8.4 28.1 16.5
Commodity 1.3 0.6 3.4 1.2
Diversification (17.2) -- -- (15.4)
- --------------------------------------------------------------------------------
Overall Portfolio $32.9 * * $26.3
================================================================================
Non-Trading Daily Price Volatility: Incremental impact of non-trading positions
on Total Daily Price Volatility
- --------------------------------------------------------------------------------
Average Minimum Maximum December 31,
Risk Class 1998 1998 1998 1998
- --------------------------------------------------------------------------------
Interest Rate $12.6 $ 1.5 $22.8 $ 8.2
Currency 0.2 -- 1.5 1.3
Equity 10.1 5.1 17.5 17.4
Commodity -- -- -- --
Diversification (4.5) -- -- (5.9)
- --------------------------------------------------------------------------------
Overall Portfolio $18.4 * * $21.0
================================================================================
* The minimum (maximum) for each risk category occurred on different days so
it is not meaningful to sum the risk class amounts presented above. For
example, during 1998 the minimum Total Daily Price Volatility was $32.7
million and the maximum Total Daily Price Volatility was $71.4 million.
Tables 5 and 6 show that the Corporation's overall market risk as measured
by DPV declined in 1999 on an average and spot basis by 39 percent and 73
percent, respectively. The overall decline was driven by declines in all risk
classes. These reductions reflect the continuing effects of integrating the
Corporation into Deutsche Bank Group. The primary risks remaining at December
31, 1999 are interest rate risk and equity risk. The interest rate risk stems
primarily from the loan trading, loan syndication and loan securitization
businesses. The equity risk is primarily from private equity investments held by
the Corporation and from high yield distressed debt positions. Distressed debt
is classified as equity risk after implementation of Deutsche Bank models at the
beginning of the fourth quarter.
Tables 5 and 6 show that the Corporation's DPV from Trading Assets also
declined sharply during this period, decreasing on an average and spot basis by
52 percent and 71 percent, respectively. The decline was evident across all risk
classes. These reductions reflect the continuing effects of integrating the
Corporation into Deutsche Bank Group.
Credit Risk Management
In conformity with Deutsche Bank policies, the Credit Risk Management
Department, headed by the Chief Credit Officer, is responsible for developing
credit policies, as well as for monitoring and managing overall credit risk. The
department evaluates the creditworthiness of each borrower/issuer/counterparty
and assigns a rating for each. Credit limits are established at the portfolio
level by borrower/issuer/counterparty and by other categories. A credit officer
is responsible for reviewing the entire credit risk portfolio of a
borrower/issuer/counterparty regardless of the nature of the exposure (e.g.,
loans, securities, and derivatives). Credit officers also monitor the usage of
credit risk by entity versus the limits at the product and business activity
level. The Credit Risk Management Department monitors country exposures and
industry, borrower/issuer/counterparty, product and regional risk concentrations
in order to evaluate the degree of diversification in the portfolio.
Derivatives
Derivatives are swaps, futures, forwards, options and other similar types of
contracts based on interest rates, foreign exchange rates and the prices of
equities and commodities (or related indices). Derivatives are generally either
privately-negotiated over-the-counter ("OTC") contracts or standard contracts
transacted through regulated exchanges. OTC contracts generally consist of
swaps, forwards and options. In the normal course of business, with the
agreement of the original customer, OTC derivatives may be terminated or
assigned to another customer. Exchange-traded derivatives include futures and
options. These capital markets products are described further in Note 24 of
Notes to Financial Statements. Derivatives may be used for either trading or
end-user purposes.
14 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
Trading Derivatives
The Corporation holds derivatives in connection with its activities as a dealer
acting as principal for particular transactions with clients, as a market maker
quoting bid and offer prices to provide liquidity and regular availability of
derivatives for clients and as a risk manager of its own trading positions
resulting from these client-driven transactions. The risks of derivative
positions are managed in accordance with Deutsche Bank's risk management
policies.
As a result of the Acquisition, the Corporation's former derivatives
activities have been largely transferred to Deutsche Bank entities, and it is
anticipated that the existing positions at December 31, 1999 will be reduced
further over time.
Substantially all of the Corporation's derivative positions at December
31, 1999 were trading-related, with gains and losses included in trading revenue
as they occur. Contracts with positive fair values are recorded as assets and
contracts with negative fair values are recorded as liabilities, after
application of qualifying master netting agreements. These positions may vary in
size from period to period, similar to the positions in cash instruments also
carried in the Corporation's trading account. Average trading assets and trading
liabilities related to derivatives during 1999 were $9.7 billion and $9.4
billion, respectively. The notional amounts, which are not recorded on the
balance sheet, of trading derivatives totaled $282 billion at December 31, 1999
and indicate the volume of activity but do not represent the Corporation's
exposure to market or credit risk.
End-User Derivatives
The Corporation utilizes end-user derivatives to manage exposures to interest
rate, and foreign currency risks associated with certain liabilities such as
interest-bearing deposits, short-term borrowings and long-term debt, as well as
loans and other assets. For example, the majority of the Corporation's end-user
derivatives involve certain instruments (principally interest rate and currency
swaps) used to transform fixed-rate-paying liabilities into variable-rate-paying
liabilities. See Note 24 and Note 26 of Notes to Financial Statements for
additional end-user information and for the fair value of end-user derivatives
and related financial instruments. The notional amounts, which are not recorded
on the balance sheet, of end-user derivatives totaled $41 billion at December
31, 1999 and indicate the volume of activity but do not represent the
Corporation's exposure to market or credit risk. End-user derivative contracts
represent approximately 13 percent of the aggregate notional amounts of all
derivatives outstanding at year end.
Market Risk
The market risk of derivatives arises principally from the potential for changes
in interest rates, foreign exchange rates, and equity and commodity prices and
is generally similar to the market risk of the cash instruments underlying the
contracts. The market risk to the Corporation is not measured by the price
sensitivity of the individual contracts, but by the net price sensitivity of the
relevant portfolio, including cash instruments. Exposures are generally managed
by taking risk-offsetting positions. Therefore, the Corporation believes it is
not meaningful to view the market risk of derivatives in isolation. Market
exposures arising from derivatives are monitored and are included in the Daily
Price Volatility amounts discussed in the preceding Risk Management section.
Liquidity Risk
In times of stress, sharp price movements or volatility shocks may reduce
liquidity in certain derivatives positions, as well as in cash instruments. The
liquidity risk of derivatives is substantially based on the liquidity of the
underlying cash instrument, which affects the ability of the Corporation to
alter the risk profile of its posi tions rapidly and at a reasonable cost. The
Corporation's mark-to-market practices for derivatives include adjustments in
consideration of liquidity risks, when appropriate. These practices are
consistent with those applied to the Corporation's trading positions in cash
instruments.
Derivatives-Related Credit Risk
Derivative transactions create dynamic credit exposure which changes as markets
move. The credit risk of derivatives arises from the potential for a customer to
default on its contractual obligations. Accordingly, credit risk related to
derivatives depends on the following: the current fair value of the contracts
with the customer; the potential credit exposure over time; the extent to which
legally enforceable netting arrangements allow the fair value of offsetting
contracts with that customer to be netted against each other; the extent to
which collateral held against the contracts reduces credit risk exposure; and
the likelihood of default by the customer.
The Corporation monitors and manages the credit risk associated with
derivatives by applying a uniform credit process for all credit exposures. The
credit risk of derivatives is included in Deutsche Bank's credit risk management
systems. In order to reduce derivatives-related credit risk, the Corporation
enters into master netting agreements that provide for offsetting of all
contracts under each such agreement and obtains collateral where appropriate.
Such master netting agreements contemplate payment netting as well as the net
settlement of all covered contracts through a single payment in a single
currency with the same counterparty in the event that a default (including
insolvency) under the agreement occurs. Credit risk exposure is monitored on a
gross and a net basis and on a collateralized and an uncollateralized basis, as
appropriate.
Current credit risk is calculated based on the current replacement cost of
outstanding positions with customers in OTC derivative financial instruments.
The gross replacement cost of a derivative portfolio with a customer is the
positive mark-to-market value of all transactions with that customer without the
effects of netting or collateral arrangements. The replacement costs, after
netting, of $4.8 billion more accurately portray the credit risk associated with
the Corporation's derivatives activities with external customers at December 31,
1999 than do the gross replacement costs.
The Corporation applies netting based upon the criteria prescribed by
Financial Accounting Standards Board ("FASB") Interpretation No. 39 ("FIN 39"),
"Offsetting of Amounts Related to Certain Contracts," which provides that
offsetting is appropriate where the available evidence indicates that there are
reasonable assurances that the right of setoff contained in a master netting
Bankers Trust Corporation and its Subsidiaries 15
<PAGE>
- --------------------------------------------------------------------------------
agreement governing derivatives contracts would be upheld after default,
including in the event of the customer's bankruptcy.
Collateral also reduces credit risk. The Corporation generally accepts
collateral in the form of cash, U.S. Treasuries, and other approved securities
(generally, only liquid, marketable, publicly-traded securities are acceptable).
The international bank regulatory standards for risk-based capital
consider the credit risk arising from derivatives in the assessment of capital
adequacy. These standards were issued under the Basle Capital Accord of July
1988 and adopted in 1989 by the U.S. bank regulators, including the Federal
Reserve Board. These standards use a formula-based assessment of customer credit
risk which, as amended at year-end 1995, reflect the credit-risk-reducing impact
of legally enforceable master netting agreements. These standards include a
calculation for estimating the potential future credit exposure caused by
potential price volatility (the "add-on"). At December 31, 1999, the
risk-weighted amounts (reflecting both current and potential future credit
exposure) that were calculated based on these international standards for
derivative financial instruments aggregated to $2.7 billion after application of
risk weightings.
Allowance for Credit Losses -- Loans
Overview
The Corporation's loan portfolio primarily consists of commercial lending
transactions to a diverse customer and geographic base. As such, the
Corporation's commercial loans tend to be individually large in size and are
non-homogeneous.
As part of the Corporation's overall management and control process, the
Asset Quality Review Department is responsible for performing an ongoing
independent examination of the loan portfolio. The review program is designed to
identify at the earliest possible stage, counterparties who might be facing
financial difficulties. All significant counterparty relationships are reviewed
on a periodic basis, meaning that individual loans to a particular counterparty
are grouped together in evaluating the credit risk to such counterparty. Loans
under special supervision, such as cash basis and renegotiated loans, as well as
loans criticized by the Asset Quality Review Department under regulatory
guidelines (i.e., those loans classified as Special Mention, Substandard and
Doubtful) are also reviewed on a periodic basis. In addition, all levels of
management are required to bring to the attention of the Asset Quality Review
Department any credit risk where an additional review of the counterparty's
financial position is believed to be warranted. The Asset Quality Review
Department reports at least quarterly on the portfolio to the Audit and
Fiduciary Committee of the Board of Directors.
In addition to the above procedures, Federal Reserve and State of New York
bank examiners (the "Bank regulatory authorities") perform periodic examinations
of the Corporation's credit risks, including the loan portfolio. The reports on
these examinations are also reviewed by the Asset Quality Review Department with
the Audit and Fiduciary Committee of the Board of Directors.
Determination of the Allowance for Credit Losses -- Loans
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.
The Corporation undertook a comprehensive review in 1999 of its policies
and procedures related to the determination of the allowance for credit losses
to ensure that they are appropriate within the framework of generally accepted
accounting principles. The Corporation's policies and procedures were revised
and improved to ensure a systematic and adequately documented process for the
estimation of credit losses and related charge-offs.
As a result of the aforementioned comprehensive review, the Corporation
recorded a $49 million reversal of the allowance for credit losses--loans in the
third quarter of 1999. For the year ended December 31, 1999, the Corporation
recorded a negative provision for credit losses--loans of $58 million.
As noted above, all significant counterparty relationships and criticized
loans are reviewed periodically to allow management to determine the level of
the allowance for credit losses--loans. This process results in the following
three components of the allowance for credit losses--loans:
Specific Allowance--The specific allowance component is the amount
required for impaired loans as calculated under SFAS 114, "Accounting by
Creditors for Impairment of a Loan." The specific component of the overall
allowance is determined through a loan-by-loan analysis of impaired loans that
considers expected future cash flows, the value of collateral and other factors
that may impact the borrowers' ability to pay. During 1999, the population of
loans that were individually evaluated for impairment under the SFAS 114
methodology was significantly broadened to include all loans rated Substandard
and Doubtful in the Corporation's internal class system.
Country Risk--The country risk component is the amount provided for
exposures in countries experiencing financial stress, excluding those exposures
already identified and evaluated as impaired loans.
The Deutsche Bank Group Board approves the countries that warrant risk
provisioning together with the percentages to be applied to the exposures in
these countries. The determination of countries to be included considers both
historical loss experience and market data such as economic, political and other
relevant factors affecting a country's financial condition. The list of
countries and associated percentages are periodically reviewed and changed as
necessary.
Expected Loss--The expected loss component is an estimate of the remaining
probable losses inherent in the loan portfolio. This component is determined by
using a statistical model that utilizes a loan-type, risk-rated stratified
approach. Loss factors are derived by analyzing historical charge-offs and
recent economic events and applied to categories of loans by type and risk
rating.
In calculating the loss factors, the Corporation utilizes the historical
loss experience of its portfolios and the actual amounts outstanding of the
portfolios segregated by borrower/counterparty ratings and several broad classes
of obligors. These ratings are internally determined mathematical expressions of
credit quality for individual obligors.
16 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
Amounts deemed uncollectible are charged to the allowance. Subsequent
recoveries, if any, are credited to the allowance. Actual losses may vary from
current estimates and the amount of the actual credit loss provision may be
either greater than or less than actual net charge-offs. The related provision
for credit losses--loans, which is charged to income, is the amount necessary to
adjust the allowance to the level determined through the process described
above.
The Bank regulatory authorities also assess and issue reports on the
quality of the portfolio and on the adequacy of the allowance and related
provision activity. Further, as part of their annual audit, the Corporation's
independent auditors review the process surrounding the determination of the
allowance for credit losses--loans and the level thereof. Their procedures
include discussions with management, a review of selected credit files and an
evaluation of the periodic reports issued by the Asset Quality Review Department
and regulatory examiners. In the opinion of management, the allowance for credit
losses--loans is fairly stated in accordance with generally accepted accounting
principles.
The tables below provide the components of the allowance for credit
losses--loans by category. This breakdown of the allowance at each year end
reflects management's best estimate of probable credit losses and may not
necessarily be indicative of actual future charge-offs.
(in millions) December 31, 1999*
- --------------------------------------------------------------------------------
Domestic
Specific
Commercial and industrial $200
Real estate and real-estate related 12
- --------------------------------------------------------------------------------
Total specific 212
Expected loss 127
- --------------------------------------------------------------------------------
Total domestic 339
International
Specific 56
Country risk 56
Expected loss 40
- --------------------------------------------------------------------------------
Total international 152
- --------------------------------------------------------------------------------
Total allowance for credit losses--loans $491
================================================================================
* Not comparable to prior years due to revised policies and procedures for
determining the allowance for credit losses implemented in 1999.
(in millions) December 31, 1998 1997 1996 1995*
- --------------------------------------------------------------------------------
Domestic
Commercial and industrial $162 $117 $153 $222
Financial institutions 20 38 20 40
Real estate and real-estate related 84 89 107 100
- --------------------------------------------------------------------------------
Total domestic 266 244 280 362
International 380 391 212 377
- --------------------------------------------------------------------------------
Total allocated** 646 635 492 739
Unallocated portion 6 64 281 253
- --------------------------------------------------------------------------------
Total allowance for credit losses--loans $652 $699 $773 $992
================================================================================
* Not comparable to other years presented in the table as 1995 includes
allowance amounts related to derivatives and other credit-related
commitments.
** The specific allowance component was $61 million, $13 million, and $57
million at December 31, 1998, 1997, and 1996, respectively. The general
allowance component was $585 million, $622 million, and $435 million at
December 31, 1998, 1997, and 1996, respectively.
The allowance for credit losses--loans decreased to $491 million at
December 31, 1999, from $652 million at year-end 1998 and $699 million at
December 31, 1997. The decrease of $161 million in 1999 from 1998 was primarily
due to a negative provision for credit losses--loans of $58 million, reductions
in the allowance for credit losses--loans related to entities sold/transferred
and net charge-offs of $64 million. Such decrease reflects the significant
decline in the international component of the Corporation's loan portfolio
during 1999. The decrease of $47 million in 1998 from 1997 was primarily due to
$107 million of charge-offs, mainly related to Asian counterparties, partially
offset by recoveries and a $40 million provision. The decline in the 1998
allowance level is primarily attributable to the overall reduction in the
Corporation's risk profile in emerging market commercial and industrial loans.
The following table presents an analysis of the changes in the
international component of the allowance for credit losses--loans:
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1999 1998 1997 1996 1995(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 380 $ 391 $ 212 $ 377 $ 416
- ------------------------------------------------------------------------------------------------
Net charge-offs
Charge-offs 63 83 46 22 121
Recoveries 12 6 7 26 24
- ------------------------------------------------------------------------------------------------
Total net charge-offs (recoveries)
to the allowance 51 77 39 (4) 97
Allowance related to acquisition -- -- 17 -- --
Provision and increases (decreases)
in the international portion
of allowance (138) 66 258 (10) 58
Allowance related to BTAL and
transferred entities(1) (39) -- -- -- --
Reclassifications -- -- (57) (159) --
- ------------------------------------------------------------------------------------------------
Balance, end of year $ 152 $ 380 $ 391 $ 212 $ 377
================================================================================================
</TABLE>
(1) Reflects the allowance for credit losses--loans of certain legal entities
transferred to Deutsche Bank on the date of transfer and the allowance for
credit losses--loans of BTAL on the date of sale.
(2) Not comparable to other years presented in the table as 1995 includes
allowance amounts related to derivatives and other credit-related
commitments.
Bankers Trust Corporation and its Subsidiaries 17
<PAGE>
- --------------------------------------------------------------------------------
Table 7 Analysis of the Allowances for Credit Losses
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
($ in millions) Year Ended December 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans
Allowance, beginning of year $ 652 $ 699 $ 773 $ 992 $1,252
- --------------------------------------------------------------------------------------------------------------
Charge-offs
Domestic
Commercial and industrial 28 24 19 46 177
Real estate
Construction -- -- 11 3 10
Mortgage -- -- 2 18 22
International 63 83 46 22 121
- --------------------------------------------------------------------------------------------------------------
Total charge-offs 91 107 78 89 330
- --------------------------------------------------------------------------------------------------------------
Recoveries
Domestic
Commercial and industrial 13 5 23 32 11
Real estate
Construction -- 1 1 -- --
Mortgage 2 8 13 7 4
International 12 6 7 26 24
- --------------------------------------------------------------------------------------------------------------
Total recoveries 27 20 44 65 39
- --------------------------------------------------------------------------------------------------------------
Total net charge-offs(1) 64 87 34 24 291
Allowance related to acquisition -- -- 17 -- --
Provision for credit losses (58) 40 -- 5 31
Allowance related to BTAL and transferred entities* (39) -- -- -- --
Reclassification -- -- (57) (200) --
- --------------------------------------------------------------------------------------------------------------
Allowance, end of year $ 491 $ 652 $ 699 $ 773 $ 992
=============================================================================================================
Percentage of total net charge-offs to average loans
for the year 0.30% 0.39% 0.19% 0.18% 2.47%
=============================================================================================================
(1) Components:
Secured by real estate $ (8) $(13) $ 5 $ 14 $ 23
Real estate related (4) 8 (2) 3 2
Other 76 92 31 7 266
- --------------------------------------------------------------------------------------------------------------
Total $ 64 $ 87 $ 34 $ 24 $291
=============================================================================================================
Other Liabilities
Allowance, beginning of year $ 18 $ 13 $ 10 $ -- $--
Provision for credit losses 6 5 -- -- --
Reclassification -- -- 3 10 --
- --------------------------------------------------------------------------------------------------------------
Allowance, end of year $ 24 $ 18 $ 13 $ 10 $--
=============================================================================================================
</TABLE>
* Reflects the allowance for credit losses of certain legal entities
transferred to Deutsche Bank on the date of transfer and the allowance for
credit losses of BTAL on the date of sale.
18 Bankers Trust Corporation and its Subsidiaries
<PAGE>
Loans
The following table summarizes the composition of the loan portfolio at the end
of each of the last five years:
<TABLE>
<CAPTION>
(in millions) December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic
Commercial and industrial $ 8,125 $ 6,448 $ 4,244 $ 3,422 $ 2,520
Financial institutions 2,788 2,441 2,148 1,631 1,778
Real estate 1,471 1,449 2,196 1,695 1,430
Other 4,028 3,558 1,427 1,436 1,490
- ------------------------------------------------------------------------------------------------
Total domestic 16,412 13,896 10,015 8,184 7,218
- ------------------------------------------------------------------------------------------------
International
Governments and
official institutions 120 190 252 237 227
Banks and other
financial institutions 690 3,599 3,175 3,482 1,543
Commercial and industrial 1,765 3,931 4,931 2,759 1,934
Real estate 31 166 195 130 178
Other 1,167 1,813 1,402 1,290 1,701
- ------------------------------------------------------------------------------------------------
Total international 3,773 9,699 9,955 7,898 5,583
- ------------------------------------------------------------------------------------------------
Gross loans 20,185 23,595 19,970 16,082 12,801
Less: unearned income 223 310 165 202 120
- ------------------------------------------------------------------------------------------------
Total loans $19,962 $23,285 $19,805 $15,880 $12,681
================================================================================================
</TABLE>
Total loans decreased to $20.0 billion at December 31, 1999 down from
$23.3 billion at year-end 1998 and up from $19.8 billion at December 31, 1997.
The 1999 decrease of $3.3 billion primarily related to the international loan
portfolio which decreased $5.9 billion, or 61 percent, to $3.8 billion at
December 31, 1999, offset by an increase in the domestic component of the loan
portfolio.
Following the Acquisition, the Corporation has actively sought to increase
its lending exposure in the domestic market. The domestic lending portfolio
balance at December 31, 1999 was $16.4 billion, an 18% increase over 1998. This
increase primarily relates to commercial and industrial loans and reflects the
continuing high levels of merger and acquisition related activity in the
domestic market.
The significant decline in the international loan portfolio reflects the
de-emphasizing of lending in certain emerging markets and the consolidation of
business conducted by both Deutsche Bank and Bankers Trust into Deutsche Bank
legal entities. Such decline also reflects the sale of BTAL as well as the
transfer of BTI during 1999.
During 1998, the loan portfolio increased $3.5 billion to $23.3 billion at
December 31, 1998 from $19.8 billion at December 31, 1997. The 1998 increase
related to the domestic loan portfolio which increased $3.9 billion, or 39
percent, to $13.9 billion at December 31, 1998, offset by a slight decline in
the international component of the loan portfolio. Within the domestic loan
portfolio, commercial and industrial loans increased $2.2 billion in 1998,
reflecting increased business volumes as well as higher targeted hold amounts in
relation to loan syndication activity. Domestic loans secured by real estate
declined $0.7 billion, or 34 percent, in 1998 reflecting a decrease in the
volume of direct real estate loans held. Other domestic loans increased to $3.6
billion at December 31, 1998 from $1.4 billion at December 31, 1997. The
increase was primarily related to an increase in real estate related loans,
including loans to real estate investment trusts ("REIT"), as well as to
increases in Private Client loans and in overnight overdrafts arising as a
matter of course from depository business.
The international component of the loan portfolio totaled $9.7 billion at
December 31, 1998 down slightly from $10.0 billion at December 31, 1997. Within
the international portfolio, commercial and industrial loans decreased 20
percent in 1998 to $3.9 billion, reflecting the Corporation's efforts to reduce
exposure in this segment of the portfolio, particularly in the emerging markets,
following a significant increase in commercial and industrial lending beginning
in 1995. This reduction in exposure was primarily effected through pay-downs of
outstanding loans. The decline in commercial and industrial lending was offset
by increases in loans to banks and other financial institutions and in other
international loans which includes margin related lending. At year-end 1998, the
Corporation's inter national loan portfolio was primarily concentrated in
Australia/ New Zealand, Western Europe, Latin America, and non-Japan Asia.
Bankers Trust Corporation and its Subsidiaries 19
<PAGE>
Nonperforming Assets
Table 8 Nonperforming Assets
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
($ in millions) December 31, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash basis loans
Domestic
Commercial and industrial $495 $ 91 $ 49 $117 $263
Secured by real estate 67 86 92 233 297
Financial institutions 11 15 -- -- 10
- ---------------------------------------------------------------------------------------------------------------------
Total domestic 573 192 141 350 570
- ---------------------------------------------------------------------------------------------------------------------
International
Commercial and industrial 132 135 65 57 106
Secured by real estate 10 18 25 39 65
Financial institutions -- 2 -- 4 3
Foreign governments -- 23 -- -- --
Lease financings 1 7 2 2 --
Other 21 15 7 -- --
- ---------------------------------------------------------------------------------------------------------------------
Total international 164 200 99 102 174
- ---------------------------------------------------------------------------------------------------------------------
Total cash basis loans $737 $392 $240 $452 $744
=====================================================================================================================
Ratio of cash basis loans to total gross loans 3.7% 1.7% 1.2% 2.8% 5.9%
=====================================================================================================================
Ratio of allowance for credit losses--loans to cash basis loans 67% 166% 291% 171% 133%
=====================================================================================================================
Renegotiated loans
Secured by real estate $ -- $ 25 $ 25 $ 37 $ 88
Other 11 1 -- -- 12
- ---------------------------------------------------------------------------------------------------------------------
Total renegotiated loans $ 11 $ 26 $ 25 $ 37 $100
=====================================================================================================================
Other real estate $ 88 $ 87 $194 $213 $259
=====================================================================================================================
Other nonperforming assets $ 8 $ 8 $ 4 $ 10 $ 66
=====================================================================================================================
Loans 90 days or more past due and still accruing interest(1) $ -- $ -- $ -- $ -- $ 26
=====================================================================================================================
</TABLE>
(1) Represents loans 90 days or more past due with respect to interest or
principal. These loans were considered to be well secured and were in the
process of collection.
20 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
The Corporation's credit review procedures are designed to promote early
identification of counterparty, country, and industry exposures that require a
higher-than normal degree of scrutiny. Each quarter a review is performed by the
Asset Quality Review Department and senior credit management of cash basis loans
and criticized assets (i.e. those assets internally classified as Special
Mention, Substandard and Doubtful). Individual borrower balances are evaluated
and a charge-off of amounts deemed uncollectible is recommended. Factors
considered in this evaluation include the credit quality of the counterparties,
the amount and duration of the exposure, collateral values, the Corporation's
ability to reduce exposure in situations of deteriorating creditworthiness and
loss probabilities. Once a charge-off is taken, the remaining portion, if any,
is immediately placed on a cash basis. If the collection or liquidation in full
is questionable, the asset is classified as doubtful. In addition, it is
generally the Corporation's policy that loans be immediately placed on a cash
basis when they become 90 days past due with respect to interest or principal.
The Corporation's total cash basis loans amounted to $737 million at
December 31, 1999, an increase of $345 million, or 88 percent, from 1998, which
had increased $152 million, or 63 percent, from 1997. The 1999 increase was
significantly impacted by a rise in domestic commercial and industrial loans.
Such increase related to certain borrowers in the manufacturing, health care and
gaming sectors.
Cash basis loans increased $345 million during 1999, primarily due to a
rise in impaired loans from $418 million at December 31, 1998 to $889 million at
December 31, 1999. The specific allowance related to impaired loans amounted to
$268 million at December 31, 1999, an increase of $207 million from 1998 which
had increased $48 million from 1997.
An analysis of the changes in the Corporation's total cash basis loans
follows:
<TABLE>
<CAPTION>
(in millions)
Year Ended December 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 392 $ 240 $ 452 $ 744 $ 996
Net transfers to cash basis loans 622 365 111 96 314
Net paydowns (91) (64) (146) (241) (221)
Charge-offs (91) (107) (78) (87) (330)
Net transfers from (to) other
real estate (13) (2) (16) (14) 13
Loan sales (19) (24) (47) (38) (1)
Transfers to Deutsche Bank* (15) -- -- -- --
Other (48) (16) (36) (8) (27)
- --------------------------------------------------------------------------------------------
Balance, end of year $ 737 $ 392 $ 240 $ 452 $ 744
============================================================================================
</TABLE>
* Reflects the cash basis loans of certain legal entities transferred to
Deutsche Bank on date of the transfer.
Cross-Border Outstandings
The Corporation's cross-border outstandings reflect certain additional economic
and political risks beyond those associated with its domestic outstandings, such
as risks arising from funds transfer restrictions and balance-of-payments
issues, as well as risks arising from operating in different legal and
regulatory jurisdictions.
The following table presents the Corporation's cross-border outstandings
at December 31, 1999, 1998 and 1997 for each foreign country where such
outstandings exceeded .75 percent of the Corporation's total assets. The
outstanding balances are presented in accordance with the reporting guidelines
adopted by the Federal Financial Institutions Examination Council (FFIEC) as of
March 1997.
Bankers Trust Corporation and its Subsidiaries 21
<PAGE>
- --------------------------------------------------------------------------------
Table 9 Cross-Border Outstandings
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Governments Banks and
% of and Other Commercial
Total Total Official Financial and
($ in millions) Outstandings Assets Institutions Institutions Industrial Other
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1999
Germany $ 4,993 7.32% $ 1 $ 4,471 $ 521 $ --
International(1) 516 0.76 516 -- -- --
Cayman Islands 315 0.46 -- 271 44 --
All other cross-border outstandings 4,067 5.97 128 1,885 1,976 78
- --------------------------------------------------------------------------------------------------------------------------------
Total cross-border outstandings $ 9,891 14.51% $ 645 $ 6,627 $ 2,541 $ 78
================================================================================================================================
At December 31, 1998
France $ 5,600 4.21% $ 373 $ 4,639 $ 588 $ --
Germany 3,651 2.74 162 3,226 263 --
United Kingdom 3,093 2.32 47 2,218 824 4
Japan(2) 2,705 2.03 1,122 1,184 399 --
Australia 2,097 1.58 408 1,199 490 --
Canada 1,898 1.43 649 915 331 3
Switzerland 1,839 1.38 -- 1,754 85 --
Netherlands 1,778 1.34 106 1,448 224 --
Italy 1,705 1.28 293 917 495 --
All other cross-border outstandings 12,364 9.29 1,738 6,212 4,412 2
- --------------------------------------------------------------------------------------------------------------------------------
Total cross-border outstandings $36,730 27.60% $ 4,898 $23,712 $ 8,111 $ 9
================================================================================================================================
At December 31, 1997
Japan(2) $ 7,018 5.01% $ 935 $ 4,996 $ 1,087 $ --
France 3,898 2.78 2 3,558 338 --
Spain 3,520 2.51 302 2,940 278 --
Australia 3,003 2.14 507 2,072 424 --
Germany 2,771 1.98 281 2,295 195 --
United Kingdom 2,428 1.73 8 2,309 108 3
Canada 2,258 1.61 579 1,251 426 2
Switzerland 1,919 1.37 -- 1,123 796 --
Brazil(3) 1,917 1.37 809 588 520 --
Republic of Korea(4) 1,583 1.13 186 929 468 --
Netherlands 1,322 0.94 -- 879 443 --
Indonesia(3) 1,247 0.89 24 440 783 --
Italy 1,110 0.79 427 432 251 --
All other cross-border outstandings 12,572 8.97 3,208 6,408 2,905 51
- --------------------------------------------------------------------------------------------------------------------------------
Total cross-border outstandings $46,566 33.22% $ 7,268 $30,220 $ 9,022 $ 56
================================================================================================================================
</TABLE>
(1) The Corporation's cross-border outstandings with International primarily
consisted of revaluation gains from the marking to market of interest rate
and foreign exchange contracts held for trading purposes with multilateral
development banks.
(2) The Corporation's cross-border outstandings with Japan primarily consisted
of trading account assets and securities available for sale which are
carried at fair value. For 1997, the cross-border outstandings primarily
consisted of interest-bearing deposits with banks and trading account
assets carried at fair value.
(3) The Corporation's cross-border outstandings with Brazil and Indonesia
primarily consisted of trading account assets carried at fair value.
(4) The Corporation's cross-border outstandings with the Republic of Korea
primarily consisted of trading account assets carried at fair value and
acceptances outstanding.
22 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
The cross-border claims outstandings in Table 9 were compiled based upon
category and domicile of ultimate risk and are comprised of balances with banks,
trading account assets (including net revaluation gains on foreign exchange and
derivative products), securities available for sale, securities purchased under
resale agreements, loans, accrued interest receivable and acceptances
outstanding.
Governments and official institutions comprises foreign governments and
their agencies; state, provincial and local governments and their agencies; and
central banks. Banks and other financial institutions is comprised of commercial
and savings banks and other similar institutions accepting short-term deposits,
including government-owned banks which do not function as central banks, and
nonbank credit and financial companies.
The amounts outstanding for each country listed in Table 9 exclude local
country claims. Local country claims, as defined by the FFIEC's March 1997
reporting guidelines, include claims on residents of the same country in which
the booking office is domiciled. Such claims are generally funded with
borrowings that represent liabilities of that office or are hedged with foreign
exchange and derivative products.
At December 31, 1999, total cross-border commitments to borrowers or
counterparties domiciled in the countries presented in Table 9 were: Germany
$107 million and Cayman Islands $28 million.
The amendments to the FFIEC's cross-border reporting guidelines as adopted
in March 1997 included the addition of net revaluation gains on foreign exchange
and derivative products to the definition of claims outstanding, and the
elimination of the currency denomination criteria when segregating local from
cross-border country claims.
There were no cash basis loans outstanding for the countries presented in
Table 9 as of December 31, 1999. The following table details the cash basis
loans of the outstandings at December 31, 1998 and 1997 for those countries
presented in Table 9.
Cash Basis
(in millions) Loans
- --------------------------------------------------------------------------------
At December 31, 1998
United Kingdom $36
Canada 16
Italy 3
- --------------------------------------------------------------------------------
Total $55
================================================================================
At December 31, 1997
Indonesia $10
Spain 2
- --------------------------------------------------------------------------------
Total $12
================================================================================
There were no cross-border renegotiated loans for the years ended December
31, 1999, 1998 and 1997.
Accounting Developments
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.
Recent Developments
On March 9, 2000, Deutsche Bank AG and Dresdner Bank AG announced their
intention to merge. Dresdner Bank AG is one of the largest banks in Germany.
The merger, which the parties expect to complete by January 2001, is
subject to the approval of the shareholders of Deutsche Bank AG and Dresdner
Bank AG and of various authorities worldwide. The impact on the Corporation's
Consolidated Financial Statements is not known at this time.
Bankers Trust Corporation and its Subsidiaries 23
<PAGE>
Consolidated Statement of Income (in millions, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Interest Revenue
Interest revenue $ 4,419 $ 8,291 $ 7,285
Interest expense 3,612 6,919 5,926
- ---------------------------------------------------------------------------------------------------------------------
Net Interest Revenue 807 1,372 1,359
Provision for credit losses--loans (58) 40 --
- ---------------------------------------------------------------------------------------------------------------------
Net Interest Revenue after Provision for Credit Losses -- Loans 865 1,332 1,359
- ---------------------------------------------------------------------------------------------------------------------
Noninterest Revenue
Trading 42 (184) 1,055
Fiduciary and funds management 1,017 1,108 1,059
Corporate finance fees 542 1,255 1,113
Other fees and commissions 538 817 606
Net revenue from equity investments 356 302 224
Securities available for sale gains (losses) (89) (56) 158
Insurance premiums 86 256 287
Other 1,008 259 359
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest revenue 3,500 3,757 4,861
- ---------------------------------------------------------------------------------------------------------------------
Noninterest Expenses
Salaries and commissions 1,039 1,421 1,273
Incentive compensation and employee benefits 1,088 1,530 1,726
Change in control related incentive compensation and employee benefits 1,101 -- --
Agency and other professional service fees 430 501 391
Communication and data services 206 252 231
Occupancy, net 198 218 181
Furniture and equipment 221 252 224
Travel and entertainment 114 171 142
Provision for policyholder benefits 114 322 333
Other 636 499 423
Restructuring and other related activities 633 -- 57
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 5,780 5,166 4,981
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (1,415) (77) 1,239
Income taxes (benefit) 188 (4) 373
- ---------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $(1,603) $ (73) $ 866
=====================================================================================================================
Net Income (Loss) Applicable to Common Stock** * $ (105) $ 817
=====================================================================================================================
Earnings (Loss) per Common Share:
Basic * $ (1.05) $ 8.15
=====================================================================================================================
Diluted * $ (1.05) $ 7.66
=====================================================================================================================
Cash dividends declared per common share $ 1.00* $ 4.00 $ 4.00
=====================================================================================================================
</TABLE>
* Amounts for net income applicable to common stock and earnings (loss) per
common share are not meaningful due to Deutsche Bank AG acquiring all of
the outstanding shares of common stock of Bankers Trust Corporation on
June 4, 1999. Cash dividends declared per common share of $1.00 represent
dividends declared prior to June 4, 1999.
** Amounts shown are used to calculate basic earnings per common share for
the year ended December 31, 1998 and 1997.
The accompanying notes are an integral part of the financial statements.
24 Bankers Trust Corporation and its Subsidiaries
<PAGE>
Consolidated Statement of Comprehensive Income (in millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income (Loss) $(1,603) $ (73) $ 866
- -----------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized foreign currency translation gains (losses)
arising during the year, net of tax* (17) (36) 2
Reclassification adjustment for realized foreign currency
translation (gains) losses, net of tax** 369 -- --
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the year,
net of tax*** (1) (90) 6
Reclassification adjustment for realized (gains) losses,
net of tax**** 82 57 (95)
- -----------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) 433 (69) (87)
- -----------------------------------------------------------------------------------------------------
Comprehensive Income (Loss) $(1,170) $ (142) $ 779
=====================================================================================================
</TABLE>
* Amounts are net of an income tax (benefit) expense of $(13) million, $(10)
million and $76 million for the years ended December 31, 1999, 1998 and
1997, respectively.
** Realized foreign currency translation losses result from the transfer of
certain foreign subsidiaries to Deutsche Bank and the sale of BTAL in
1999. Amount is net of an income tax benefit of $54 million for the year
ended December 31, 1999.
*** Amounts are net of an income tax (benefit) expense of $21 million, $(12)
million and $6 million for the years ended December 31, 1999, 1998 and
1997, respectively.
**** Amounts are net of an income tax (benefit) expense of $(7) million, $1
million and $63 million for the years ended December 31, 1999, 1998 and
1997 respectively.
The accompanying notes are an integral part of the financial statements.
Bankers Trust Corporation and its Subsidiaries 25
<PAGE>
Consolidated Balance Sheet ($ in millions, except par value)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
December 31, 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 3,212 $ 2,837
Interest-bearing deposits with banks 4,693 2,382
Federal funds sold 2,472 2,484
Securities purchased under resale agreements 6,764 17,053
Securities borrowed -- 14,709
Trading assets:
Government securities 2,296 5,731
Corporate debt securities 1,367 5,519
Equity securities 7,144 5,810
Swaps, options and other derivatives 4,807 17,376
Other trading assets 3,403 11,734
- -----------------------------------------------------------------------------------------
Total trading assets 19,017 46,170
Securities available for sale 3,252 12,748
Loans, net 19,471 22,633
Customer receivables 306 1,524
Due from customers on acceptances 262 232
Accounts receivable and accrued interest 2,307 3,815
Other assets 6,401 6,528
- -----------------------------------------------------------------------------------------
Total $ 68,157 $ 133,115
=========================================================================================
Liabilities
Noninterest-bearing deposits
Domestic offices $ 2,690 $ 2,784
Foreign offices 2,299 1,689
Interest-bearing deposits
Domestic offices 12,118 18,259
Foreign offices 6,362 14,602
- -----------------------------------------------------------------------------------------
Total deposits 23,469 37,334
Trading liabilities:
Securities sold, not yet purchased
Government securities 53 4,149
Equity securities 21 6,458
Other trading liabilities 9 789
Swaps, options and other derivatives 5,183 15,857
- -----------------------------------------------------------------------------------------
Total trading liabilities 5,266 27,253
Securities loaned and securities sold
under repurchase agreements 56 17,420
Other short-term borrowings 11,540 16,313
Acceptances outstanding 266 232
Accounts payable and accrued expenses 3,314 5,210
Other liabilities 3,462 5,234
Long-term debt not included in risk-based capital 12,582 14,890
Long-term debt included in risk-based capital 2,424 3,113
Mandatorily redeemable capital securities
of subsidiary trusts holding solely junior
subordinated deferrable interest debentures
included in risk-based capital 1,428 1,420
- -----------------------------------------------------------------------------------------
Total liabilities 63,807 128,419
=========================================================================================
Commitments and contingent liabilities (Notes 7, 24 and 30)
Stockholders' Equity
Preferred stock 376 394
Common stock, $1 par value
Authorized: 1999, 200 shares;
1998, 300,000,000 shares
Issued: 1999, 1 share;
1998, 105,380,175 shares -- 105
Capital surplus 2,318 1,613
Retained earnings 1,686 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 16 (65)
Foreign currency translation, net of taxes (46) (398)
- -----------------------------------------------------------------------------------------
Total stockholders' equity 4,350 4,696
- -----------------------------------------------------------------------------------------
Total $ 68,157 $ 133,115
=========================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
26 Bankers Trust Corporation and its Subsidiaries
<PAGE>
Consolidated Statement of Changes in Stockholders' Equity (in millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock
Balance, beginning of year $ 394 $ 658 $ 810
Preferred stock issued -- -- 1
Preferred stock repurchased (18) (16) (8)
Preferred stock redeemed -- (248) (145)
- -------------------------------------------------------------------------------------------------------
Balance, end of year 376 394 658
- -------------------------------------------------------------------------------------------------------
Common Stock
Balance, beginning of year 105 105 104
Retirement of common stock (105) -- --
Issuance of common stock* -- -- 1
- -------------------------------------------------------------------------------------------------------
Balance, end of year -- 105 105
- -------------------------------------------------------------------------------------------------------
Capital Surplus
Balance, beginning of year 1,613 1,563 1,437
Issuance of common stock -- -- 59
Repurchase and retirement of common stock -- -- (6)
Common stock distributed under employee benefit plans 4 50 73
Capital transactions related to change in control (699) -- --
Capital contribution from parent 1,400 -- --
- -------------------------------------------------------------------------------------------------------
Balance, end of year 2,318 1,613 1,563
- -------------------------------------------------------------------------------------------------------
Retained Earnings
Balance, beginning of year 3,504 4,202 3,988
Net income (loss) (1,603) (73) 866
Cash dividends declared
Preferred stock (22) (35) (50)
Common stock (98) (384) (366)
Treasury stock distributed under employee benefit plans (95) (206) (236)
- -------------------------------------------------------------------------------------------------------
Balance, end of year 1,686 3,504 4,202
- -------------------------------------------------------------------------------------------------------
Common Stock in Treasury, at cost
Balance, beginning of year (1,056) (889) (372)
Purchases of stock (71) (618) (1,038)
Treasury stock distributed under employee benefit plans 322 451 521
Capital transactions related to change in control 805 -- --
- -------------------------------------------------------------------------------------------------------
Balance, end of year -- (1,056) (889)
- -------------------------------------------------------------------------------------------------------
Common Stock Issuable -- Stock Awards
Balance, beginning of year 817 901 526
Deferred stock awards granted, net 557 54 401
Deferred stock distributed (216) (138) (26)
Capital transactions related to change in control (1,158) -- --
- -------------------------------------------------------------------------------------------------------
Balance, end of year -- 817 901
- -------------------------------------------------------------------------------------------------------
Deferred Compensation -- Stock Awards
Balance, beginning of year (218) (438) (308)
Deferred stock awards granted, net (556) (55) (404)
Amortization of deferred compensation, net 749 275 274
Other 25 -- --
- -------------------------------------------------------------------------------------------------------
Balance, end of year -- (218) (438)
- -------------------------------------------------------------------------------------------------------
Cumulative Translation Adjustments
Balance, beginning of year (398) (362) (364)
Translation adjustments/entity transfers and sales 393 (46) 78
Income taxes (41) 10 (76)
- -------------------------------------------------------------------------------------------------------
Balance, end of year (46) (398) (362)
- -------------------------------------------------------------------------------------------------------
Securities Valuation Allowance
Balance, beginning of year (65) (32) 57
Change in unrealized net gains (losses), after applicable
income taxes and minority interest 81 (33) (89)
- -------------------------------------------------------------------------------------------------------
Balance, end of year 16 (65) (32)
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity, end of year $ 4,350 $ 4,696 $ 5,708
=======================================================================================================
</TABLE>
*1999: 1 share, $1 par value.
The accompanying notes are an integral part of the financial statements.
Bankers Trust Corporation and its Subsidiaries 27
<PAGE>
Consolidated Statement of Cash Flows (in millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (1,603) $ (73) $ 866
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for credit losses--loans (58) 40 --
Provision for credit losses--other 6 5 --
Provision for policyholder benefits 114 322 333
Restructuring and other related activities 633 -- 57
Deferred income taxes, net (395) (276) (272)
Depreciation and other amortization and accretion 879 379 415
Other, net 153 13 (61)
Gain on sale of Bankers Trust Australia Limited (779) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Earnings adjusted for noncash charges, credits and other items (1,050) 410 1,338
Net change in:
Trading assets (14,995) 8,554 (8,825)
Trading liabilities 20,602 245 4,525
Receivables and payables from securities transactions 875 (528) 477
Customer receivables (1,110) 23 (18)
Other operating assets and liabilities, net 42 (1,724) (79)
Securities available for sale losses (gains) 89 56 (158)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 4,453 7,036 (2,740)
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Net change in:
Interest-bearing deposits with banks (3,764) 1,886 (2,171)
Federal funds sold (39) (1,102) 302
Securities purchased under resale agreements (4,268) 2,110 (1,197)
Securities borrowed (8,716) 2,042 254
Loans 89 (1,906) (4,637)
Securities available for sale:
Purchases (6,190) (22,041) (6,430)
Maturities and other redemptions 1,024 2,794 3,845
Sales and other transfers to affiliates 8,412 15,102 1,511
Acquisitions of premises and equipment (102) (447) (237)
Other, net (501) 1,183 911
Proceeds from transfer of legal entities 3,062 -- --
Proceeds from sale of Bankers Trust Australia Limited 1,313 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,680) (379) (7,849)
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net change in:
Deposits (6,284) (5,474) 12,651
Securities loaned and securities sold under repurchase agreements 12,465 (277) (5,399)
Other short-term borrowings (1,886) (2,879) 1,125
Issuances of long-term debt* 4,966 7,746 9,645
Repayments of long-term debt** (4,791) (3,973) (5,188)
Issuances of common stock -- -- 48
Repurchase and retirement of common stock -- -- (6)
Issuance of preferred stock of subsidiary -- 304 --
Redemptions of preferred stock of subsidiary -- (304) (250)
Redemptions and repurchases of preferred stock (18) (264) (152)
Purchases of treasury stock (71) (618) (1,038)
Cash dividends paid (216) (421) (397)
Capital contribution from parent 1,400 -- --
Other, net 18 128 248
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 5,583 (6,032) 11,287
- ------------------------------------------------------------------------------------------------------------------------------
Net effect of exchange rate changes on cash 19 24 (78)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Due from Banks 375 649 620
Cash and due from banks, beginning of year 2,837 2,188 1,568
- ------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks, end of year $ 3,212 $ 2,837 $ 2,188
==============================================================================================================================
Interest paid $ 4,730 $ 6,868 $ 5,515
==============================================================================================================================
Income taxes paid, net $ 39 $ 76 $ 260
==============================================================================================================================
Noncash investing activities:
Transfer of legal entity in exchange for shares in affiliate $ 852 $ -- $ --
Conversions of loans to other real estate and assets acquired in credit workouts 21 6 64
Exchanges of Chilean government bonds for annuity contracts 9 9 57
- ------------------------------------------------------------------------------------------------------------------------------
Total noncash investing activities $ 882 $ 15 $ 121
==============================================================================================================================
Noncash financing activity: conversion of debt to equity $ -- $ 15 $ 63
==============================================================================================================================
</TABLE>
* Includes $739 million for the year ended December 31, 1997 related to
mandatorily redeemable capital securities of subsidiary trusts holding
solely junior subordinated deferrable interest debentures included in
risk-based capital.
** Includes $57 million for the year ended December 31, 1998, related to
mandatorily redeemable capital securities of subsidiary trusts holding
solely junior subordinated deferrable interest debentures included in
risk-based capital.
The accompanying notes are an integral part of the financial statements.
28 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 -- Acquisition by Deutsche Bank AG
Change of Control
On June 4, 1999, the change-of-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"), 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"). Deutsche Bank accounted for the
Acquisition as a purchase. No purchase accounting adjustments were pushed down
to Bankers Trust.
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, during the second quarter of 1999
Bankers Trust Corporation together with its subsidiaries (the "Corporation" or
the "Firm") incurred pre-tax charges of approximately $1.1 billion in
COC-related costs, principally due to the aforementioned vesting of all employee
deferred compensation amounts and related pro-rata bonus awards as well as a
pre-tax restructuring charge of $459 million. Also, in connection with the
Acquisition, the Corporation incurred other charges reflecting a change in
management's intention regarding certain assets as a result of integrating the
Corporation into Deutsche Bank, a change in certain pricing methodologies in
order to conform to those of Deutsche Bank, and the transfer of certain
available for sale securities to Deutsche Bank related entities based on changes
in management responsibility. These one-time charges are included in Deutsche
Bank's consolidated financial statements as of June 30, 1999 as part of the
goodwill associated with the Acquisition. The goodwill is being amortized over
15 years.
Disposition of Assets
On June 5, 1999, Bankers Trust transferred its wholly-owned subsidiary BT Alex.
Brown Incorporated ("BTAB") and substantially all of its interest in Bankers
Trust International PLC ("BTI") to Deutsche Bank Securities Inc. ("DBSI") and
Deutsche Holdings (BTI) Ltd., respectively, which are wholly-owned subsidiaries
of Deutsche Bank. The transfer of BTAB to DBSI took the form of an exchange of
stock pursuant to which BTAB became a wholly-owned subsidiary of DBSI and
Bankers Trust received shares of DB U.S. Financial Markets Holding Corporation
("DBUSH"), the parent of DBSI. In the third quarter of 1999, the Corporation
sold its shares of DBUSH to Taunus for approximately $800 million. The transfer
of substantially all of Bankers Trust's interest in BTI was for cash in the
amount of approximately $1.7 billion.
On August 31, 1999, the Corporation completed the sale of Bankers Trust
Australia Limited ("BTAL"), a wholly-owned subsidiary, to the Principal
Financial Group for a price of approximately $1.3 billion. Prior to the sale,
BTAL remitted to the Corporation a dividend for accumulated retained earnings
that included proceeds from BTAL's sale of its investment banking division to
Macquarie Bank. The Corporation also received cash for the assumption of certain
BTAL long-term debt. In addition, according to the sale agreement, the
Corporation is entitled to receive an additional payment. The amount and timing
of such payment is not known at this time. When such payment is received, it
will be reflected in the Corporation's results of operations. The Corporation
recognized a pre-tax gain of approximately $779 million in the third quarter of
1999 on the sale of BTAL.
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.
Because of the significant business and net financial asset transfers to
Deutsche Bank entities, the aforementioned other charges reflecting changes in
management intent and responsibility and the sale of BTAL, the Corporation's
historical financial statements are not fully comparable for all periods
presented.
Prior to the Acquisition, the Corporation was a global financial
institution, providing products and services to its clients worldwide.
Subsequent to the Acquisition and associated reorganization activities, the
Corporation and its subsidiaries conduct their business primarily in the
Americas, focusing their activities principally in the asset management,
lending, institutional services, private equity, and private banking businesses.
Capital Contribution
In conjunction with the Acquisition and to strengthen the Corporation's capital
base, Deutsche Bank made a capital contri bution of $1.4 billion in the second
quarter of 1999.
Note 2 -- Significant Accounting Policies
On September 1, 1997, Alex. Brown Incorporated ("Alex. Brown") was merged into a
wholly-owned subsidiary of Bankers Trust Corporation. The merger was accounted
for as a pooling-of-interests, and accordingly, the information included in the
financial statements presents the combined results of Alex. Brown and the
Corporation prior to the transfer of BTAB to DBSI on June 5, 1999.
The accounting policies of the Corporation conform with generally accepted
accounting principles and prevailing industry practices. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the balance sheet date, and the reported amounts of revenue
Bankers Trust Corporation and its Subsidiaries 29
<PAGE>
- --------------------------------------------------------------------------------
and expenses during the reporting period. Actual results could differ from
management's estimates. The following is a description of the significant
accounting policies of the Corporation.
Principles of Consolidation
The consolidated financial statements of the Corporation include Bankers Trust,
Bankers Trust Company and its subsidiaries ("BTCo") and all other significant,
majority-owned subsidiaries, after elimination of material intercompany
transactions and accounts. Investments in other companies over which the Corpo
ration has significant influence are accounted for using the equity method of
accounting. These investments are reported in other assets and the related
equity income or loss, as well as disposition gains and losses, is included in
noninterest revenue. Investments within designated Small Business Investment
Company subsidiaries are carried at fair value. Changes in fair value are
included in noninterest revenue.
Foreign Currency Translation
Assets and liabilities denominated in currencies other than an entity's
functional currency are translated into its functional currency using the
current exchange rates and the resulting translation gains and losses are
reported in noninterest revenue. Assets and liabilities of entities whose
functional currency is not the U.S. dollar are translated into U.S. dollars
using the current exchange rates and the translation gains and losses, net of
tax effects, are reported in other comprehensive income.
Resale and Repurchase Agreements
Resale and repurchase agreements are generally treated as collateralized
financings and are carried at the amount of cash disbursed or received. The
Corporation offsets resale and repurchase agreements which meet the applicable
netting criteria.
Generally, the party disbursing the cash takes possession of the
securities serving as collateral for the financing. Securities purchased under
resale agreements consist primarily of U.S. government and federal agency
securities and OECD country sovereign bonds.
The Corporation monitors the fair value of the securities received or
sent. For securities purchased under resale agreements, the Corporation requests
additional securities or the return of a portion of the cash disbursed when
appropriate in response to a decline in the market value of the securities
received. Similarly, the return of excess securities or additional cash is
requested when appropriate in response to an increase in the market value of
securities sold under repurchase agreements.
Trading Securities; Securities Available for Sale
The Corporation designates debt and marketable equity securities as either held
for trading purposes or available for sale at the date of acquisition.
Debt and marketable equity securities, loans and money market instruments
that are classified as trading assets, as well as short trading positions which
are classified as trading liabilities, are carried at their fair values and
related gains and losses are included in trading revenue.
Securities available for sale are carried at fair value with the changes
in fair value, net of applicable deferred income taxes, reported in other
comprehensive income. Realized gains and losses, as well as the amortization of
premiums and accretion of discounts, are recorded in earnings. The specific
identification method is used to determine the cost of securities sold.
Fair value is generally based on quoted market prices, price quotes from
brokers or dealers or discounted expected cash flows.
Derivatives
The Corporation enters into swaps, futures contracts, forward commitments,
options and other similar types of contracts and commitments based on interest
and foreign exchange rates, and equity and commodity prices, for trading
purposes. Such positions are carried at their fair values as either trading
assets or trading liabilities. Fair values for derivatives are based on quoted
market prices or pricing models which take into account current market and
contractual prices of the underlying instruments as well as time value and yield
curve or volatility factors underlying the positions. Fair values also take into
account expected market risks, administrative costs and credit considerations.
Unrealized gains and losses are reported as assets and liabilities,
respectively, and those arising from contracts covered by qualifying master
netting agreements are reported on a net basis. Gains and losses resulting from
trading positions are included in trading revenue.
In addition to its trading activities, the Corporation, as an end user,
enters into various types of derivative transactions (principally interest rate
and currency swaps) to manage the interest rate, currency and other market risks
arising from a number of categories of its assets and liabilities. Hedge
accounting, as described below, is applied to derivatives used to manage such
risks. To qualify for hedge accounting, the derivative contract must be
designated as a hedge at its inception and must remain effective as a hedge
throughout its term. A derivative is considered to be an effective hedge when
its terms correlate highly with the hedged item.
The accounting for end-user derivatives follows that of the underlying
item being hedged. Thus, net interest revenue is accrued or amortized for
interest rate contracts, and in addition, hedges of securities available for
sale are carried at fair value with changes in fair value due to market price
changes reported in other comprehensive income. Foreign exchange rate contracts
used to hedge foreign-currency-denominated assets and liabilities are translated
at spot rates with the resulting gains and losses reported in noninterest
revenue or other comprehensive income, and the discounts or premiums on these
contracts are accrued to net interest revenue. Translation gains and losses, as
well as the accretion of discount and amortization of premium on foreign
exchange rate contracts used to hedge net investments in foreign entities are
reported in other comprehensive income. The book values of end-user derivatives
are reported in other assets or other liabilities.
Realized gains and losses on terminated hedges where the underlying hedged
items are still outstanding are deferred and amortized to net interest
revenue over the remaining term of the hedge or hedged item, whichever is
shorter. Any time the underlying item is also terminated, the remaining deferred
amounts related to the
30 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
terminated hedge are recognized and reported consistently with the realized gain
or loss on the underlying item.
Derivatives that do not qualify for hedge accounting are considered to be
trading positions and are accounted for as such.
Loans, Other Real Estate and Other Nonperforming Assets
Loans generally are stated at their outstanding unpaid principal balances net of
any deferred fees on originated loans, and net of any unamortized premiums or
discounts on purchased loans. Interest revenue is accrued on the unpaid
principal balance. Net deferred fees and premiums or discounts are recognized as
an adjustment of the yield (interest revenue) over the lives of the related
loans.
Loans are accounted for on a cash basis once principal or interest
payments are past due 90 days or earlier if considered appropriate by
management. In addition, all loans classified as doubtful and all partially
charged-off loans are accounted for on a cash basis even if the borrower is
still making required payments. Any accrued but unpaid interest previously
recorded on cash basis loans is reversed against current period interest
revenue. Cash receipts of interest on cash basis loans are recorded as either
revenue or a reduction of principal according to management's judgment as to the
collectibility of principal.
Renegotiated loans are those which have been renegotiated to an effective
interest rate lower than the then-current market rate because of a deterioration
in the financial position of the borrower. Interest on such loans is accrued at
the renegotiated rate.
Assets acquired in credit work-outs, including real estate, are recorded
at the lower of fair value less costs to sell or the recorded investment in the
related loan and are classified as other assets. Any excess of the recorded
investment in the loan over the fair value of the asset acquired is charged
against the allowance for credit losses-loans.
Allowance For Credit Losses
The allowance for credit losses represents management's estimate of probable
losses that have occurred as of the date of the financial statements. The
allowance for credit losses-loans is reported as a reduction of loans and the
allowance for credit losses for other credit-related items is reported in other
liabilities.
The Corporation recently undertook a comprehensive review of its policies
and procedures related to the determination of the allowance for credit losses
to ensure that they are appropriate within the framework of generally accepted
accounting principles. Policies and procedures were revised and improved to
ensure a systematic and adequately documented process for the estimation of
credit losses and related charge-offs.
To allow management to determine the appropriate level of the allowance
for credit losses-loans, all significant counterparty relationships are reviewed
periodically, as are loans under special supervision, such as criticized, cash
basis and renegotiated loans. This management process results in three
components of the overall allowance for credit losses-loans: a specific
allowance component, a country risk component and an expected loss component.
The specific allowance component is the amount required for impaired loans as
calculated under SFAS 114, "Accounting by Creditors for Impairment of a Loan."
The country risk component is the amount provided for exposures in countries
experiencing financial stress, excluding those exposures already identified and
evaluated as impaired loans. The expected loss component is an estimate of the
remaining probable losses inherent in the loan portfolio. This component is
determined by using a statistical model that utilizes a loan-type, risk-rated
stratified approach. Loss factors are derived by analyzing historical
charge-offs and recent economic events and applied to categories of loans by
type and risk rating.
Amounts deemed uncollectible are charged to the allowance. Subsequent
recoveries, if any, are credited to the allowance. Actual losses may vary from
current estimates and the amount of the actual credit loss provision may be
either greater than or less than actual net charge-offs. The related provision
for credit losses--loans, which is charged to income, is the amount necessary to
adjust the allowance to the level determined through the process described
above.
Customer Receivables
Customer receivables include amounts due on uncompleted transactions and margin
balances. Securities owned by customers and held as collateral for these
receivables are not reflected in the financial statements.
Premises and Equipment
Premises and equipment owned are stated at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Leasehold improvements are amortized
on a straight-line basis over the terms of the leases or the estimated useful
lives of the improvements, whichever are shorter. Maintenance and repairs are
charged to expense and improvements are capitalized. Gains and losses on
dispositions are reflected in earnings.
Leased properties meeting certain criteria are capitalized and amortized
using the straight-line method over the terms of the leases.
Income Taxes
The Corporation recognizes the current and deferred tax consequences of all
transactions that have been recognized in the financial statements using the
provisions of enacted tax laws. Deferred tax assets and liabilities are
recognized for the estimated future tax effects of temporary differences. The
amount of deferred tax assets is reduced, if necessary, to the amount that,
based on available evidence, will more likely than not be realized.
Stock-Based Compensation
Prior to the Acquisition, the Corporation accounted for its stock option awards
under the intrinsic value-based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The
Corporation
Bankers Trust Corporation and its Subsidiaries 31
<PAGE>
- --------------------------------------------------------------------------------
made pro forma disclosures of net income and earnings per share as if the fair
value-based method of accounting had been applied under SFAS 123, "Accounting
for Stock-Based Compensation." On the COC date, all outstanding stock options
were settled in cash equaling a price of $93.00 per option less the exercise
price.
Prior to the Acquisition, the Corporation also recorded its obli gations
under outstanding deferred stock awards in stockholders' equity as common stock
issuable-stock awards. The related deferred compensation was also included in
stockholders' equity. These classifications were based upon the Corporation's
intent to settle these awards with its common stock. On the COC date, all
outstanding awards were settled in cash.
Statement of Cash Flows
For purposes of the consolidated statement of cash flows, the Corporation's cash
and cash equivalents are cash and due from banks. Net cash flows from
instruments such as futures, forwards, options and swaps used to hedge assets or
liabilities are classified as cash flows from operating activities.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current
presentation.
Note 3 -- Trading Assets and Trading Liabilities
The components of these accounts, which are carried at fair value, were as
follows:
(in millions) December 31, 1999 1998
- --------------------------------------------------------------------------------
Trading assets
U.S. government and agency securities $ 2,101 $ 686
Obligations of U.S. states and political subdivisions 81 246
Foreign government securities 114 4,799
Corporate debt securities 1,367 5,519
Equity securities 7,144 5,810
Swaps, options and other derivative contracts(1) 4,807 17,376
Bankers acceptances and certificates of deposit 53 2,844
Other 3,350 8,890
- --------------------------------------------------------------------------------
Total trading assets $19,017 $46,170
================================================================================
Trading liabilities
Securities sold, not yet purchased
U.S. government and agency securities $ 53 $ 1,504
Foreign government securities -- 2,616
Equity securities 21 6,458
Other 9 818
Swaps, options and other derivative contracts(1) 5,183 15,857
- --------------------------------------------------------------------------------
Total trading liabilities $ 5,266 $27,253
================================================================================
(1) Comprised of fair values of interest rate instruments, foreign exchange
rate instruments, and equity and commodity instruments, reduced by the
effects of master netting agreements, in accordance with Financial
Accounting Standards Board ("FASB") Interpretation No. 39 ("FIN 39"),
"Offsetting of Amounts Related to Certain Contracts."
Note 4 -- Securities Available for Sale
The fair value, amortized cost, and gross unrealized holding gains and losses
for the Corporation's securities available for sale follow:
<TABLE>
<CAPTION>
(in millions) December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Gross Gross
Unrealized Holding Unrealized Holding
Fair ------------------ Amortized Fair ------------------ Amortized
Value Gains (Losses) Cost Value Gains (Losses) Cost
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Debt securities
U.S. government and agencies $ 348 $ -- $ (9) $ 357 $ 1,431 $ 14 $ (11) $ 1,428
States of the U.S. and
political subdivisions 16 -- -- 16 1,770 91 (72) 1,751
Asset-backed 5 -- -- 5 107 8 (1) 100
Certificates of deposit -- -- -- -- 108 1 -- 107
Foreign governments 480 -- -- 480 3,182 23 (114) 3,273
Corporate debt 2,226 -- (1) 2,227 2,431 6 (81) 2,506
Mortgage-backed 94 -- (2) 96 3,125 52 (69) 3,142
Equity securities 83 45 (8) 46 594 69 (71) 596
- ------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 3,252 $ 45 $ (20) $ 3,227 $12,748 $ 264 $ (419) $12,903
==============================================================================================================================
<CAPTION>
(in millions) December 31, 1997
- --------------------------------------------------------------------------------------
Gross
Unrealized Holding
Fair ------------------ Amortized
Value Gains (Losses) Cost
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
Debt securities
U.S. government and agencies $ 525 $ 3 $ -- $ 522
States of the U.S. and
political subdivisions 1,392 78 (50) 1,364
Asset-backed 156 -- -- 156
Certificates of deposit 135 -- -- 135
Foreign governments 2,122 5 (46) 2,163
Corporate debt 3,135 1 (61) 3,195
Mortgage-backed 113 -- -- 113
Equity securities 503 41 (18) 480
- --------------------------------------------------------------------------------------
Total securities available for sale $ 8,081 $ 128 $ (175) $ 8,128
======================================================================================
</TABLE>
There were no securities of any individual issuer included in securities
available for sale that exceeded 10 percent of the Corporation's total
stockholders' equity at December 31, 1999.
The components of securities available for sale gains (losses) as reported
in the consolidated statement of income follow:
(in millions) Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Debt securities--gross realized gains $ 81 $ 163 $ 53
Debt securities--gross realized losses (234) (248) (18)
Equity securities--net realized gains 64 29 123
- --------------------------------------------------------------------------------
Total securities available for sale gains (losses) $ (89) $ (56) $ 158
================================================================================
32 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
The following table shows the fair value, remaining maturities, approximate
weighted-average yields (based on amortized cost) and total amortized cost by
maturity distribution of the debt components of the Corporation's securities
available for sale at December 31, 1999.
Maturity Distribution
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years
- ----------------------------------------------------------------------------------------------------------------------
($ in millions) Amount Yield Amount Yield Amount Yield Amount Yield
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. government and agencies $ 42 8.49% $126 5.09% $ 180 3.64% $ -- --%
States of the U.S. and political
subdivisions 8 6.28 -- -- 6 5.5 2 37.6
Asset-backed securities -- -- 5 2.45 -- -- -- --
Certificates of deposit -- -- -- -- -- -- -- --
Foreign government securities 182 14.88 298 3.24 -- -- -- --
Corporate debt securities 181 3.65 901 7.31 1,120 5.16 24 14.88
Mortgage-backed securities -- -- -- -- 72 5.86 12 12.76
- ----------------------------------------------------------------------------------------------------------------------
Total fair value $413 $1,330 $1,378 $ 38
======================================== ====== ====== ======
Total amortized cost $416 $1,336 $1,380 $ 39
======================================== ====== ====== ======
<CAPTION>
- --------------------------------------------------------------------------
Mortgage-
Backed Total
- --------------------------------------------------------------------------
($ in millions) Amount Yield Amount Yield
- --------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. government and agencies $ -- --% $ 348 4.70%
States of the U.S. and political
subdivisions -- -- 16 10.18
Asset-backed securities -- -- 5 2.45
Certificates of deposit -- -- -- --
Foreign government securities -- -- 480 7.64
Corporate debt securities -- -- 2,226 6.02
Mortgage-backed securities 10 16.90 94 7.94
- --------------------------------------------------------------------------
Total fair value $ 10 $3,169
================================ ====== ======
Total amortized cost $ 10 $3,181
================================ ====== ======
</TABLE>
Note 5 -- Loans
The following table summarizes the composition of loans at the end of each of
the last five years:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
($ in millions) December 31, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic
Commercial and industrial $ 8,125 40% $ 6,448 27% $ 4,244 21% $ 3,422 21% $ 2,520 20%
Financial institutions 2,788 14 2,441 10 2,148 11 1,631 10 1,778 14
Real estate
Construction 128 1 134 1 108 1 133 1 154 1
Mortgage 1,343 6 1,315 6 2,088 10 1,562 10 1,276 10
Other 4,028 20 3,558 15 1,427 7 1,436 9 1,490 11
- ---------------------------------------------------------------------------------------------------------------------------------
Total domestic 16,412 81 13,896 59 10,015 50 8,184 51 7,218 56
- ---------------------------------------------------------------------------------------------------------------------------------
International
Governments and official
institutions 120 1 190 1 252 1 237 1 227 2
Banks and other financial
institutions 690 3 3,599 15 3,175 16 3,482 22 1,543 13
Commercial and industrial 1,765 9 3,931 17 4,931 25 2,759 17 1,934 15
Real estate
Construction -- -- 71 -- -- -- -- -- 2 --
Mortgage 31 -- 95 -- 195 1 130 1 176 1
Other 1,167 6 1,813 8 1,402 7 1,290 8 1,701 13
- ---------------------------------------------------------------------------------------------------------------------------------
Total international 3,773 19 9,699 41 9,955 50 7,898 49 5,583 44
- ---------------------------------------------------------------------------------------------------------------------------------
Gross loans 20,185 100% 23,595 100% 19,970 100% 16,082 100% 12,801 100%
=== === === === ===
Less: unearned income 223 310 165 202 120
- --------------------------------------- ------- ------- ------- -------
Total loans $19,962 $23,285 $19,805 $15,880 $12,681
======================================= ======= ======= ======= =======
</TABLE>
On a global basis, the commercial and industrial category and the "other"
category included no single industry group with aggregate borrowings from the
Corporation in excess of 10 percent of the total loan portfolio at December 31,
1999.
Bankers Trust Corporation and its Subsidiaries 33
<PAGE>
- --------------------------------------------------------------------------------
Certain contractual maturity information for the Corporation's loans at
December 31, 1999, excluding 1-4 family mortgages, installment loans and lease
financing is summarized below. Actual maturities may differ from contractual
maturities since borrowers may have the right to prepay obligations with or
without prepayment penalties.
Remaining Maturity
- --------------------------------------------------------------------------------
Within After One After
One But Within Five
(in millions) Year Five Years Years Total
- --------------------------------------------------------------------------------
Domestic
Commercial and industrial $ 955 $4,707 $2,463 $ 8,125
Financial institutions 2,411 347 30 2,788
Real estate
Construction 58 70 -- 128
Mortgage 238 836 63 1,137
Other 1,961 883 87 2,931
- --------------------------------------------------------------------------------
Total domestic 5,623 6,843 2,643 15,109
International 2,231 699 68 2,998
- --------------------------------------------------------------------------------
Total $7,854 $7,542 $2,711 $18,107
================================================================================
Loans due after one year
With predetermined interest rates $ 249 $ 351
====================================================================
With floating or adjustable
interest rates $7,293 $2,360
====================================================================
Cash Basis Loans and Renegotiated Loans
The Corporation's cash basis loans and renegotiated loans are summarized as
follows:
(in millions) December 31, 1999 1998
- --------------------------------------------------------------------------------
Cash basis loans
Domestic $573 $192
International 164 200
- --------------------------------------------------------------------------------
Total cash basis loans $737 $392
================================================================================
Renegotiated loans
Domestic $ 11 $ 25
International -- 1
- --------------------------------------------------------------------------------
Total renegotiated loans $ 11 $ 26
================================================================================
At December 31, 1999 and 1998, borrowers on a cash basis or renegotiated
status had undrawn commitments with the Corporation of $38 million and $39
million, respectively. Such 1999 amounts, if drawn, will be classified as cash
basis or renegotiated.
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 that were carried on the balance sheet and classified as
either cash basis or renegotiated at December 31 of each year. The rates used in
determining the gross amount of interest that would have been recorded at the
original rate were not necessarily representative of current market rates.
(in millions) Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Domestic loans
Gross amount of interest that would
have been recorded at original rate $27 $16 $16
Less, interest, net of reversals,
recognized in interest revenue 18 8 3
- --------------------------------------------------------------------------------
Reduction of interest revenue 9 8 13
- --------------------------------------------------------------------------------
International loans
Gross amount of interest that would
have been recorded at original rate 3 16 5
Less, interest, net of reversals,
recognized in interest revenue 1 11 --
- --------------------------------------------------------------------------------
Reduction of interest revenue 2 5 5
- --------------------------------------------------------------------------------
Total reduction of interest revenue $11 $13 $18
================================================================================
At December 31, 1999 and 1998, the recorded investment in loans that was
considered to be impaired under SFAS 114 was $889 million and $418 million,
respectively. Included in these amounts were $718 million and $295 million of
loans that required a valuation allowance of $268 million and $61 million at
those same dates, respectively. The average recorded investment in impaired
loans during the years ended December 31, 1999 and December 31, 1998 was
approximately $502 million and $295 million, respectively. For the years ended
December 31, 1999, 1998 and 1997, the Corporation recognized interest income on
impaired loans of $12 million, $19 million and $3 million, respectively.
34 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
Note 6 -- Allowances for Credit Losses
An analysis of the changes in the Corporation's allowances for credit losses
follows:
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans
Balance, beginning of year $ 652 $ 699 $ 773
Provision for credit losses (58) 40 --
Allowance related to BTAL and
transferred entities* (39) -- --
Reclassification -- -- (57)
Allowance related to acquisition -- -- 17
Net charge-offs
Charge-offs 91 107 78
Recoveries 27 20 44
- --------------------------------------------------------------------------------
Total net charge-offs 64 87 34
- --------------------------------------------------------------------------------
Balance, end of year $ 491 $ 652 $ 699
================================================================================
Other liabilities
Balance, beginning of year $ 18 $ 13 $ 10
Provision for credit losses 6 5 --
Reclassification -- -- 3
- --------------------------------------------------------------------------------
Balance, end of year $ 24 $ 18 $ 13
================================================================================
</TABLE>
* Reflects the allowance for credit losses of certain legal entities
transferred to Deutsche Bank on the date of transfer and the allowance for
credit losses--loans of BTAL on the date of sale.
Note 7 -- Premises and Equipment; Leases
An analysis of premises and equipment follows:
(in millions) December 31, 1999 1998
- --------------------------------------------------------------------------------
Land $ 71 $ 85
Buildings 265 338
Leasehold improvements 330 416
Furniture and equipment 816 1,389
Construction-in-progress 21 36
- --------------------------------------------------------------------------------
Total 1,503 2,264
Less accumulated depreciation and amortization 842 1,131
- --------------------------------------------------------------------------------
Net book value $ 661 $1,133
================================================================================
The Corporation is a lessee under lease agreements covering real property
and equipment. The future minimum lease payments required under the
Corporation's noncancelable operating leases at the end of 1999 were as follows:
(in millions) Year Ended December 31,
- --------------------------------------------------------------------------------
2000 $ 47
2001 46
2002 40
2003 37
2004 36
2005 and later 222
- --------------------------------------------------------------------------------
Total minimum lease payments 428
Less minimum noncancelable sublease rentals 4
- --------------------------------------------------------------------------------
Net minimum lease payments $424
================================================================================
The following shows the net rental expense for all operating leases:
(in millions) Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Gross rental expense $124 $131 $107
Less sublease rental income 6 4 3
- --------------------------------------------------------------------------------
Net rental expense $118 $127 $104
================================================================================
Note 8 -- Securities Loaned and Securities Sold Under Repurchase Agreements and
Other Short-term Borrowings
Short-term borrowings are borrowed funds generally with an original maturity of
one year or less. Debt instruments which contain a provision for early
redemption, exercisable at the option of the security holder, are classified on
the basis of the earliest possible redemption date.
Securities loaned and securities sold under repurchase agreements and
federal funds purchased generally mature in one day; commercial paper generally
matures within 90 days.
The details of these borrowings for the years 1999, 1998 and 1997 are
presented below:
($ in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Securities loaned and securities sold
under repurchase agreements
Balance at year end $ 56 $17,420 $17,896
Average amount outstanding 8,261 28,732 23,897
Maximum amount outstanding at
any month end 23,383 37,140 27,878
Average interest rate for the year 6.52% 6.60% 5.91%
Average interest rate on year-end balance 6.89% 5.06% 5.30%
Federal funds purchased
Balance at year end $ 5,270 $ 3,686 $ 3,260
Average amount outstanding 3,226 3,840 4,097
Maximum amount outstanding at
any month end 5,968 10,036 8,444
Average interest rate for the year 4.48% 4.83% 5.03%
Average interest rate on year-end balance 3.45% 3.90% 5.42%
Commercial paper
Balance at year end $-- $ 5,110 $ 8,733
Average amount outstanding 3,615 9,708 8,881
Maximum amount outstanding at
any month end 9,458 15,293 9,584
Average interest rate for the year 6.98% 5.98% 5.79%
Average interest rate on year-end balance --% 5.41% 5.94%
Other
Balance at year end $ 6,270 $ 7,517 $ 7,584
Average amount outstanding 6,044 8,049 7,190
Maximum amount outstanding at
any month end 8,854 8,885 8,249
Average interest rate for the year 6.61% 6.97% 6.58%
Average interest rate on year-end balance 9.74% 5.54% 5.93%
================================================================================
Bankers Trust Corporation and its Subsidiaries 35
<PAGE>
- --------------------------------------------------------------------------------
Note 9 -- Long-Term Debt
In accordance with the Federal Reserve Board's Capital Adequacy Guidelines,
long-term debt included in risk-based capital must meet specific criteria.
Generally, qualifying debt must be unsecured, subordinated and have an original
weighted-average maturity of at least five years. Additionally, the outstanding
amount of long-term debt included in risk-based capital is reduced as these
issues approach maturity. That is, one-fifth of the original issue is amortized
each year during the last five years before maturity.
Long-term debt included in risk-based capital and other long-term debt are
summarized as follows, based on the contractual terms of each issue:
Long-term debt included in risk-based capital
Dec. 31, Dec. 31,
Subordinated Subordinated 1999 1998
(in millions) Fixed Rate Floating Rate Total Total
- --------------------------------------------------------------------------------
Bankers Trust
Due in 1999 $ -- $ -- $ -- $ 147
Due in 2000 197 -- 197 196
Due in 2001 214 -- 214 212
Due in 2002 617 80 697 693
Due in 2003 102 194 296 296
Due in 2004 16 25 41 42
Due in 2005-2009 760 71 831 830
Thereafter 886 -- 886 886
- --------------------------------------------------------------------------------
Total $ 2,792 $ 370 $ 3,162 $ 3,302
- --------------------------------------------------------------------------------
BTCo
Due in 1999 $ -- $ -- $ -- $ 9
Due in 2000 9 -- 9 8
Due in 2001 9 -- 9 8
Due in 2002 8 -- 8 7
Due in 2003 7 -- 7 7
Due in 2004 7 -- 7 6
Due in 2005-2009 11 247 258 359
Thereafter -- -- -- --
- --------------------------------------------------------------------------------
Total $ 51 $ 247 $ 298 $ 404
- --------------------------------------------------------------------------------
Other
Due in 1999 $ -- $ -- $ -- $ 200
Due in 2000 -- -- -- 200
- --------------------------------------------------------------------------------
Total $ -- $ -- $ -- $ 400
- --------------------------------------------------------------------------------
Total long-term debt $ 3,460 $ 4,106
- --------------------------------------------------------------------------------
Less: Amortization for risk-based capital purposes (1,036) (882)
- --------------------------------------------------------------------------------
Less: Subordinated debt in excess of risk-based
capital limitations -- (111)
- --------------------------------------------------------------------------------
Total long-term debt included in risk-based capital $ 2,424 $ 3,113
================================================================================
Long-term debt not included in risk-based capital
Senior Senior Dec. 31, Dec. 31,
Fixed Floating 1999 1998
(in millions) Rate Rate Total Total
- --------------------------------------------------------------------------------
Bankers Trust
Due in 1999 $ -- $ -- $ -- $ 836
Due in 2000 194 542 736 737
Due in 2001 250 868 1,118 1,128
Due in 2002 -- 555 555 564
Due in 2003 -- 499 499 663
Due in 2004 -- 7 7 7
Due in 2005-2009 113 443 556 691
Thereafter -- -- -- --
- --------------------------------------------------------------------------------
Total $ 557 $ 2,914 $ 3,471 $ 4,626
- --------------------------------------------------------------------------------
BTCo
Due in 1999 $ -- $ -- $ -- $ 1,805
Due in 2000 466 647 1,113 1,113
Due in 2001 6 533 539 659
Due in 2002 729 528 1,257 722
Due in 2003 36 -- 36 103
Due in 2004 2 8 10 380
Due in 2005-2009 50 -- 50 1,636
Thereafter 3 8 11 8
- --------------------------------------------------------------------------------
Total $ 1,292 $ 1,724 $ 3,016 $ 6,426
- --------------------------------------------------------------------------------
Other
Other (fixed rate) $ 828 $ 21
Other (floating rate) 4,231 2,824
- --------------------------------------------------------------------------------
Total long-term debt $11,546 $13,897
Add: Amortization for risk-based capital purposes 1,036 882
Add: Subordinated debt in excess of risk-based
capital limitations -- 111
- --------------------------------------------------------------------------------
Total long-term debt not included in risk-based capital $12,582 $14,890
================================================================================
Based solely on the contractual terms of the debt issues, at December 31,
1999 and 1998 the Corporation's total fixed rate long-term debt had a
weighted-average interest rate of 6.41 percent and 6.98 percent, respectively.
The Corporation has entered into interest rate and currency swap
agreements for many of its long-term debt issues, in order to manage its
interest rate and currency risks.
The interest rates for the floating rate debt issues and the fixed rate
debt issues effectively converted to floating are generally based on LIBOR,
although in certain instances they are subject to minimum interest rates as
specified in the agreements governing the respective issues.
The weighted-average effective interest rates for total long-term debt,
including the effects of the related swap agreements, were 5.38 percent and 5.06
percent at December 31, 1999 and 1998, respectively.
At December 31, 1999 and 1998, certain subsidiaries of Bankers Trust
Company had outstanding $1.2 billion and $3.54 billion, respectively of
mandatory redeemable preference securities included in the table above which are
not included in risk-based capital. Maturities at December 31, 1999 range from
April 2000 to May 2002 and maturities at December 31, 1998 ranged from February
1999 to December 2005. Additionally, a subsidiary of the Corporation, had
outstanding $1.83 billion of mandatory redeemable
36 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
preference securities included in the table above which are not included in
risk-based capital. These securities mature in December 2003.
Note 10-- Mandatorily Redeemable Capital Securities of Subsidiary Trusts Holding
Solely Junior Subordinated Deferrable Interest Debentures Included in Risk-Based
Capital ("Trust Preferred Capital Securities")
The trust preferred capital securities are issued by trusts all of whose
outstanding common securities are owned by either Bankers Trust or BTCo. The
trust preferred capital securities represent preferred undivided beneficial
interests in the assets of the trusts. The trusts exist for the sole purpose of
issuing the trust preferred capital securities and investing the proceeds
thereof in junior subordinated deferrable interest debentures issued by Bankers
Trust or BTCo, as applicable (the "debentures"). The debentures are unsecured
and subordinated to all senior indebtedness of Bankers Trust or BTCo, as
applicable, and are the sole assets of the trusts. Payments under the debentures
by either Bankers Trust or BTCo are the same as those for the trust preferred
capital securities. The debentures are redeemable prior to stated maturity at
the option of Bankers Trust or BTCo during the redemption periods described
below. The trust preferred capital securities are subject to mandatory
redemption upon repayment of the related debentures at their stated maturity
dates or their earlier redemption at a redemption price equal to their
liquidation amount plus accrued distributions to the date fixed for redemption
and the premium, if any, paid by Bankers Trust or BTCo upon concurrent repayment
of the related debentures.
Bankers Trust and BTCo, as applicable, have issued guarantees for the
payment of distributions and payments on liquidation or redemption of the trust
preferred capital securities, but only to the extent of funds held by the
relevant trust.
The appropriate obligations of Bankers Trust or BTCo under each series of
debentures, the relevant indenture and trust agreement, the relevant guarantee
and certain other related agreements, in the aggregate, constitute a full and
unconditional guarantee by Bankers Trust or BTCo, as applicable, of each trust's
obligations under the relevant trust preferred capital securities.
The Corporation is required by the Federal Reserve to maintain certain
levels of capital. The Federal Reserve has announced that certain cumulative
preferred securities having the characteristics of trust preferred capital
securities qualify as minority interest, which is included in Tier 1 Capital for
bank holding companies. Such Tier 1 Capital treatment, together with Bankers
Trust's ability to deduct, for federal income tax purposes, interest expense on
the corresponding debentures, provides Bankers Trust with a cost-effective means
of obtaining capital for regulatory purposes.
The following is a summary of the outstanding trust preferred capital securities
and debentures:
<TABLE>
<CAPTION>
Aggregate Aggregate
Liquidation Liquidation Per Annum
Amount of Amount of Interest
Trust Trust Rate of
Preferred Preferred Debentures
Capital Capital and Trust
Securities at Securities at Preferred Interest
December 31, December 31, Capital Payment
($ in millions) 1999 1998 Securities Dates
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bankers Trust--Obligated
BT Institutional Capital Trust A(3) $290 $290 8.09% 6/1, 12/1
BT Institutional Capital Trust B 200 200 7.75 6/1, 12/1
BT Capital Trust B 250 250 7.90 1/15, 7/15
BT Preferred Capital Trust I 250 250 8 1/8 3/31, 6/30
9/30, 12/31
BT Preferred Capital Trust II(3) 203 203 7.875 2/25, 8/25
BTCo--Obligated
BTC Capital Trust I 250 250 3-Month 3/30, 6/30
LIBOR 9/30, 12/30
plus 0.75%
- --------------------------------------------------------------------------------------------------
Total $1,443(1) $1,443(1)
==================================================================================================
<CAPTION>
Stated
Maturity of
Debentures
and Trust
Preferred Earlier Redemption
Capital Maturity Period of
($ in millions) Securities Date(2) Debentures
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Bankers Trust--Obligated
BT Institutional Capital Trust A(3) 12/1/26 -- On or after
12/1/06
BT Institutional Capital Trust B 12/1/26 -- On or after
12/1/06
BT Capital Trust B 1/15/27 1/15/17 On or after
1/15/07
BT Preferred Capital Trust I 2/1/37 2/1/02 On or after
2/1/02
BT Preferred Capital Trust II(3) 2/25/27 2/25/12 On or after
2/25/07
BTCo--Obligated
BTC Capital Trust I 12/30/26 -- On or after
12/30/06
- ----------------------------------------------------------------------------------
Total
==================================================================================
</TABLE>
(1) Excludes $15 million and $23 million of deferred issuance costs and
unamortized discount at December 31, 1999 and December 31, 1998,
respectively.
(2) The maturity dates may be shortened under certain circumstances.
(3) During 1998, the Corporation repurchased $10 million and $47 million of BT
Institutional Capital Trust A and BT Preferred Capital Trust II
securities, respectively.
Bankers Trust Corporation and its Subsidiaries 37
<PAGE>
Note 11 -- Preferred Stock
Series Preferred Stock
Bankers Trust is authorized to issue 190,100 shares of Series Preferred Stock,
without par value. All shares of Series Preferred Stock constitute one and the
same class and have equal rank and priority over common stockholders as to
dividends and in the event of liquidation. Each series of Series Preferred Stock
has a liquidation preference per share (as indicated below), plus accrued and
unpaid dividends, as well as contingent voting rights. Dividends on shares of
each outstanding series of preferred stock are payable quarterly and are
cumulative. The Series Preferred Stock outstandings were as follows:
Outstanding At
December 31,
--------------
1999 1998 Liquidation Earliest
-------------- Preference Redemption
(in millions) Per Share Date(1)
- --------------------------------------------------------------------------------
Adjustable Rate
Cumulative, Series Q(2) $151 $160 $2,500 03/01/99
Adjustable Rate
Cumulative, Series R(2) 100 109 2,500 09/01/99
7.75% Cumulative,
Series S 125 125 2,500 06/01/00
- --------------------------------------------------------------------------------
Total preferred stock $376 $394
================================================================================
(1) At the option of Bankers Trust, series may be redeemed, in whole or in
part, on or after the above mentioned redemption date at $2,500 per share
(or $25 per depositary share), plus accrued and unpaid dividends to the
redemption date. Any optional redemption shall be with the approval of the
Federal Reserve Board unless at that time that body should determine that
its approval is not required.
(2) The dividend rate is determined by a formula that considers the interest
rates of selected short- and long-term U.S. Treasury securities at the
time the rate is set. In no event will the dividend rate be less than 41/2
percent or more than 101/2 percent per annum. The rates in effect for
Series Q were 5.17 percent and 4.50 percent at December 31, 1999 and 1998,
respectively. The rates in effect for Series R were 5.14 percent and 4.50
percent at December 31, 1999 and 1998, respectively.
The number of shares of Series Preferred Stock issued, repurchased and
redeemed during 1997, 1998 and 1999 was as follows (number of shares in
thousands):
<TABLE>
<CAPTION>
Fixed/
Adjustable Adjustable Adjustable
8.55% Rate 7 5/8% 7.50% Rate Rate 7.75%
Cumulative Cumulative Cumulative Cumulative Cumulative Cumulative Cumulative
Preferred Preferred Preferred Preferred Preferred Preferred Preferred
Shares of Series Stock, Stock, Stock, Stock, Stock, Stock, Stock,
Preferred Stock Series I Series J Series O(1) Series P(2) Series Q(3) Series R(3) Series S(3)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996 1,000 447 592 99 65 52 50
- ----------------------------------------------------------------------------------------------------------------------------
Issued -- -- 3 -- -- -- --
Repurchased -- -- -- -- (1) (2) --
Redeemed(4) (1,000) (447) -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1997 -- -- 595 99 64 50 50
- ----------------------------------------------------------------------------------------------------------------------------
Issued -- -- -- -- -- -- --
Repurchased -- -- -- -- -- (6) --
Redeemed(5) -- -- (595) (99) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1998 -- -- -- -- 64 44 50
- ----------------------------------------------------------------------------------------------------------------------------
Issued -- -- -- -- -- -- --
Repurchased -- -- -- -- (4) (4) --
Redeemed -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1999 -- -- -- -- 60 40 50
============================================================================================================================
</TABLE>
(1) On March 1, 1995, Bankers Trust reset the interest rate on $150 million of
75/8% Convertible Capital Securities to a rate of 61/8% per annum giving
holders of this issue the right to convert the debt securities into
depositary shares, at $25 per depositary share, each representing a
one-tenth interest in a share of Series O. Approximately $147 million of
the debt securities were converted in 1995.
(2) On May 15, 1995, Bankers Trust reset the interest rate on $100 million of
7.50% Convertible Capital Securities to a rate of 6.00% per annum giving
holders of this issue the right to convert the debt securities into
depositary shares, at $25 per depositary share, each representing a
one-fortieth interest in a share of Series P. Approximately $98 million of
the debt securities were converted in 1995.
(3) Series Q, Series R and Series S are represented by depositary shares at
$25 per depositary share, each representing a one-hundredth interest of a
share.
(4) Series I and Series J were redeemed at $100 per share plus an amount equal
to accrued and unpaid dividends to the redemption date.
(5) Series O and Series P were redeemed at $250 per share (or $25 per
depositary share) and $1000 per share (or $25 per depositary share),
respectively, plus an amount equal to accrued and unpaid dividends to the
redemption date.
38 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
Note 12 -- Preferred Share Purchase Rights
On February 16, 1988, the Board of Directors of Bankers Trust Corporation
declared a dividend distribution of one Preferred Share Purchase Right ("Right")
for each share of common stock held, payable February 26, 1988 to stockholders
of record on that date. Rights also automatically attached to each share of
common stock issued after February 26, 1988. Each Right entitled the registered
holder to purchase from Bankers Trust a one-hundredth interest in a share of
Bankers Trust's Series C ("Series C") Junior Participating Preferred Stock at an
exercise price of $480, as amended, subject to certain adjustments. No Series C
shares were ever issued. The Rights terminated on the COC date.
Note 13 -- Common Stock and Stock-Based Compensation Plans
Common stock activity during 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shares outstanding,
beginning of year 95,714,120 96,956,340 99,189,329
- ------------------------------------------------------------------------------------------
Shares issued or distributed under
employee benefit plans 2,974,125 4,192,633 7,167,221
Conversion of 5 3/4% Convertible
Subordinated Debentures -- 1,434 399,450
Shares issued for acquisitions -- -- 14,678(1)
Shares purchased for treasury (837,410) (5,436,287) (9,735,358)
Shares purchased and retired (97,850,834)(2) -- (78,980)
- ------------------------------------------------------------------------------------------
Common shares outstanding,
end of year 1 95,714,120 96,956,340
================================================================================
</TABLE>
(1) The information presented reflects the additional shares issued in
conjunction with the Alex. Brown merger.
(2) Amount represents shares purchased and retired in connection with
Acquisition.
Prior to the Acquisition, stock options were granted to purchase stock at
a price not less than the fair market value of the stock on the date of grant.
As of the Acquisition date, all unvested options vested and became immediately
exercisable. The Corporation paid $93.00 less the exercise price for each option
outstanding on the Acquisition date.
No stock options were granted in 1999. There were no stock options
outstanding at December 31, 1999.
The following is a summary of stock option transactions that occurred
during 1997, 1998 and 1999 (number of shares in thousands):
Weighted-Average
Exercise Price Exercise Price
Options Per Option Per Option
- --------------------------------------------------------------------------------
December 31, 1996 9,859 $14.01-83.3125 $ 60.77
=========================================
Granted 7,417 68.44-111.75 93.56
Exercised (4,590) 14.01-79.125 59.37
Cancelled (208) 60.18
- -----------------------------------------
December 31, 1997 12,478 16.81-111.75 80.76
=========================================
Granted 959 56.25-134.50 112.88
Exercised (1,970) 16.81-102.6625 65.37
Cancelled (671) 98.87
- -----------------------------------------
December 31, 1998 10,796 21.59-134.50 85.29
=========================================
Exercised (442) 21.59-90.75 57.74
Cancelled (297) 92.61
Settled due to COC (10,057)
- -----------------------------------------
December 31, 1999 -- -- --
========================================= =======
Exercisable at:
December 31, 1998 7,581 $ 76.72
========================================= =======
Deferred stock awards, which entitled certain employees to receive common
stock of the Corporation at a specified future date, were also granted prior to
the Acquisition. On the COC date, all deferred compensation amounts vested in
full.
There were no deferred stock awards outstanding at December 31, 1999. At
December 31, 1998, there were deferred stock awards outstanding of 8,698,216
shares. In January 1999, 6,548,524 deferred stock awards were granted related to
the 1998 performance year. Compensation expense recognized for deferred stock
awards was $749 million, $275 million and $274 million in 1999, 1998 and 1997,
respectively. The increase in 1999 is due to the vesting of all deferred stock
awards on the COC date. All deferred stock awards granted during 1999 were paid
out at $93.00 per share on the COC date.
SFAS 123 Pro Forma Information
In conjunction with the Acquisition, compensation expense related to all options
outstanding as of the Acquisition date was recognized reflecting the buyout of
such options. For each option outstanding, this expense was equal to $93.00 less
the exercise price resulting in total expense of $118 million.
Prior to the Acquisition, the Corporation applied Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related Interpretations in accounting for its employee stock options. Under APB
25, because the exercise price of the Corporation's employee stock options
equaled the market price of the underlying stock on the date of grant, no
compensation expense was recognized for the years ended December 31, 1998 and
1997.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and was determined for the years ended December 31, 1998
and 1997 as if the Corporation had accounted for its employee stock options
under the fair value method of SFAS 123. For purposes of pro forma disclosure,
the
Bankers Trust Corporation and its Subsidiaries 39
<PAGE>
- --------------------------------------------------------------------------------
estimated fair value of the options was amortized to expense over the options'
vesting period.
(in millions except earnings per share) 1998 1997
- --------------------------------------------------------------------------------
Net income (loss):
As reported $ (73) $ 866
Pro forma $ (129) $ 807
Basic earnings (loss) per share:
As reported $(1.05) $8.15
Pro forma $(1.61) $7.56
Diluted earnings (loss) per share:
As reported $(1.05) $7.66
Pro forma $(1.61) $7.11
================================================================================
Note 14 -- Asset and Dividend Restrictions
The Federal Reserve Act, as amended by the Monetary Control Act of 1980,
requires that reserve balances on certain deposits of depository institutions be
maintained at the Federal Reserve Bank. The required reserve balances of the
Corporation's subsidiary banks were $189 million and $200 million at December
31, 1999 and 1998, respectively. For the years 1999 and 1998, the average
reserve balances of these banks amounted to $132 million and $148 million,
respectively.
Assets, principally trading assets and securities available for sale, of
approximately $9.569 billion at December 31, 1999 were pledged as collateral to
secure public and trust deposits, for borrowings, and for other purposes.
Federal law also requires that "covered transactions," as defined, engaged
in by insured banks and their subsidiaries with certain affiliates, including
Bankers Trust, be at arm's length and limited to 20 percent of capital surplus.
The Federal Reserve Board defines capital surplus as Tier 1 Capital and Tier 2
Capital plus the balance of the institution's allowance for loan and lease
losses not included in Tier 2 Capital. Additionally, "covered transactions" with
any one such affiliate is limited to 10 percent of capital and surplus. Covered
transactions are defined to include, among other things, loans and other
extensions of credit to such an affiliate and guarantees, acceptances and
letters of credit issued on behalf of such an affiliate. Such loans, other
extensions of credit, guarantees, acceptances and letters of credit must be
secured. Other restrictions also apply to inter-affiliate transactions.
Limitations exist on the availability of BTCo's undistributed earnings for
the payment of dividends to Bankers Trust without prior approval of the bank
regulatory authorities. In this regard, BTCo cannot declare dividends in 2000
without approval of the regulatory authorities. The Federal Reserve Board may
prohibit the payment of dividends if it determines that circumstances relating
to the financial condition of a bank are such that the payment of dividends
would be an unsafe and unsound practice.
Certain other subsidiaries are subject to various regulatory and other
restrictions that may limit cash dividends and advances to Bankers Trust.
Note 15 -- Regulatory Capital
The Corporation and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. The Federal
Reserve Board's risk-based capital guidelines 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 qualifying capital by its risk-weighted assets. The
Federal Reserve Board also has a minimum Leverage ratio that is used as a
supplement to the risk-based capital ratios in evaluating the capital adequacy
of banks and bank holding companies. The Leverage ratio is calculated by
dividing Tier 1 Capital by adjusted quarterly average assets.
Failure to meet minimum capital requirements can initiate certain
mandates, and possibly additional discretionary actions by the regulators that,
if undertaken, could have a direct material effect on the consolidated financial
statements of the Corporation and BTCo.
Under the risk-based capital guidelines, there are two categories of
capital: core capital ("Tier 1 Capital") and supplemental capital ("Tier 2
Capital"), collectively referred to as Total Capital. Tier 1 Capital includes
common stockholders' equity, qualifying perpetual preferred stock, qualifying
trust preferred capital securities and minority interest in equity accounts of
consolidated subsidiaries. Tier 2 Capital includes perpetual preferred stock and
trust preferred capital securities (to the extent ineligible for Tier 1
Capital), hybrid capital instruments (i.e., perpetual debt and mandatory
convertible securities), limited amounts of subordinated debt, intermediate-term
preferred stock, and a portion of the allowance for credit losses.
Risk-weighted assets are calculated by assigning nontrading account assets
and off-balance sheet items to broad risk categories.
The Corporation had previously adopted the market risk amendment to the
risk-based capital guidelines issued by the Federal Reserve Board and the Bank
for International Settlements (BIS). The amendment changed the calculation of
the risk-weighted assets for trading accounts from assigning trading assets to
broad risk categories to the use of internal models to measure market risk.
The market risk amendment also provides for the inclusion of Tier 3
Capital, which is defined to be subordinated debt that is unsecured; has an
original maturity of a minimum of two years; is not redeemable before maturity
without prior approval from the Federal Reserve; and includes a lock-in clause
precluding payment of either interest or principal if the payment would cause
the issuing organization's risk-based capital ratio to fall below the minimum
required level.
In addition, under the prompt corrective action provisions of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), five capital
categories were established for banks. Pursuant to that statute, the federal
bank regulatory agencies have specifically defined these categories by
determining that a bank is well capitalized if it maintains a Tier 1 Capital
ratio of at least 6.0 percent, a Total Capital ratio of at least 10 percent and
a Leverage ratio of at least 5.0 percent.
The Federal Reserve Board has also adopted these same thresholds for the
Tier 1 Capital ratio and Total Capital ratio in defining a well-capitalized bank
holding company. The well-capitalized
40 Bankers Trust Corporation and its Subsidiaries
<PAGE>
41
threshold for the Leverage ratio is not applicable at the bank holding company
level.
Based on their respective regulatory capital ratios at December 31, 1999
and December 31, 1998, both the Corporation and BTCo are well capitalized. There
are no conditions or events that management believes have changed the
Corporation's and BTCo's well-capitalized status.
The Corporation's and BTCo's actual capital amounts and ratios are
presented in the table below.
<TABLE>
<CAPTION>
FRB
Minimum To Be Well
For Capitalized
Capital Under
Actual as of Actual as of Adequacy Regulatory
12/31/99 12/31/98 Purposes: Guidelines:
- ---------------------------------------------------------------------------------------------------------
($ in millions) Amount Ratio Amount Ratio Ratio Ratio
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Corporation
Risk-Based Capital Ratios
Tier 1 Capital(1) $4,462 10.4% $5,069 7.5% 4.0% 6.0%
Total Capital(1) 7,861 18.4% 9,281 13.6% 8.0% 10.0%
Leverage Ratio(2) $4,462 7.3% $5,069 3.5% 3.0% N/A
BTCo
Risk-Based Capital Ratios
Tier 1 Capital(1) $5,710 16.5% $6,682 10.5% 4.0% 6.0%
Total Capital(1) 6,561 18.9% 8,540 13.4% 8.0% 10.0%
Leverage Ratio(2) $5,710 12.3% $6,682 5.7% 3.0% 5.0%
</TABLE>
(1) Ratios are calculated on Tier 1 Capital and Total Capital as a percentage
of risk-weighted assets.
(2) Ratio is calculated on Tier 1 Capital as a percentage of adjusted
quarterly average assets.
N/A Not Applicable.
Note 16 -- Interest Revenue and Interest Expense
The following are the components of interest revenue and interest expense:
(in millions) Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Interest Revenue
Interest-bearing deposits with banks $ 309 $ 310 $ 395
Federal funds sold 160 211 266
Securities purchased under
resale agreements 675 1,635 1,352
Securities borrowed 383 1,222 746
Trading assets 916 2,388 2,488
Securities available for sale
Taxable 362 633 436
Exempt from federal income taxes 22 43 32
Loans 1,522 1,711 1,437
Customer receivables 70 138 133
- --------------------------------------------------------------------------------
Total interest revenue 4,419 8,291 7,285
- --------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits
Domestic offices 694 1,183 895
Foreign offices 730 1,012 1,181
Trading liabilities 131 462 476
Securities loaned and securities sold
under repurchase agreements 539 1,897 1,413
Other short-term borrowings 796 1,327 1,193
Long-term debt 608 921 655
Mandatorily redeemable capital
securities of subsidiary trusts holding
solely junior subordinated deferrable
interest debentures included in
risk-based capital 114 117 113
- --------------------------------------------------------------------------------
Total interest expense 3,612 6,919 5,926
- --------------------------------------------------------------------------------
Net interest revenue $ 807 $1,372 $1,359
================================================================================
Note 17 -- Trading Revenue
The following are the components of trading revenue:
(in millions) Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Interest rate risk $ (165) $ (427) $ 433
Foreign exchange risk 139 426 277
Equity and commodity risk 68 (183) 345
- --------------------------------------------------------------------------------
Total trading revenue $ 42 $ (184) $1,055
================================================================================
Note 18 -- Pension and Other Employee Benefit Plans
The Corporation has a trusteed, noncontributory, defined benefit pension plan
covering substantially all domestic employees. Effective January 1, 1999, the
value of a participant's accrued benefit is expressed using a cash balance
account approach (a type of defined benefit plan). Previously, the pension plan
benefit formula was based upon years of service and average compensation over
the final years of service.
The Corporation also has both defined benefit and defined contribution
retirement and similar plans covering the majority of its foreign employees.
Contributions to defined contribution plans are based upon a percentage of
salary.
During 1998 and 1997, the Corporation maintained a noncontributory profit
sharing plan, called PartnerShare, covering certain domestic employees. The
Corporation's contribution consisted of a fixed contribution equal to six
percent of eligible domestic employees' annual salary as well as an additional
contribution of from zero to nine percent of eligible employees' annual salary,
which percentage was calculated using a formula based on the Corporation's
consolidated income before income taxes. Expense recognized for
Bankers Trust Corporation and its Subsidiaries 41
<PAGE>
this plan amounted to $27 million and $53 million for the years ended December
31, 1998 and 1997, respectively.
Effective January 1, 1999, the Corporation implemented a 401 (k) Savings
Plan covering substantially all domestic employees, which replaced the
Partnershare Plan and the Corporation's prior 401(k) plan. Employees are
permitted within limitations imposed by tax laws to make pretax contributions to
the 401(k) Savings Plan. The Corporation makes fixed contributions equaling
three percent of eligible domestic employees' annual salary and will also match
employees' contributions up to three percent of eligible salary. The Corporation
may, solely at its discretion, match an additional zero percent to 200 percent
of the employees' contribution up to 3 percent of eligible salary. Expense
recognized for this plan amounted to $27 million for the year ended December 31,
1999.
The Corporation also provides health care benefits to employ ees
(retirees) who met specific age and/or service requirements on January 1, 1990
provided that they retire (retired) under the principal domestic pension plan
with at least ten years of service. This plan is contributory for participating
retirees and also requires them to absorb deductibles and coinsurance. The
Corporation also provides noncontributory life insurance benefits for
substantially all domestic retirees who retired before January 1, 1999 with at
least ten years of service.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two-year period ended
December 31, 1999 and a statement of the funded status as of December 31 of both
years:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
- ---------------------------------------------------------------------------------------------------
(in millions) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 803 $ 685 $ 101 $ 126
Service cost 33 23 1 1
Interest cost 52 48 6 7
Plan amendments -- 25 -- --
Acquisitions -- 13 -- --
Actuarial (gain) loss (111) 28 (10) (19)
Benefits paid (50) (21) (4) (7)
Curtailment/settlement (12) -- -- (7)
Foreign currency exchange rate changes (5) 2 -- --
- ---------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 710 $ 803 $ 94 $ 101
===================================================================================================
Change in plan assets
Fair value of plan assets at beginning
of year $ 1,107 $ 973 $ 4 $ 4
Actual return on plan assets 172 144 -- --
Employer contributions 6 2 4 7
Acquisitions -- 13 -- --
Benefits paid (50) (21) (4) (7)
Curtailment/settlement (7) (5) -- --
Foreign currency exchange rate changes (4) 1 -- --
- ---------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 1,224 $ 1,107 $ 4 $ 4
===================================================================================================
Funded Status $ 514 $ 304 $ (90) $ (97)
Unrecognized net (gain) loss (315) (143) (34) (28)
Unrecognized prior service cost 18 35 5 2
Unrecognized net (assets) obligations (7) (11) -- --
- ---------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost at end of year* $ 210 $ 185 $ (119) $ (123)
===================================================================================================
</TABLE>
* Prepaid pension costs totaled $229 million and $210 million at December
31, 1999 and 1998, respectively. No prepaid postretirement costs were
recognized at these dates.
The aggregate projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for those pension plans with
accumulated benefit obligations in excess of plan assets were $16 million, $16
million and $1 million, respectively, as of December 31, 1999 and $24 million,
$23 million and $3 million, respectively, as of December 31, 1998.
Benefits expense for 1999, 1998 and 1997 included the following
components:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
- ----------------------------------------------------------------------------------------------------
(in millions) Year Ended December 31, 1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 33 $ 23 $ 21 $ 1 $ 1 $ 1
Interest cost 52 48 45 6 7 8
Expected return on plan assets (94) (84) (81) -- -- --
Net amortization and deferral (5) (6) (1) (3) (3) --
- ----------------------------------------------------------------------------------------------------
Total defined benefit plans (14) (19) (16) 4 5 9
====================================================================================================
Defined contribution plans 43 79 88 -- -- --
Other plans 5 4 6 -- -- --
- ----------------------------------------------------------------------------------------------------
Net periodic benefit expense $ 34 $ 64 $ 78 $ 4 $ 5 $ 9
====================================================================================================
</TABLE>
42 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
The actuarial assumptions used for the principal domestic defined benefit
plan and postretirement benefit plan were as follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate in determining expense 6.75% 7.00% 7.50% 6.75% 7.00% 7.50%
Discount rate in determining benefit
obligations at year end 7.75% 6.75% 7.00% 7.75% 6.75% 7.00%
Rate of increase in future compensation
levels for determining expense 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Rate of increase in future compensation
levels for determining benefit obligations
at year end 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Expected long-term rate of return on assets 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
</TABLE>
The assumptions used for the other domestic and the principal foreign
defined benefit pension plans were substantially similar to those used for the
principal domestic pension plan, given local economic conditions in the cases of
the principal foreign pension plans.
In determining postretirement benefits expense, a 7.00 per cent annual
rate of increase in the per capita cost of covered health care benefits was
assumed for 2000. The rate was assumed to decrease gradually to 5.50 percent
over 2 years and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the retiree health care plan. A one-percentage-point change
in assumed health care cost trend rates would have the following effects on the
Corporation's retiree health care plan:
One-Percentage One-Percentage
Point Increase Point Decrease
- --------------------------------------------------------------------------------
(in millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Effect on total of service and interest
cost components $ -- $ 1 $ (--) $ (1)
Effect on accumulated postretirement
benefit obligation $ 5 $ 6 $ (5) $ (6)
Benefit Plan Changes
Effective January 1, 2000, the Corporation's trusteed, noncontributory, domestic
defined benefit pension plan merged with Deutsche Bank Americas Holding Corp.'s
pension plan. There has been no change in the value of a participant's accrued
benefit as a result of this transaction.
Note 19 -- Restructuring and Other Related Activities
During 1999, the Corporation recorded pre-tax charges for restructuring and
other related activities totaling $633 million. Of this amount, $459 million
related to a restructuring charge recorded in the second quarter in conjunction
with the Acquisition ("Plan 1"). This charge reflected $394 million of severance
and other termination-related costs as well as $65 million of other costs
primarily related to lease terminations and write-offs of fixed assets and
leasehold improvements. During the fourth quarter, the Corporation recorded
additional charges related to restructuring and other related activities of $174
million in connection with its continuing efforts to streamline support
functions and realign certain business activities ("Plan 2"). These charges
reflected $116 million of severance and other termination-related costs, as well
as $58 million of other costs primarily related to the intended liquidation of
certain financial assets.
Plan 1 Plan 2
---------------------------------------------------
(in millions) Severance Other Severance Other Total
- --------------------------------------------------------------------------------
Beginning Reserve
Balance $394 $ 65 $116 $ 58 $633
Charges Against Reserve 282 54 59 -- 395
- --------------------------------------------------------------------------------
Ending Reserve Balance at
December 31, 1999 $112 $ 11 $ 57 $ 58 $238
================================================================================
At December 31, 1999, $169 million of the remaining reserve balance
related to severance and other termination-related costs for further staff
reductions of approximately 850 positions. These severance actions, as well as
the actions related to other exit activities, are expected to be substantially
completed during 2000.
Note 20 -- Income Taxes
The Corporation's 1999 results of operations are included in the consolidated
tax returns of Taunus.
The domestic and foreign components of consolidated income (loss) before
income taxes (benefit) follow:
(in millions) Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Domestic $(1,104) $ (83) $ 640
Foreign (311) 6 599
- --------------------------------------------------------------------------------
Total $(1,415) $ (77) $ 1,239
================================================================================
Bankers Trust Corporation and its Subsidiaries 43
<PAGE>
- --------------------------------------------------------------------------------
For purposes of determining the above amounts, foreign income is defined
as income recorded by operations located outside of the U.S.
Deferred income taxes result from differences in the timing of revenue and
expense recognition for income tax and financial reporting purposes.
An analysis of consolidated income taxes (benefit) follows:
(in millions) Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Income taxes (benefit) applicable to:
Income (loss) before income
taxes (benefit)* $ 188 $ (4) $ 373
Capital surplus (5) (50) (73)
Cumulative translation adjustments 41 (10) 76
Securities valuation allowance 28 (13) (57)
- --------------------------------------------------------------------------------
Total $ 252 $ (77) $ 319
================================================================================
* Includes income tax expense (benefit) related to securities available for
sale transactions of $4 million, $(7) million and $68 million in 1999,
1998 and 1997, respectively.
The components of consolidated income taxes (benefit) follow:
(in millions) Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Current
Federal $ 290 $ (9) $ 198
Foreign 237 175 232
State and local 120 33 161
- --------------------------------------------------------------------------------
Total current 647 199 591
- --------------------------------------------------------------------------------
Deferred
Federal (122) (229) (203)
Foreign (171) 10 (31)
State and local (102) (57) (38)
- --------------------------------------------------------------------------------
Total deferred $(395) (276) (272)
- --------------------------------------------------------------------------------
Total $ 252 $ (77) $ 319
================================================================================
The following is an analysis of the difference between the U.S. federal
statutory income tax (benefit) and the effective tax (benefit) on consolidated
income (loss) before income taxes:
(in millions) Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Computed expected tax expense (benefit) $(495) $ (27) $ 434
State and local income taxes (benefit) 7 (15) 55
Tax-exempt income (11) (17) (58)
Foreign subsidiary earnings 428 54 (47)
Valuation allowance 211 -- (20)
Nondeductible penalty -- 22 --
Other 48 (21) 9
- --------------------------------------------------------------------------------
Effective income tax (benefit) $ 188 $ (4) $ 373
================================================================================
The following is an analysis of the Corporation's net deferred tax assets:
(in millions) December 31, 1999 1998
- --------------------------------------------------------------------------------
Deferred tax assets $1,943 $1,486
Valuation allowance 418 207
- --------------------------------------------------------------------------------
Deferred tax assets net of valuation allowance 1,525 1,279
Deferred tax liabilities 158 307
- --------------------------------------------------------------------------------
Net deferred tax assets $1,367 $ 972
================================================================================
At December 31, 1999, the Corporation's deferred tax assets were primarily
related to foreign tax credit carryovers that will expire in 2003 and 2004 ($545
million), credit losses ($299 million), net operating loss carryovers that
primarily will start to expire in 2018 ($133 million), and international
operations ($81 million). Deferred tax liabilities were primarily related to
certain trading activities ($49 million) and lease financing activities ($46
million).
At December 31, 1998, the Corporation's deferred tax assets were primarily
related to credit losses ($332 million), employee benefits ($317 million) and
international operations ($292 million). Deferred tax liabilities were primarily
related to certain trading activities ($201 million) and lease financing
activities ($83 million).
Note 21 -- Earnings (Loss) per Common Share
At December 31, 1997, the Corporation adopted SFAS 128, "Earnings Per Share,"
which established standards for computing and presenting earnings per share.
Due to the Acquisition, earnings per common share are not meaningful for
1999. The following table sets forth the computation of basic and diluted
earnings (loss) per share for the years ended December 31, 1998 and 1997 (in
millions, except per share amounts):
Year Ended December 31, 1998 1997
- --------------------------------------------------------------------------------
Numerator
Net income (loss) $ (73) $ 866
Preferred stock dividends (32) (49)
- --------------------------------------------------------------------------------
Numerator for basic earnings (loss) per
share--net income (loss) applicable
to common stockholders (105) 817
Effect of dilutive securities
Convertible subordinated debentures -- 3
- --------------------------------------------------------------------------------
Numerator for diluted earnings (loss) per
share--net income (loss) applicable to
common stockholders after
assumed conversions $ (105) $ 820
================================================================================
Denominator
Denominator for basic earnings (loss) per
share--weighted-average shares
outstanding 100.152 100.286
Effect of dilutive securities*
Options -- 1.839
Convertible subordinated
debentures -- 2.457
Deferred stock -- 2.408
- --------------------------------------------------------------------------------
Dilutive potential common shares -- 6.704
Denominator for diluted earnings (loss)
per share--adjusted weighted-
average shares after assumed
conversions 100.152 106.990
================================================================================
Basic earnings (loss) per share $ (1.05) $ 8.15
================================================================================
Diluted earnings (loss) per share $ (1.05) $ 7.66
================================================================================
* Due to a loss for the year ended December 31, 1998, no incremental shares
are included in the loss per share calculation because the effect would be
antidilutive.
44 Bankers Trust Corporation and its Subsidiaries
<PAGE>
Note 22 -- Business Segments and Related Information
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," redefines operating segments and establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas, and major customers.
In order to conform to Deutsche Bank's management structure, the
Corporation has realigned its business activities into the following business
segments: Retail and Private Banking, Asset Management, Global Corporates and
Institutions, and Global Technology and Services. All prior periods have been
restated to conform with the Deutsche Bank reporting format.
Business segments results are determined based on the Corporation's
internal management accounting process, which allocates revenue and expenses
among the business segments. Because the Corporation's business is diverse in
nature and its operations are integrated, certain estimates and judgments have
been made to apportion revenue and expense items. The internal management
accounting process, unlike financial accounting in accordance with generally
accepted accounting principles, is based on the way management views its
business and is not necessarily comparable with similar information disclosed by
other financial institutions. The accounting policies of the business segments
are generally the same as those described in Note 2.
Segments that hold net asset positions are allocated interest expense to
reflect their net use of funds and segments that have net liability positions
are allocated interest income to reflect their net contribution of funds.
The Retail and Private Banking division provides banking services to
private clients, self-employed individuals as well as to smaller business
clients, and offers a wide variety of banking products to these clients
including financial planning services and market research and investment
strategies for high net worth individuals.
The Asset Management division combines the institutional asset management
and retail investment fund businesses.
The Global Corporates and Institutions division integrates long-standing
relationship and credit-oriented commercial banking with the product and
transactional orientation of investment banking for corporate clients and
financial institutions. This business segment also includes credit business,
trade finance, structured finance and cash management in addition to the
Corporation's private equity business and trading activities.
Global Technology and Services comprises custody services, payment
settlement, securities settlement, and electronic banking services.
<TABLE>
<CAPTION>
Year Ended Global Global Total
December 31, 1999 Retail and Asset Corporates and Technology and Business
(in millions) Private Banking Management Institutions Services Segments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues from external customers* $ 169 $ 241 $ 1,378 $ 922 $ 2,710
Net interest revenue 38 (3) 378 181 594
Credit quality expense--loans -- -- 64 2 66
Pre-tax income (loss) (20) 20 (1,275) (48) (1,323)
Total assets* 2,589 222 55,774 7,453 66,038
</TABLE>
* There were no material intersegment revenues or intersegment assets among
the business segments.
<TABLE>
<CAPTION>
Year Ended Global Global Total
December 31, 1998 Retail and Asset Corporates and Technology and Business
(in millions) Private Banking Management Institutions Services Segments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues from external customers* $ 187 $ 253 $ 2,567 $ 946 $ 3,953
Net interest revenue 40 (3) 658 190 885
Credit quality expense--loans 2 -- 85 1 88
Pre-tax income (loss) 12 98 (491) 46 (335)
Total assets* 3,063 185 106,433 8,907 118,588
</TABLE>
* There were no material intersegment revenues or intersegment assets among
the business segments.
<TABLE>
<CAPTION>
Year Ended Global Global Total
December 31, 1997 Retail and Asset Corporates and Technology and Business
(in millions) Private Banking Management Institutions Services Segments
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues from external customers* $ 173 $ 191 $ 3,499 $ 915 $ 4,778
Net interest revenue 32 -- 618 167 817
Credit quality expense--loans -- -- 46 5 51
Pre-tax income (loss) (3) 54 760 83 894
</TABLE>
* There were no material intersegment revenues among the business segments.
Bankers Trust Corporation and its Subsidiaries 45
<PAGE>
The following table reconciles total net revenue for business segments to
consolidated net revenue (in millions):
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total net revenue reported for business
segments $ 2,710 $ 3,953 $ 4,778
Earnings associated with unassigned
capital 195 317 342
Net revenue of entities sold 370 855 932
Gain on sale of BTAL* 779 -- --
Gain on sale of office building -- -- 76
Credit quality adjustment 124 48 51
Other 187 (84) 41
- -------------------------------------------------------------------------------------------
Consolidated net revenue(1) $ 4,365 $ 5,089 $ 6,220
===========================================================================================
</TABLE>
(1) Consolidated net revenue includes net interest revenue after provision for
credit losses--loans and noninterest revenue.
* Gain is net of foreign currency translation losses realized on the sale.
The following table reconciles total pre-tax income (loss) for business
segments to consolidated pre-tax income (loss) (in millions):
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total pre-tax income (loss) reported for
business segments $(1,323) $ (335) $ 894
Pre-tax income (loss) of entities sold (76) 188 213
Gain on sale of BTAL* 779 -- --
Restructuring and other related activities (633) -- (63)
Realized foreign currency translation
losses** (257) -- --
Earnings associated with unassigned
capital 195 317 342
Gain on sale of office building -- -- 76
Credit quality adjustment 124 48 51
Legal settlement -- (69) --
Legal fees -- -- (32)
Other unallocated amounts (224) (226) (242)
- -------------------------------------------------------------------------------------------
Consolidated pre-tax income (loss) $(1,415) $ (77) $ 1,239
===========================================================================================
</TABLE>
* Gain is net of foreign currency translation losses realized on the sale.
** Excluding realized foreign currency translation losses related to BTAL.
The following table reconciles total assets for business segments to
consolidated assets (in millions):
December 31, 1999 1998
- --------------------------------------------------------------------------------
Total assets reported for business segments $ 66,038 $118,588
Premises and equipment 211 58
Securities available for sale 46 359
Goodwill not allocated to business segments 22 403
Investments in unconsolidated companies
accounted for at equity 3 3
Assets of entities sold -- 10,886
Other unallocated amounts 1,837 2,818
- --------------------------------------------------------------------------------
Consolidated assets $ 68,157 $133,115
================================================================================
The following table reconciles the other significant items reported for
the business segments to the consolidated financial statements:
<TABLE>
<CAPTION>
(in millions) Year Ended December 31, 1999
- -------------------------------------------------------------------------------------
Total
Business Total
Segments Adjustments Consolidated
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest revenue(1) $ 594 $ 213 $ 807
Credit quality expense--loans 66 (124) (58)
=====================================================================================
<CAPTION>
(in millions) Year Ended December 31, 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
Total Total
Business Total Business Total
Segments Adjustments Consolidated Segments Adjustments Consolidated
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest revenue(1) $ 885 $ 487 $1,372 $ 817 $ 542 $1,359
Credit quality expense--loans 88 (48) 40 51 (51) --
==============================================================================================================================
</TABLE>
(1) Adjustments primarily represent earnings associated with unassigned
capital partially offset by unallocated funding costs.
46 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
The following table presents net revenue by geographical location (in
millions):
Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
United States $3,254 $2,823 $3,692
United Kingdom 521 993 1,159
Australia 284 603 576
Chile 153 375 441
Other foreign countries 153 295 352
- --------------------------------------------------------------------------------
Consolidated net revenue(1) $4,365 $5,089 $6,220
================================================================================
(1) Consolidated net revenue includes net interest revenue after provision for
credit losses--loans and noninterest revenue. Revenue is attributed to
countries based on the location in which entities are incorporated.
The following table presents net revenue of the Corporation organized
around specific products and services (in millions):
Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Corporate Finance $1,163 $ 1,460 $ 1,325
Debt Investments 35 44 71
Private Equity 521 452 428
Trading and Risk Management (127) 471 1,619
Processing Services 1,030 1,176 949
Investment Management 427 496 479
Private Banking 381 596 568
Insurance 128 331 394
Other 807* 63 387
- --------------------------------------------------------------------------------
Consolidated net revenue $ 4,365 $ 5,089 $ 6,220
================================================================================
* Amount includes the gain on the sale of BTAL.
Note 23 -- International Operations
Management views the operations of the Corporation on a business segment basis,
as disclosed in Note 22. However, in order to comply with the financial
reporting regulations of the Securities and Exchange Commission, the Corporation
is required to report international operations on the basis of the domicile of
the customer.
Pursuant to these regulations, any business transacted with a customer who
is domiciled outside the U.S. is reported as international operations. Due to
the complex nature of the Corporation's businesses and because its revenue from
customers domiciled outside the U.S. is recorded in both domestic and foreign
offices, it is impossible to segregate with precision the respective
contributions to income from the domestic and international operations. As these
operations are highly integrated, estimates and subjective assumptions have been
made to apportion revenue and expenses between domestic and international
operations. These estimates and assumptions include the following: interest
revenue and interest expense are apportioned to geographic areas based on the
geographic distribution of average interest earning assets. The geographic
location of the assets is determined by the domicile of the customer, or for
interest earning securities, by the domicile of the issuer. Trading gains and
losses are primarily allocated based on the geographic distribution of average
trading assets as determined by the domicile of the issuer. All other
noninterest revenue is allocated based on the geographic location of the office
recording the income. Noninterest expense is basically apportioned
geographically based on the geographical distribution of operating income (net
interest revenue plus noninterest revenue). Corporate overhead expenses are
allocated based upon average assets by geographic region. International offices
are assessed a cost of funds charge based on a short-term funding rate.
Allocation of the provisions for credit losses is based on the geographical
distribution of net charges to the allowances for credit losses and management's
assessment of the risks associated with the domestic and international
portfolios. International taxes are calculated based on the foreign tax rate for
each foreign office.
Earning assets are allocated by the domicile of the customer. All other
assets are allocated based on the location of the office recording the assets.
Subject to the above limitations, estimates and assumptions, the following
tables present information attributable to international operations ($ in
millions):
<TABLE>
<CAPTION>
Income
(loss) Net
Total Total Total before income
assets revenue (1) expenses (1) taxes (loss)
- -------------------------------------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International operations
Asia $ 1,131 $ 222 $ 402 $ (180) $ (145)
Australia/New Zealand 60 474 624 (150) (120)
Western Hemisphere 8,712 802 1,057 (255) (206)
Europe 18,159 684 933 (249) (201)
United Kingdom 10,885 704 1,269 (565) (453)
Middle East/Africa 801 58 69 (11) (9)
Eliminations (21,135) (278) (278) -- --
- -------------------------------------------------------------------------------------------------------
Total international 18,613 2,666 4,076 (1,410) (1,134)
Domestic operations 49,544 5,253 5,258 (5) (469)
- -------------------------------------------------------------------------------------------------------
Total $ 68,157 $ 7,919 $ 9,334 $ (1,415) $ (1,603)
=======================================================================================================
International as a percentage
of total 27% 34% 44% N/M N/M
=======================================================================================================
</TABLE>
(1) Total revenue includes interest revenue and noninterest revenue. Total
expenses includes interest expense, noninterest expenses and provision for
credit losses--loans.
N/M Not meaningful.
<TABLE>
<CAPTION>
Income
(loss) Net
Total Total Total before income
assets revenue (1) expenses (1) taxes (loss)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
- ----------------------------------------------------------------------------------------------------
International operations
Asia $ 11,362 $ 493 $ 811 $(318) $(210)
Australia/New Zealand 12,095 1,062 899 163 107
Western Hemisphere 16,568 1,625 1,771 (146) (96)
Europe 19,363 963 1,010 (47) (30)
United Kingdom 29,097 1,377 1,349 28 18
Middle East/Africa 414 30 30 -- --
Eliminations (25,839) (1,228) (1,228) -- --
- ----------------------------------------------------------------------------------------------------
Total international 63,060 4,322 4,642 (320) (211)
Domestic operations 70,055 7,726 7,483 243 138
- ----------------------------------------------------------------------------------------------------
Total $133,115 $12,048 $12,125 $ (77) $ (73)
International as a percentage
of total 47% 36% 38% N/M N/M
====================================================================================================
</TABLE>
(1) Total revenue includes interest revenue and noninterest revenue. Total
expenses includes interest expense, noninterest expenses and provision for
credit losses--loans.
N/M Not Meaningful.
Bankers Trust Corporation and its Subsidiaries 47
<PAGE>
<TABLE>
<CAPTION>
Income Net
Total Total Total before income
assets revenue (1) expenses (1) taxes (loss)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
- ------------------------------------------------------------------------------------------------
International operations
Asia $ 18,203 $ 916 $ 975 $ (59) $(44)
Australia/New Zealand 10,598 939 827 112 83
Western Hemisphere 16,420 1,618 1,509 109 81
Europe 15,787 1,050 1,014 36 26
United Kingdom 29,396 1,374 1,268 106 79
Middle East/Africa 471 66 62 4 3
Eliminations (18,210) (851) (851) -- --
- ------------------------------------------------------------------------------------------------
Total international 72,665 5,112 4,804 308 228
Domestic operations 67,437 7,034 6,103 931 638
- ------------------------------------------------------------------------------------------------
Total $140,102 $12,146 $10,907 $1,239 $866
===============================================================================================
International as a percentage
of total 52% 42% 44% 25% 26%
===============================================================================================
</TABLE>
(1) Total revenue includes interest revenue and noninterest revenue. Total
expenses includes interest expense, noninterest expenses and provision for
credit losses--loans.
Note 24-- Derivative Financial Instruments and Financial Instruments with
Off-Balance Sheet Risk
In the normal course of business, the Corporation is a party to a variety of
derivative and off-balance sheet financial instruments to meet the needs of its
customers and to manage its exposure to interest rate and other risks. These
financial instruments consist of derivatives (such as swaps, forwards and
options), securities lending indemnifications, and credit-related arrangements
and involve varying degrees of credit risk and market risk.
Credit risk, as defined by SFAS 105, represents the maximum potential
accounting loss due to possible non-performance by obligors and counterparties
under the terms of their contracts. Market risk represents the potential loss
due to the decrease in the value of a financial instrument caused primarily by
changes in interest rates or foreign exchange rates, or the prices of equities
or commodities (or related indices).
The Corporation manages the credit risk of its derivative and off-balance
sheet portfolios by limiting the total amount of arrangements outstanding with
individual customers; by monitoring the size and maturity structure of the
portfolios; by obtaining collateral based on management's credit assessment of
the customer; and by applying a uniform credit process for all credit exposures.
Collateral held generally includes cash and U.S. government and federal agency
securities. In order to reduce derivatives-related credit risk, the Corporation
enters into master netting agreements which incorporate the right of setoff to
provide for the net settlement of covered contracts with the same customer in
the event of default or other cancellation of the agreement.
Trading Derivative Financial Instruments
The Corporation manages trading positions in a variety of derivative contracts.
All positions are reported at fair value and changes in fair values are
reflected in trading revenue as they occur. As a result of the Acquisition, the
Corporation's former derivatives activities have been largely transferred to
Deutsche Bank entities, and it is anticipated that the existing positions at
December 31, 1999 will be reduced further over time.
As required by SFAS 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments," the amounts disclosed
below represent the end-of-period fair values of trading derivatives and their
average aggregate fair values during the year. These amounts are presented gross
before the impact of master netting agreements. The gross fair values of trading
derivatives do not represent the amount of market or credit risk of derivatives
in the trading portfolio. Rather, they indicate the extent of involvement in the
over-the-counter (OTC) markets for interest rate, foreign exchange rate, equity
and commodity price derivatives, and exchange traded options during the year.
Any measurement of risk is meaningful only when all related factors are
identified, such as risk-offsetting transactions, master netting agreements, and
the value of any related collateral. These factors are considered in internal
risk analyses. The accounting impact of netting agreements, which is applied on
a cross-product basis in accordance with the terms of each master agreement and
which is calculated based on the criteria prescribed by FIN 39, is provided
below in order to display how these amounts are reflected in trading assets and
trading liabilities in the consolidated balance sheet.
48 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
Contracts with positive fair values are recorded as assets and contracts
with negative fair values are recorded as liabilities after application of
master netting agreements. The following table reflects the gross fair values
and balance sheet amounts of trading derivative financial instruments:
<TABLE>
<CAPTION>
At December 31, 1999 Average during 1999
----------------------------- --------------------------
(in millions) Assets (Liabilities) Assets (Liabilities)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 6,400 $ (6,570) $ 12,295 $(11,966)
Interest Rate Contracts
Forwards -- -- 205 (249)
Options purchased 519 771
Options written (614) (834)
Foreign Exchange Rate Contracts
Spot and Forwards 11 (3) 7,228 (7,081)
Options purchased 351 1,043
Options written (350) (946)
Equity-related contracts 1,760 (1,865) 4,323 (4,685)
Commodity-related and
other contracts 853 (852) 693 (682)
Exchange-Traded Options
Interest Rate -- -- 3 (1)
Foreign Exchange -- -- 2 (1)
Commodity -- -- 2 (3)
Equity -- (16) 136 --
- --------------------------------------------------------------------------------------------------
Total Gross Fair Values 9,894 (10,270) 26,701 (26,448)
- --------------------------------------------------------------------------------------------------
Impact of Netting Agreements (5,087) 5,087 (17,024) 17,024
- --------------------------------------------------------------------------------------------------
$ 4,807(1) $ (5,183)(1) $ 9,677 $ (9,424)
======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1998 Average during 1998
----------------------------- --------------------------
(in millions) Assets (Liabilities) Assets (Liabilities)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 26,923 $(26,401) $ 24,062 $(22,222)
Interest Rate Contracts
Forwards 188 (193) 252 (242)
Options purchased 2,236 1,509
Options written (2,111) (1,615)
Foreign Exchange Rate Contracts
Spot and Forwards 17,851 (17,169) 14,780 (14,875)
Options purchased 1,254 1,436
Options written (1,048) (1,260)
Equity-related contracts 5,508 (5,672) 4,808 (5,551)
Commodity-related and
other contracts 966 (970) 775 (780)
Exchange-Traded Options
Interest Rate 12 (4) 8 (8)
Foreign Exchange 30 (39) 24 (20)
Commodity 8 (9) 578 (394)
Equity 531 (372) 2 (4)
- --------------------------------------------------------------------------------------------------
Total Gross Fair Values 55,507 (53,988) 48,234 (46,971)
- --------------------------------------------------------------------------------------------------
Impact of Netting Agreements (38,131) 38,131 (30,481) 30,481
- --------------------------------------------------------------------------------------------------
$17,376 (1) $(15,857)(1) $ 17,753 $(16,490)
======= ======== ======== ========
</TABLE>
(1) As reflected on the balance sheet in "Trading Assets" and "Trading
Liabilities."
Derivative contracts are generally either privately-negotiated OTC
contracts or standard contracts transacted through regulated exchanges. Fair
values of futures contracts are not included above due to cash margining
requirements of regulated exchanges. Monthly averages are used in the table
above.
End-User Derivative Financial Instruments
The Corporation, as an end user, utilizes various types of derivative products
(principally interest rate and currency swaps) to manage the interest rate,
currency and other market risks associated with certain liabilities such as
interest-bearing deposits, short-term borrowings and long-term debt, as well as
loans and other assets. Revenue or expense pertaining to management of interest
rate exposure is predominantly recognized over the life of the contract as an
adjustment to interest revenue or expense.
When the Corporation issues liabilities at fixed interest rates it
subjects itself to risk as market interest rates change. This risk is managed by
entering into interest rate contracts which change the fixed rate cash flows
into variable rate cash flows.
When the Corporation purchases foreign currency denominated assets or
issues foreign currency denominated debt, it subjects itself to risk as exchange
rates move. This risk is managed by entering into currency swaps and forwards.
The fair values and other information related to end-user derivatives are
disclosed in Note 26.
Notional Amounts of Trading and End-User Derivative Financial Instruments
Notional amounts indicate the extent of the Corporation's involvement in the
various types and uses of derivative financial instruments and do not measure
the Corporation's exposure to credit or market risks and do not necessarily
represent the amounts exchanged by the parties to the instruments. The amounts
exchanged are based on the contractual notional amounts and the other terms of
the instruments. Notional amounts are not included in the consolidated balance
sheet and generally exceed the future cash requirements relating to the
instruments. The leveraging
Bankers Trust Corporation and its Subsidiaries 49
<PAGE>
- --------------------------------------------------------------------------------
effects of leveraged derivative transactions are reflected in the table below.
<TABLE>
<CAPTION>
Notional Amounts
(in millions) December 31, 1999 December 31, 1998
- -----------------------------------------------------------------------------------------
End End
Trading User(1) Trading User(1)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate contracts
Swaps $172,778 $38,404 $1,079,450 $94,041
Futures -- -- 110,995 --
Forwards 4,151 -- 84,741 600
Options purchased
Exchange traded -- -- 22,362 --
OTC 29,068 13 135,671 146
Options written
Exchange traded -- -- 15,873 --
OTC 18,378 -- 122,497 --
- -----------------------------------------------------------------------------------------
Total $224,375 $38,417 $1,571,589 $94,787
=========================================================================================
Foreign exchange rate contracts
Spot, forwards, futures $ 2,309 $ 4 $ 647,221 $ 5,063
Swaps 15,351 2,736 67,059 4,425
OTC options purchased 8,990 -- 38,179 --
OTC options written 8,792 -- 37,932 --
- -----------------------------------------------------------------------------------------
Total $ 35,442 $ 2,740 $ 790,391 $ 9,488
=========================================================================================
Equity derivative contracts
Swaps $ 3,134 -- $ 5,851 --
Futures and forwards 470 -- 5,026 --
Options purchased
Exchange traded -- -- 10,124 --
OTC 3,899 -- 31,035 --
Options written
Exchange traded -- -- 8,164 --
OTC 1,493 -- 14,354 --
- -----------------------------------------------------------------------------------------
Total $ 8,996 $ -- $ 74,554 --
=========================================================================================
Commodity and other contracts (2)
Swaps $ 9,693 $ -- $ 4,974 --
Futures -- -- 534 --
Forwards -- -- 843 --
Options purchased
Exchange traded -- -- 81 --
OTC 1,815 -- 2,666 --
Options written
Exchange traded -- -- 264 --
OTC 1,749 -- 2,596 --
- -----------------------------------------------------------------------------------------
Total $ 13,257 $ -- $ 11,958 --
=========================================================================================
</TABLE>
(1) These are hedges of loans, other assets, interest-bearing deposits, other
short-term borrowings and long-term debt.
(2) Excluded from the notional amounts above were benefit-responsive contracts
reflecting actuarial-related risk, minimal market risk and no credit risk,
for which the notional values totaled $7.6 billion and $11.0 billion at
December 31, 1999 and 1998, respectively.
Swaps
Interest rate swap contracts generally represent the contractual exchange of
fixed and floating rate payments of a single currency, based on a notional
amount and an interest reference rate. Cross-currency interest rate swap
contracts generally involve the exchange of payments which are based on the
interest reference rates availa ble at the inception of the contract on two
different currency principal balances that are exchanged. The principal balances
are re-exchanged at an agreed upon rate at a specified future date. Equity swap
contracts typically involve the payment of an amount equal to the total return
of a U.S. or international equity index, basket of equities, or an individual
equity over a fixed time period in exchange for receiving a floating interest
rate, both based upon the same notional amount.
Futures and Forwards
Futures and forward contracts represent commitments to purchase or sell
securities, money market instruments, foreign currencies or commodities at a
future date and at a specified price. Futures contracts are traded on regulated
U.S. and international exchanges. The Corporation intends to close out most open
positions in futures contracts prior to maturity; therefore future cash receipts
or payments are generally limited to the change in fair value of the underlying
instruments. Since futures contracts generally entail daily net cash margining
with regulated exchanges, the credit risk is generally minimized to a one-day
receivable. Included in this category of contracts are spot foreign currency
contracts, cash-settled index contracts, and forward rate agreements (agreements
to exchange amounts at a specified future date for interest rate differentials
between an agreed interest rate and a reference rate, computed on a notional
amount).
Options
Option contracts are either deliverable or cash-settled. Deliverable contracts
convey to the purchaser (holder) the right to buy (call) or sell (put)
securities, money market instruments, foreign currencies or commodities at or
before a specified date for a contracted price from the seller (writer) of the
contract. Cash-settled contracts convey to the purchaser the right to the
monetary equivalent of the increase (call) or decrease (put), or a percentage
thereof, in a specified reference rate or index, computed on a notional amount,
from the writer. The initial price of an option contract is equal to the premium
paid by the purchaser and is significantly less than the contract or notional
amount. Included in these contracts are: (i) interest rate caps, floors and
collars, which are agreements to make periodic payments for interest rate
differentials between an agreed upon interest rate and a reference rate and (ii)
purchased options to enter into future (or cancel existing) interest rate swap
contracts ("swap options").
The Corporation is subject to credit risk as a purchaser of an option
contract, and is subject to market risk to the extent of the purchase price of
the option. The Corporation is subject to market risk on its written option
contracts, but not to credit risk since the customer has already performed
according to the terms of the contract by paying a cash premium up front.
Financial Instruments with Off-Balance Sheet Credit Risk
As required by SFAS 105, off-balance sheet credit risk amounts are determined
without consideration of the value of any related collateral and reflect the
total potential loss on commitments to purchase securities for all obligors
(including governments); securities lending indemnifications; and undrawn
commitments, standby letters of credit and similar arrangements.
50 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
Securities and Money Market Activities
(in millions) December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------
Contract Credit Risk Contract Credit Risk
Amount Amount Amount Amount
- --------------------------------------------------------------------------------
Commitments to purchase(1) $ 57 $ 57 $ 80 $ 80
Securities lending
indemnifications 37,553 37,553 41,695 41,695
- --------------------------------------------------------------------------------
(1) Includes $57 million and $65 million of forward-dated money market assets
at December 31, 1999 and 1998, respectively.
Securities lending indemnifications represent the market value of
customers' securities lent to third parties. The Corporation indemnifies
customers to the extent of the replacement cost and/or the market value of the
securities in the event of a failure by a third party to return the securities
lent. The market value of collateral, primarily cash, received for customers'
securities lent was in excess of the contract amounts and was approximately $39
billion at December 31, 1999 and $43 billion at December 31, 1998.
Credit-Related Arrangements
(in millions) December 31, 1999 December 31, 1998
- -------------------------------------------------------------------------------
Credit Credit
Contract Risk Contract Risk
Amount Amount Amount Amount
- -------------------------------------------------------------------------------
Commitments to
extend credit(1) $19,073 $19,073 $19,707 $19,707
Standby letters of credit and
similar arrangements(2) 4,700 4,700 3,422 3,422
- -------------------------------------------------------------------------------
(1) Includes participations to other entities of approximately $1 billion and
$2 billion at December 31, 1999 and 1998, respectively. Of the
non-participated amount, approximately $7 billion and $5 billion expire in
one year or less at December 31, 1999 and 1998, respectively.
(2) Includes participations to other entities of approximately $1 billion at
December 31, 1999 and 1998.
Commitments to extend credit represent contractual commitments to make
loans and revolving credits. Commitments generally have fixed expiration dates
or other termination clauses and require the payment of a fee. Because
commitments may expire without being drawn upon, the total contract amounts do
not necessarily represent future cash requirements. Included in the amounts
above are unused commitments to extend credit that are related to loans held for
trading purposes.
Standby letters of credit and similar arrangements ("standbys"), issued
primarily to support corporate obligations, commit the Corporation to make
payments on behalf of customers contingent upon the failure of the customer to
perform under the terms of the contract. Standbys at December 31, 1999 related
to customer obligations such as commercial paper, medium- and long-term notes
and debentures (including industrial revenue obligations), as well as other
financial and performance-related obligations. At December 31, 1999, $3.380
billion will expire within one year, $1.027 billion from one to four years and
$293 million after four years.
For standbys, commitments to extend credit and securities lending
indemnifications, the credit risk amount represents the contractual amount.
Standbys and commitments to extend credit would have market risk if issued or
extended at a fixed rate of interest. However, these contracts are primarily
made at a floating rate. Fees received are generally recognized as revenue over
the life of the commitment.
Note 25 -- Concentrations of Credit Risk
The Corporation, as required by SFAS 105, has identified two significant
concentrations of credit risk: OECD country banks and OECD country central
governments, their agencies and central banks. Together they represented 27
percent and 37 percent of total credit risk (after exclusion of securities
lending indemnifications for customers) at December 31, 1999 and 1998,
respectively. The Organization for Economic Cooperation and Development (OECD)
is an international organization of countries which are committed to
market-oriented economic policies, including the promotion of private enterprise
and free market prices, liberal trade policies, and the absence of exchange
controls. The OECD consists of 29 industrialized countries that are located
primarily in Western Europe and North America, as well as Australia, Japan, New
Zealand and South Korea. For regulatory capital purposes, domestic and foreign
bank regulators generally assign OECD country central governments, their
agencies and their central banks a credit risk weighting of zero percent, which
means that no credit risk capital is required to support their financial
instruments. OECD country banks are assigned the next lowest credit risk
weighting (20 percent) by these regulators. The largest counterparty
concentration was the U.S. government and its related entities, which comprised
approximately 89 percent of the OECD country governments category. Within all
other counterparties, approximately 43 percent was collateralized by cash and
U.S. government securities.
The following table reflects the aggregate credit risk by groups of
counterparties, as defined by SFAS 105, relating to on- and off-balance sheet
financial instruments, including derivatives, at December 31, 1999 and 1998.
Bankers Trust Corporation and its Subsidiaries 51
<PAGE>
- --------------------------------------------------------------------------------
Credit Risk
On-Balance Off-Balance
(in millions) Sheet Sheet Total
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
Significant concentrations(1)
OECD country banks $ 12,767 $ 3,541 $ 16,308
OECD country governments 4,975 -- 4,975
- --------------------------------------------------------------------------------
Total significant concentrations 17,742 3,541 21,283
All other(3) 36,345 57,842 94,187
- --------------------------------------------------------------------------------
Total $ 54,087 $61,383 $115,470
================================================================================
1998
- --------------------------------------------------------------------------------
Significant concentrations(1)
OECD country banks(2) $ 36,584 $ 3,019 $ 39,603
OECD country governments 12,277 416 12,693
- --------------------------------------------------------------------------------
Total significant concentrations 48,861 3,435 52,296
All other(3) 70,096 61,960 132,056
- --------------------------------------------------------------------------------
Total $118,957 $65,395 $184,352
================================================================================
(1) For these purposes, Poland has been excluded from the OECD categories.
(2) Included in the on-balance sheet component of this category was
approximately $2 billion at December 31, 1998 that was collateralized by
U.S. government securities.
(3) The "all other" category of credit risk is diversified with respect to
type of obligor and counterparty. Included in the on-balance sheet
component of this category was approximately $5 billion and $13 billion at
December 31, 1999 and 1998, respectively, that was collateralized by cash
and U.S. government securities. Included in the off-balance sheet
component of this category at December 31, 1999 was approximately $36
billion that was collateralized by cash and U.S. government securities and
approximately $18 billion of unused commitments to extend credit,
approximately $7 billion of which expire in one year or less. The
corresponding amounts for December 31, 1998 were $42 billion, $19 billion
and $7 billion, respectively.
Note 26 -- Fair Value of Financial Instruments
SFAS 107, "Disclosures about Fair Value of Financial Instruments," requires the
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. Quoted market prices, when available, are used as the measure of fair
value. In cases where quoted market prices are not available, fair values are
based on present value estimates or other valuation techniques. These derived
fair values are significantly affected by assumptions used, principally the
timing of future cash flows and the discount rate. Because assumptions are
inherently subjective in nature, the estimated fair values cannot be
substantiated by comparison to independent market quotes and, in many cases, the
estimated fair values would not necessarily be realized in an immediate sale or
settlement of the instrument. The disclosure requirements of SFAS 107 exclude
certain financial instruments and all nonfinancial instruments (e.g., franchise
value of businesses). Accordingly, the aggregate fair value amounts presented do
not represent management's estimation of the underlying value of the
Corporation.
The disclosures distinguish between financial instruments held for trading
purposes, measured at fair value with gains and losses recognized in earnings,
and financial instruments held or issued for purposes other than trading. The
fair value of derivative financial instruments must be disclosed separately from
nonderivative financial instruments. Additionally, the fair value of derivative
financial instruments may not be netted with the fair value of other derivative
financial instruments, except as allowed by FIN 39.
52 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
The following are the estimated fair values of the Corporation's financial
instruments followed by a general description of the methods and assumptions
used to estimate such fair values.
<TABLE>
<CAPTION>
Fair Value of Financial Instruments
- ------------------------------------------------------------------------------------------------------------------------------------
Underlying Effect of Fair Value Over
Book Fair End-User Total (Under)
(in millions) December 31, 1999 Value Value Derivative Fair Value Book Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Assets, Including Hedges
Cash and due from banks $ 3,212 $ 3,212 $ -- $ 3,212 $ --
Interest-bearing deposits with banks 4,693 4,693 -- 4,693 --
Federal funds sold 2,472 2,472 -- 2,472 --
Securities purchased under resale agreements 6,764 6,766 -- 6,766 2
Securities borrowed -- -- -- -- --
Trading assets (see Notes 3 and 24) 19,017 19,017 -- 19,017 --
Securities available for sale (see Note 4) 3,252 3,114 138 3,252 --
Loans (excluding leases), commitments to
extend credit and standby letters of credit, net 18,602 18,813 (3) 18,810 208
Customer receivables 306 306 -- 306 --
Due from customers on acceptances 262 262 -- 262 --
Accounts receivable and accrued interest 2,307 2,307 -- 2,307 --
Other financial assets 3,030 3,175 -- 3,175 145
Financial Liabilities, Including Hedges
Noninterest-bearing deposits 4,989 4,989 -- 4,989 --
Interest-bearing deposits 18,480 18,217 171 18,388 (92)
Trading liabilities (see Notes 3 and 24) 5,266 5,266 -- 5,266 --
Securities loaned and securities sold
under repurchase agreements 56 56 -- 56 --
Other short-term borrowings 11,540 11,542 -- 11,542 2
Acceptances outstanding 266 266 -- 266 --
Other financial liabilities 5,208 5,208 -- 5,208 --
Long-term debt* 16,434 16,329 109 16,438 4
Net investments in foreign subsidiaries -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
(in millions) December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Assets, Including Hedges
Cash and due from banks $ 2,837 $ 2,837 $ -- $ 2,837 $ --
Interest-bearing deposits with banks 2,382 2,376 -- 2,376 (6)
Federal funds sold 2,484 2,484 -- 2,484 --
Securities purchased under resale agreements 17,053 17,074 -- 17,074 21
Securities borrowed 14,709 14,709 -- 14,709 --
Trading assets (see Notes 3 and 24) 46,170 46,170 -- 46,170 --
Securities available for sale (see Note 4) 12,748 12,814 (66) 12,748 --
Loans (excluding leases), commitments to
extend credit and standby letters of credit, net 22,142 22,602 (78) 22,524 382
Customer receivables 1,524 1,524 -- 1,524 --
Due from customers on acceptances 232 232 -- 232 --
Accounts receivable and accrued interest 3,815 3,815 -- 3,815 --
Other financial assets 2,532 2,693 (14) 2,679 147
Financial Liabilities, Including Hedges
Noninterest-bearing deposits 4,473 4,473 -- 4,473 --
Interest-bearing deposits 32,861 32,977 (70) 32,907 46
Trading liabilities (see Notes 3 and 24) 27,253 27,253 -- 27,253 --
Securities loaned and securities sold
under repurchase agreements 17,420 17,428 -- 17,428 8
Other short-term borrowings 16,313 16,350 13 16,363 50
Acceptances outstanding 232 232 -- 232 --
Other financial liabilities 6,697 6,679 -- 6,679 (18)
Long-term debt* 19,423 19,756 (380) 19,376 (47)
Net investments in foreign subsidiaries -- -- (15) (15) (15)
====================================================================================================================================
</TABLE>
* Includes trust preferred capital securities.
A discussion of the nature, objectives and strategies for using end-user
derivatives can be found in Note 24.
Bankers Trust Corporation and its Subsidiaries 53
<PAGE>
- --------------------------------------------------------------------------------
The following table provides the gross unrealized gains and losses for end-user
derivatives. Gross unrealized gains and losses for hedges of securities
available for sale are recognized in the financial statements with the offset as
an adjustment to securities valuation allowance in stockholders' equity. Gross
unrealized gains and losses for hedges of loans, other assets, interest-bearing
deposits, other short-term borrowings, long-term debt and net investments in
foreign subsidiaries are not yet recognized in the financial statements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net
Securities Interest- Other investments
available Other bearing short-term Long- in foreign
(in millions) December 31, 1999 for sale Loans assets deposits borrowings term debt(1) subsidiaries Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps(2)
Pay Variable
Unrealized Gain $ -- $ -- $ -- $ 44 $ 3 $ 25 $ -- $ 72
Unrealized (Loss) -- (2) -- (256) (3) (171) -- (432)
- ------------------------------------------------------------------------------------------------------------------------------------
Pay Variable Net -- (2) -- (212) -- (146) -- (360)
- ------------------------------------------------------------------------------------------------------------------------------------
Pay Fixed
Unrealized Gain 1 -- -- 58 -- 7 -- 66
Unrealized (Loss) -- -- -- (17) -- -- -- (17)
- ------------------------------------------------------------------------------------------------------------------------------------
Pay Fixed Net 1 -- -- 41 -- 7 -- 49
- ------------------------------------------------------------------------------------------------------------------------------------
Total Unrealized Gain 1 -- -- 102 3 32 -- 138
- ------------------------------------------------------------------------------------------------------------------------------------
Total Unrealized (Loss) -- (2) -- (273) (3) (171) -- (449)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net $ 1 $ (2) $ -- $(171) $ -- $(139) $ -- $(311)
====================================================================================================================================
Forward Rate Agreements
Unrealized Gain $ 1 $ -- $ -- $ -- $ -- $ -- $ -- $ 1
Unrealized (Loss) -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net $ 1 $ -- $ -- $ -- $ -- $ -- $ -- $ 1
====================================================================================================================================
Currency Swaps and Forwards
Unrealized Gain $ 136 $ -- $ -- $ -- $ -- $ 54 $ -- $ 190
Unrealized (Loss) -- (1) -- -- -- (24) -- (25)
- ------------------------------------------------------------------------------------------------------------------------------------
Net $ 136 $ (1) $ -- $ -- $ -- $ 30 $ -- $ 165
====================================================================================================================================
Other Contracts
Unrealized Gain $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Unrealized (Loss) -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
====================================================================================================================================
Total Unrealized Gain $ 138 $ -- $ -- $ 102 $ 3 $ 86 $ -- $ 329
Total Unrealized (Loss) -- (3) -- (273) (3) (195) -- (474)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net $ 138 $ (3) $ -- $(171) $ -- $(109) $ -- $(145)
====================================================================================================================================
(in millions) December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Swaps(2)
Pay Variable
Unrealized Gain $ 64 $ 8 $ -- $ 149 $ 17 $ 471 $ -- $ 709
Unrealized (Loss) (3) (7) -- (13) (14) (55) -- (92)
- ------------------------------------------------------------------------------------------------------------------------------------
Pay Variable Net 61 1 -- 136 3 416 -- 617
- ------------------------------------------------------------------------------------------------------------------------------------
Pay Fixed
Unrealized Gain 6 -- -- 3 -- 7 -- 16
Unrealized (Loss) (129) (76) (13) (70) (16) (30) -- (334)
- ------------------------------------------------------------------------------------------------------------------------------------
Pay Fixed Net (123) (76) (13) (67) (16) (23) -- (318)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Unrealized Gain 70 8 -- 152 17 478 -- 725
- ------------------------------------------------------------------------------------------------------------------------------------
Total Unrealized (Loss) (132) (83) (13) (83) (30) (85) -- (426)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net $ (62) $(75) $ (13) $ 69 $ (13) $ 393 $ -- $ 299
====================================================================================================================================
Forward Rate Agreements
Unrealized Gain $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Unrealized (Loss) -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
====================================================================================================================================
Currency Swaps and Forwards
Unrealized Gain $ 6 $ -- $ -- $ 5 $ 1 $ 76 $ 19 $ 107
Unrealized (Loss) (7) (3) (1) (4) (1) (89) (34) (139)
- ------------------------------------------------------------------------------------------------------------------------------------
Net $ (1) $ (3) $ (1) $ 1 $ -- $ (13) $ (15) $ (32)
====================================================================================================================================
Other Contracts
Unrealized Gain $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Unrealized (Loss) (3) -- -- -- -- -- -- (3)
- ------------------------------------------------------------------------------------------------------------------------------------
Net $ (3) $ -- $ -- $ -- $ -- $ -- $ -- $ (3)
====================================================================================================================================
Total Unrealized Gain $ 76 $ 8 $ -- $ 157 $ 18 $ 554 $ 19 $ 832
Total Unrealized (Loss) (142) (86) (14) (87) (31) (174) (34) (568)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net $ (66) $(78) $ (14) $ 70 $ (13) $ 380 $ (15) $ 264
====================================================================================================================================
</TABLE>
(1) Includes trust preferred capital securities
(2) Includes swaps with embedded options to cancel.
54 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
The unrealized gains and losses on these hedges were determined on the
basis of valuation pricing models which take into account current market and
contractual prices of the underlying instruments, as well as time value and
yield curve or volatility factors underlying the positions.
The remaining maturities of the notional amounts of end-user derivatives
at December 31, 1999 and December 31, 1998 were as follows:
December 31, 1999 Interest Foreign Total
(in millions) Rate Currency Equity Notional
Notional Amount Maturing In: Risk Risk* Risk Amount
- --------------------------------------------------------------------------------
2000 $26,641 $1,956 $ -- $28,597
2001-2002 3,518 628 -- 4,146
2003-2004 1,470 57 -- 1,527
2005 and thereafter 6,788 99 -- 6,887
- --------------------------------------------------------------------------------
Total $38,417 $2,740 $ -- $41,157
================================================================================
December 31, 1998 Interest Foreign Total
(in millions) Rate Currency Equity Notional
Notional Amount Maturing In: Risk Risk* Risk Amount
- --------------------------------------------------------------------------------
1999 $64,930 $4,579 $ -- $ 69,509
2000-2001 13,078 4,213 -- 17,291
2002-2003 6,588 384 -- 6,972
2004 and thereafter 10,191 312 -- 10,503
- --------------------------------------------------------------------------------
Total $94,787 $9,488 $ -- $104,275
================================================================================
* Currency swaps and currency forwards are primarily based upon EURO/U.S. dollar
contracts.
For pay variable and pay fixed interest rate swaps entered into as an end
user, the weighted average receive rate and pay rate (interest rates were based
on the weighted averages of both U.S. and non-U.S. currencies) by maturity and
corresponding notional amounts at December 31, 1999 and December 31, 1998 were
as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Paying Variable Paying Fixed
December 31, 1999 --------------- ------------
(in millions) Notional Receive Pay Notional Receive Pay Total
Notional Amount Maturing In: Amount Rate Rate Amount Rate Rate Notional
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2000 $23,569 5.79% 5.78% $3,066 6.09% 5.82% $26,635
2001-2002 3,194 6.45 5.96 316 6.46 6.16 3,510
2003-2004 1,301 6.26 5.98 168 6.33 6.23 1,469
2005 and thereafter 6,240 6.36 6.26 550 6.24 6.24 6,790
- ------------------------------------------------------------------------------------------------------------------------------------
Total $34,304 $4,100 $38,404
====================================================================================================================================
</TABLE>
All rates were those in effect at December 31, 1999. Variable rates are
primarily based on LIBOR or Federal funds rate and may change significantly,
affecting future cash flows.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Paying Variable Paying Fixed
December 31, 1998 --------------- ------------
(in millions) Notional Recieve Pay Notional Receive Pay Total
Notional Amount Maturing 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.
The effect of these end-user derivatives was a net increase in revenue of
$206 million for the year ended December 31, 1999 and a net increase in revenue
of $175 million for the year ended December 31, 1998.
The Corporation has reviewed its other categories of off-balance sheet
instruments (forward-dated assets and liabilities, securities lending
indemnifications and securities borrowed) accounted for at cost and has
determined that, in the case of each such category, the unrealized gain or loss
on such instruments at both December 31, 1999 and 1998 was not material.
Methods and Assumptions
For short-term financial instruments, defined as those with remaining
maturities of 90 days or less, the carrying amount was considered to be a
reasonable estimate of fair value. The following instruments were predominantly
short-term:
Assets Liabilities
- --------------------------------------------------------------------------------
Cash and due from banks Interest-bearing deposits
Interest-bearing deposits Securities loaned and securities
with banks sold under repurchase agreements
Federal funds sold Other short-term borrowings
Securities purchased under Acceptances outstanding
resale agreements Other financial liabilities
Securities borrowed
Customer receivables
Due from customers
on acceptances
Accounts receivable and
accrued interest
For those components of the above-listed financial instruments with
remaining maturities greater than 90 days, fair value was determined by
discounting contractual cash flows using rates which could be earned for assets
with similar remaining maturities and, in the case of liabilities, rates at
which the liabilities with similar remaining maturities could be issued as of
the balance sheet date.
Bankers Trust Corporation and its Subsidiaries 54
<PAGE>
- --------------------------------------------------------------------------------
As indicated in Note 2, trading assets (including derivatives), trading
liabilities and securities available for sale are carried at their fair values.
For short-term loans and variable rate loans which reprice within 90 days,
the carrying value was considered to be a reasonable estimate of fair value. For
those loans for which quoted market prices were available, fair value was based
on such prices. For other types of loans, fair value was estimated by
discounting future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. In addition, for loans secured by real estate, appraisal
values for the collateral were considered in the fair value determination. The
fair value estimate of commitments to extend credit and standby letters of
credit represented the unrealized gains and losses on those off-balance sheet
positions and was generally determined in the same manner as loans.
Other financial assets consisted primarily of investments in equity
instruments (excluding, in accordance with SFAS 107, investments accounted for
under the equity method) and cash and cash margins with brokers. The fair value
of non-marketable equity instruments was determined by matrix pricing utilizing
market prices for comparable publicly traded instruments, adjusted for liquidity
and contractual arrangements.
Noninterest-bearing deposits do not have defined maturities. In accordance
with SFAS 107, fair value represented the amount payable on demand as of the
balance sheet date.
Other financial liabilities consisted primarily of accounts payable and
accrued expenses at both December 31, 1999 and 1998.
The fair value of long-term debt was estimated by using market quotes as
well as discounting the remaining contractual cash flows using a rate at which
the Corporation could issue debt with a similar remaining maturity as of the
balance sheet date.
Note 27 -- Condensed Bankers Trust Financial Statements
<TABLE>
<CAPTION>
Condensed Statement of Income
(in millions) Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Dividends
Banks $ -- $ 502 $ 93
Nonbanks 118 537 404
Interest from subsidiaries 498 816 615
Other interest 118 314 275
Trading (205) (535) (103)
Securities available for sale gains (losses) -- 39 45
Other (154) 40 80
- --------------------------------------------------------------------------------------
Total revenue 375 1,713 1,409
- --------------------------------------------------------------------------------------
Expenses
Interest to subsidiaries 253 362 217
Other interest 696 1,017 834
Other 271 175 216
- --------------------------------------------------------------------------------------
Total expenses 1,220 1,554 1,267
- --------------------------------------------------------------------------------------
Income before income taxes and
equity in undistributed income
of subsidiaries and affiliates (845) 159 142
Income taxes (benefit) (409) (465) (222)
Income before equity in undistributed
income of subsidiaries and affiliates (436) 624 364
Equity in undistributed (loss) income
of subsidiaries and affiliates (1,167) (697) 502
- --------------------------------------------------------------------------------------
Net Income (Loss) $(1,603) $ (73) $ 866
======================================================================================
</TABLE>
Condensed Balance Sheet
(in millions) December 31, 1999 1998
- --------------------------------------------------------------------------------
Assets
Cash and due from banks $ 3 $ 29
Interest-bearing deposits with bank subsidiaries 3,219 3,237
Securities purchased under resale agreements
with nonbank subsidiary -- 2
Trading assets 187 957
Securities available for sale 4 2,180
Loans 153 76
Investments in subsidiaries and affiliates
Banks 5,840 6,501
Nonbanks 1,387 1,848
Receivables from subsidiaries and affiliates
Banks 468 1,520
Nonbanks 9,320 10,191
Accounts receivable and accrued interest 215 308
Other assets 1,336 594
- --------------------------------------------------------------------------------
Total assets $22,132 $27,443
================================================================================
Liabilities and Stockholders' Equity
Trading liabilities $ 29 $ 72
Commercial paper -- 3,411
Other short-term borrowings 4,806 5,057
Payables to subsidiaries and affiliates
Banks 51 326
Nonbanks 5,977 5,505
Other liabilities 296 461
Long-term debt 6,623 7,915
- --------------------------------------------------------------------------------
Total liabilities 17,782 22,747
- --------------------------------------------------------------------------------
Total stockholders' equity 4,350 4,696
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $22,132 $27,443
================================================================================
56 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Condensed Statement of Cash Flows
(in millions) Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $(1,603) $ (73) $ 866
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Equity in undistributed loss
(income) of subsidiaries and affiliates 1,167 697 (502)
Deferred income taxes (235) (165) (82)
Net change in trading assets 770 4,816 (2,964)
Net change in trading liabilities (43) (240) (166)
Securities available for sale
(gains) losses -- (39) (45)
Other, net (375) (29) (632)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (319) 4,967 (3,525)
- --------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Net change in:
Interest-bearing deposits with
bank subsidiaries 17 (1,033) 1,093
Securities purchased under resale agreements
with nonbank subsidiary (17) (475) (209)
Short-term notes receivable from
subsidiaries and affiliates 737 2,304 (1,255)
Securities available for sale:
Purchases (434) (5,627) (650)
Maturities and other redemptions 161 268 345
Sales 2,431 4,924 158
Increases in long-term notes receivable
from subsidiaries (1,440) (9,843) (2,301)
Decreases in long-term notes receivable
from subsidiaries 2,196 7,607 1,037
Capital contributed to subsidiaries and affiliates (501) (1,158) (688)
Return of capital from subsidiaries and affiliates 884 25 300
Other, net (78) 90 75
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 3,956 (2,918) (2,095)
- --------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Net change in:
Commercial paper and other
short-term borrowings (3,663) (1,609) 2,449
Short-term notes payable to subsidiaries 216 (618) 2,326
Issuance of long-term notes payable
to subsidiaries (10) (1) 770
Issuance of long-term debt -- 2,078 2,387
Repayments of long-term debt (1,326) (792) (913)
Redemption/repurchase of preferred stock (18) (264) (152)
Purchases of treasury stock (71) (618) (1,038)
Cash dividends paid (216) (421) (384)
Capital contribution from Taunus 1,400 -- --
Other, net 25 128 248
- --------------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (3,663) (2,117) 5,693
- --------------------------------------------------------------------------------------------
Net Increase (Decrease) In Cash and
Due From Bank s (26) (68) 73
Cash and due from banks, beginning of year 29 97 24
- --------------------------------------------------------------------------------------------
Cash and due from banks, end of year $ 3 $ 29 $ 97
============================================================================================
Interest paid $ 975 $ 1,388 $ 1,007
============================================================================================
Income taxes paid $ 15 $ 81 $ 131
============================================================================================
Noncash financing activity:
Conversion of debt to equity $ -- $ 15 $ 63
============================================================================================
</TABLE>
Note 28 -- Bankers Trust Company Consolidated Summarized Financial Information
<TABLE>
<CAPTION>
Consolidated Statement of Income
(in millions) Year Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Interest Revenue
Interest revenue $ 3,399 $ 5,727 $5,287
Interest expense 2,429 4,371 4,070
- ------------------------------------------------------------------------------------
Net Interest Revenue 970 1,356 1,217
Provision for credit losses--loans (41) 40 --
- ------------------------------------------------------------------------------------
Net Interest Revenue After Provision
For Credit Losses-- Loans 1,011 1,316 1,217
- ------------------------------------------------------------------------------------
Noninterest Revenue
Trading (50) -- 584
Fiduciary and funds management 882 919 886
Corporate finance fees 292 473 354
Other fees and commissions 383 480 299
Securities available for sale gains (losses) (153) (141) 28
Other 1,294 427 415
- ------------------------------------------------------------------------------------
Total noninterest revenue 2,648 2,158 2,566
- ------------------------------------------------------------------------------------
Noninterest Expenses
Salaries and commissions 788 947 812
Incentive compensation and
employee benefits* 1,451 950 1,004
Agency and other professional service fees 363 549 357
Communication and data services 155 164 153
Occupancy, net 178 183 149
Furniture and equipment 197 213 185
Travel and entertainment 76 112 94
Other 347 393 396
Restructuring and other related activities 606 -- 4
- ------------------------------------------------------------------------------------
Total noninterest expenses 4,161 3,511 3,154
- ------------------------------------------------------------------------------------
Income (loss) before income taxes (502) (37) 629
Income taxes 579 41 182
- ------------------------------------------------------------------------------------
Net Income (Loss) $(1,081) $ (78) $ 447
====================================================================================
</TABLE>
*Includes change-of-control related costs.
In the normal course of business, BTCo enters into various transactions
with Bankers Trust and Bankers Trust's other subsidiaries. Included in the above
financial statements were the following transactions and balances with such
affiliates.
(in millions) Year Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Interest revenue $ 246 $ 824 $349
Interest expense 213 346 239
Noninterest revenue 500 343 326
Noninterest expenses 151 321 285
(in millions) December 31, 1999 1998
- --------------------------------------------------------------------------------
Interest-earning assets $ 93 $11,370
Noninterest-earning assets 313 706
Interest-bearing liabilities 3,785 7,286
Noninterest-bearing liabilities 616 1,602
Bankers Trust Corporation and its Subsidiaries 57
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Consolidated Balance Sheet
($ in millions, except par values) December 31, 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 3,205 $ 2,772
Interest-bearing deposits with banks 1,850 2,423
Federal funds sold 2,545 2,484
Securities purchased under resale agreements 6,694 11,374
Securities borrowed -- 8,994
Trading assets 12,551 39,982
Securities available for sale 3,017 8,564
Loans, net of allowance for credit losses of $477
at December 31, 1999 and $620 at December 31, 1998 17,014 21,262
Due from customers on acceptances 262 232
Accounts receivable and accrued interest 1,233 2,648
Other assets 2,785 3,823
- ---------------------------------------------------------------------------------------------
Total assets $ 51,156 $ 104,558
=============================================================================================
Liabilities
Noninterest-bearing deposits
Domestic offices $ 2,815 $ 3,124
Foreign offices 2,404 1,781
Interest-bearing deposits
Domestic offices 10,719 17,285
Foreign offices 10,351 18,386
- ---------------------------------------------------------------------------------------------
Total deposits 26,289 40,576
Trading liabilities 2,950 26,175
Securities loaned and securities sold under
repurchase agreements 50 9,667
Other short-term borrowings 7,162 7,867
Acceptances outstanding 266 232
Accounts payable and accrued expenses 2,396 2,862
Other liabilities, including allowance for credit
losses of $24 at December 31, 1999 and $18
at December 31, 1998 2,243 2,616
Long-term debt not included in risk-based capital 3,192 6,594
Long-term debt included in risk-based capital 174 846
Mandatorily redeemable capital securities of subsidiary
trust holding solely junior subordinated deferrable
interest debentures included in risk-based capital 245 244
- ---------------------------------------------------------------------------------------------
Total liabilities 44,967 97,679
- ---------------------------------------------------------------------------------------------
Stockholders' Equity
Floating rate non-cumulative preferred stock--
Series A, $1 million par value
Authorized, issued and outstanding:
1999, 1,500 shares; 1998, 1,500 shares 1,500 1,500
Common stock, $10 par value Authorized, issued and outstanding:
1999, 212,730,867 shares; 1998, 212,730,867 shares 2,127 2,127
Capital surplus 542 541
Retained earnings 2,055 3,136
Accumulated other comprehensive income:
Net unrealized gains (losses) on securities available
for sale, net of taxes (2) (36)
Foreign currency translation, net of taxes (33) (389)
- ---------------------------------------------------------------------------------------------
Total stockholders' equity 6,189 6,879
- ---------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 51,156 $ 104,558
=============================================================================================
</TABLE>
See Note 9 for details of BTCo's long-term debt issued to nonaffiliates.
Note 29 -- Related Party Transactions
In conjunction with the Acquisition and subsequent integration of the
Corporation into Deutsche Bank's management structure, the Corporation has
entered into various related party transactions with Deutsche Bank and its
affiliated entities. As previously mentioned, the Corporation transferred BTAB
and substantially all of its interest in BTI to Deutsche Bank entities. This
resulted in approximately $2.5 billion of net assets transferred on June 5,
1999. In addition, the Corporation has transferred at fair market value certain
other entities and financial assets and liabilities to Deutsche Bank entities.
In order to realign the Corporation's businesses with the Deutsche Bank
management structure, the Corporation will continue to transfer other financial
assets and liabilities and entities as necessary.
In connection with the sale of BTAL to the Principal Financial Group
("Principal"), Deutsche Bank provided various representations and warranties to
Principal.
Historical BTAB employees (retirees), who were transferred to DBSI,
continue to be covered by the Corporation's trusteed, noncontributory, defined
benefit plan. In addition, the Corporation also provides health care benefits to
these employees (retirees) who met specific age/or service requirements on
January 1, 1990 provided that they retire (retired) under the principal domestic
pension plan with at least ten years of service.
The Corporation also has related party balances with Deutsche Bank or
affiliated companies. These balances generally include interest-bearing deposits
with banks, securities purchased under resale agreements, securities borrowed,
securities loaned and securities sold under repurchase agreements, other
short-term borrowings, and derivative contracts. These transactions are entered
into in the ordinary course of business.
Included in the Corporation's financial statements were the following
balances with such affiliates.
(in millions) December 31, 1999
- --------------------------------------------------------------------------------
Interest-earning assets $10,843
Noninterest-earning assets 1,147
Interest-bearing liabilities 6,568
Noninterest-bearing liabilities 139
58 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
Note 30 -- Litigation
Pursuant to an agreement (the "Agreement") with the United States Attorney's
Office in the Southern District of New York entered into in 1999, BTCo pleaded
guilty to misstating entries in the bank's books and records, constituting a
criminal violation of Title 18, United States Code, Section 1005 and paid a fine
to federal and state authorities. Although the Agreement concludes the United
States Attorney's Office's investigation of BTCo, BTCo continues to cooperate
with and provide information to the United States Attorney's Office and other
regulatory agencies and authorities, including the Securities and Exchange
Commission ("Commission"), regarding this matter. As a consequence of its guilty
plea, BTCo and/or certain affiliates have received certain exemptions and
continue to seek other exemptions from regulatory agencies and authorities,
including the Commission, to continue to provide certain services to its
clients. Although no assurance can be given that such exemptions will be
granted, the Corporation does not expect further consequences of the Agreement
to be materially adverse to the consolidated financial statements of the
Corporation. Additional information with respect to the foregoing is set forth
in the Corporation's Current Report on Form 8-K filed on March 12, 1999 with the
Commission.
In addition to the matter described above, various legal actions and
proceedings involving Bankers Trust and various of its subsidiaries are
currently pending. Management, after discussions with counsel, does not
anticipate that losses, if any, resulting from such actions and proceedings
would be material.
Bankers Trust Corporation and its Subsidiaries 59
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Directors and Stockholder of
Bankers Trust Corporation:
We have audited the accompanying consolidated balance sheet of Bankers Trust
Corporation (formerly Bankers Trust New York Corporation) and Subsidiaries (the
"Corporation", a wholly owned indirect subsidiary of Deutsche Bank AG) as of
December 31, 1999 and 1998, and the related consolidated statements of income,
changes in stockholders' equity, comprehensive income and cash flows for each of
the years in the three-year period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Bankers Trust Corporation and Subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/S/ KPMG LLP
KPMG LLP
New York, New York
February 25, 2000
60 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTAL FINANCIAL DATA
- --------------------------------------------------------------------------------
The statistical data on pages 61 through 66 should be read in conjunction with
the Financial Review and the financial statements included elsewhere in this
Annual Report.
In the opinion of management, all material adjustments necessary for a
fair presentation of the results of operations for the interim periods have been
made.
Condensed Quarterly Consolidated Statement of Income
<TABLE>
<CAPTION>
(in millions, except per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------- ------------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest revenue $ 797 $ 818 $ 1,293 $1,511 $1,716 $ 2,281 $2,305 $1,989
Interest expense 641 664 1,057 1,250 1,448 1,945 1,939 1,587
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest revenue 156 154 236 261 268 336 366 402
Provision for credit losses--loans 16 (49) (25) -- 20 20 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest revenue after
provision for credit losses--loans 140 203 261 261 248 316 366 402
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest revenue 815 1,428 8 1,249 1,189 155 1,182 1,231
Total noninterest expenses 867 810 2,802 1,301 1,343 1,178 1,320 1,325
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 88 821 (2,533) 209 94 (707) 228 308
Income taxes (benefit) 145 559 (585) 69 65 (219) 64 86
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (57) $ 262 $(1,948) $ 140 $ 29 $ (488) $ 164 $ 222
===================================================================================================================================
Net income (loss) applicable to
common stock N/A N/A N/A $ 134 $ 23 $ (494) $ 155 $ 211
===================================================================================================================================
Earnings (Loss) Per
Common Share:(1)
Basic N/A N/A N/A $ 1.33 $ 0.24 $ (4.98) $ 1.54 $ 2.08
Diluted N/A N/A N/A $ 1.30 $ 0.23 $ (4.98) $ 1.46 $ 2.01
===================================================================================================================================
Cash dividends declared per
common share N/A N/A N/A $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===================================================================================================================================
</TABLE>
N/A-- Information is not applicable as Deutsche Bank AG acquired all outstanding
shares of common stock of Bankers Trust Corporation from it shareholders
at a price of $93.00 per share on June 4, 1999.
(1) Due to changes in the number of average shares outstanding, quarterly
earnings per share do not necessarily add to the total for the year ended
December 31, 1998.
Stockholder Data
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Market price
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High N/A N/A N/A $88 7/8 $87 7/8 $ 123 1/2 $136 7/16 $124 1/4
Low N/A N/A N/A 83 5/8 45 53 109 3/8 99 1/4
End of quarter N/A N/A N/A 88 1/4 85 7/16 59 116 1/16 120 5/16
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
N/A-- Information is not applicable as Deutsche Bank AG acquired all outstanding
shares of common stock of Bankers Trust Corporation from it shareholders
at a price of $93.00 per share on June 4, 1999. The Corporation is a
wholly-owned subsidiary of Deutsche Bank AG, as of the date hereof, 1
share of the Corporation's common stock par value $1 per share, was issued
and outstanding.
Dividends
Cash dividends on common stock were paid in 1999 on the 25th of January and
April.
Bankers Trust Corporation and its Subsidiaries 61
<PAGE>
- --------------------------------------------------------------------------------
Average Balances, Interest and Average Rates
The following table shows the major consolidated assets and liabilities,
together with their respective interest amounts and rates earned or paid by the
Corporation. Cash basis and renegotiated loans are included in the averages to
determine an effective yield on all loans. The average balances are principally
daily averages.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------- ------------------------ --------------------------
Average Average Average Average Average Average
($ in millions) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits with banks
(primarily in foreign offices) $ 4,465 $ 309 6.92% $ 3,316 $ 310 9.35% $ 4,662 $ 395 8.47%
Federal funds sold
(in domestic offices) 3,146 160 5.09% 3,865 211 5.46% 4,758 266 5.59%
Securities purchased under resale
agreements
In domestic offices 8,386 545 6.50% 15,254 1,200 7.87% 14,076 847 6.02%
In foreign offices 3,270 130 3.98% 8,175 435 5.32% 9,158 505 5.51%
- ------------------------------------------------------------ ---------------- -----------------
Total securities purchased
under resale agreements 11,656 675 5.79% 23,429 1,635 6.98% 23,234 1,352 5.82%
Securities borrowed
In domestic offices 7,254 312 4.30% 21,080 1,096 5.20% 13,128 653 4.97%
In foreign offices 691 71 10.27% 2,640 126 4.77% 1,763 93 5.28%
- ------------------------------------------------------------ ---------------- -----------------
Total securities borrowed 7,945 383 4.82% 23,720 1,222 5.15% 14,891 746 5.01%
Trading assets
In domestic offices (1) 6,118 489 7.99% 10,334 973 9.42% 9,578 850 8.87%
In foreign offices 7,006 431 6.15% 19,685 1,423 7.23% 19,449 1,646 8.46%
- ------------------------------------------------------------ ---------------- -----------------
Total trading assets (1) 13,124 920 7.01% 30,019 2,396 7.98% 29,027 2,496 8.60%
Securities available for sale
In domestic offices
Taxable 2,398 171 7.13% 6,090 403 6.62% 2,635 206 7.82%
Exempt from federal
income taxes (1) 676 25 3.70% 1,602 56 3.50% 1,076 40 3.72%
In foreign offices
Taxable 3,460 191 5.52% 4,319 230 5.33% 4,011 230 5.73%
Exempt from federal
income taxes (1) 35 8 22.86% 84 10 11.90% 92 10 10.87%
- ------------------------------------------------------------ ---------------- -----------------
Total securities available for sale (1) 6,569 395 6.01% 12,095 699 5.78% 7,814 486 6.22%
Loans
In domestic offices
Commercial and industrial 6,674 492 7.37% 5,182 386 7.45% 4,029 312 7.74%
Financial institutions 1,467 106 7.23% 1,306 89 6.81% 1,269 92 7.25%
Secured by real estate 1,344 113 8.41% 1,650 132 8.00% 1,561 131 8.39%
Other (1) 4,720 298 6.31% 3,651 230 6.30% 2,577 175 6.79%
- ------------------------------------------------------------ ---------------- -----------------
Total in domestic offices (1) 14,205 1,009 7.10% 11,789 837 7.10% 9,436 710 7.52%
In foreign offices 7,346 482 6.56% 10,789 844 7.82% 8,923 695 7.79%
- ------------------------------------------------------------ ---------------- -----------------
Total loans, excluding fees (1) 21,551 1,491 6.92% 22,578 1,681 7.45% 18,359 1,405 7.65%
Loan fees -- 31 -- 30 -- 32
- ------------------------------------------------------------ ---------------- -----------------
Total loans, including fees (1) 21,551 1,522 7.06% 22,578 1,711 7.58% 18,359 1,437 7.83%
- ------------------------------------------------------------ ---------------- -----------------
Customer receivables
In domestic offices 955 70 7.33% 1,628 138 8.48% 1,589 133 8.37%
In foreign offices -- -- -- -- -- --
- ------------------------------------------------------------ ---------------- -----------------
Total customer receivables 955 70 7.33% 1,628 138 8.48% 1,589 133 8.37%
- ------------------------------------------------------------ ---------------- -----------------
Total Interest-Earning
Assets(1) 69,411 $4,434 6.39% 120,650 $8,322 6.90% 104,334 $7,311 7.01%
====== ====== ======
Cash and due from banks 2,264 2,448 1,496
Noninterest-earning trading assets 15,008 28,233 21,712
Due from customers on acceptances 253 485 682
All other assets 10,266 10,741 9,058
Allowance for credit losses--loans (564) (686) (776)
- -------------------------------------------------- -------- --------
Total Assets $96,638 $161,871 $136,506
================================================== ======== ========
% of assets attributable to foreign offices 41% 46% 50%
</TABLE>
(1) Interest and average rates are presented on a fully taxable basis. The
applicable combined federal, state and local incremental tax rate used to
determine the amounts of the tax equivalent adjustments to interest
revenue (which recognize the income tax savings on tax-exempt assets) was
41 percent for 1999, 41 percent for 1998 and 41 percent for 1997.
62 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------- ---------------------------- ---------------------------
Average Average Average Average Average Average
($ in millions) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities and
Stockholders' Equity
Interest-bearing deposits
In domestic offices
Time deposits $ 8,006 $ 431 5.38% $ 15,203 $ 879 5.78% $ 12,133 $ 679 5.60%
Other 6,658 263 3.95% 6,993 304 4.35% 4,707 216 4.59%
- ------------------------------------------------------------- ------------------ -------------------
Total in domestic offices 14,664 694 4.73% 22,196 1,183 5.33% 16,840 895 5.31%
In foreign offices
Deposits from banks in
foreign countries 3,283 256 7.80% 6,430 471 7.33% 7,628 480 6.29%
Other time and savings deposits 9,021 428 4.74% 10,474 458 4.37% 11,022 611 5.54%
Other 388 46 11.86% 1,694 83 4.90% 1,952 90 4.61%
- ------------------------------------------------------------- ------------------ -------------------
Total in foreign offices 12,692 730 5.75% 18,598 1,012 5.44% 20,602 1,181 5.73%
- ------------------------------------------------------------- ------------------ -------------------
Total interest-bearing deposits 27,356 1,424 5.21% 40,794 2,195 5.38% 37,442 2,076 5.54%
Trading liabilities
In domestic offices 286 33 11.54% 1,957 147 7.51% 1,699 181 10.65%
In foreign offices 2,294 98 4.27% 5,762 315 5.47% 3,966 295 7.44%
- ------------------------------------------------------------- ------------------ -------------------
Total trading liabilities 2,580 131 5.08% 7,719 462 5.99% 5,665 476 8.40%
Securities loaned and securities sold
under repurchase agreements
In domestic offices 5,944 415 6.98% 19,881 1,458 7.33% 13,679 837 6.12%
In foreign offices 2,317 124 5.35% 8,851 439 4.96% 10,218 576 5.64%
- ------------------------------------------------------------- ------------------ -------------------
Total securities loaned and securities
sold under repurchase agreements 8,261 539 6.52% 28,732 1,897 6.60% 23,897 1,413 5.91%
Other short-term borrowings
In domestic offices 9,889 556 5.62% 16,488 961 5.83% 14,429 881 6.11%
In foreign offices 2,996 240 8.01% 5,109 366 7.16% 5,739 312 5.44%
- ------------------------------------------------------------- ------------------ -------------------
Total other short-term borrowings 12,885 796 6.18% 21,597 1,327 6.14% 20,168 1,193 5.92%
Long-term debt
In domestic offices 9,375 545 5.81% 10,056 581 5.78% 7,725 455 5.89%
In foreign offices 5,922 63 1.06% 7,284 340 4.67% 3,856 200 5.19%
- ------------------------------------------------------------- ------------------ -------------------
Total long-term debt 15,297 608 3.97% 17,340 921 5.31% 11,581 655 5.66%
- ------------------------------------------------------------- ------------------ -------------------
Trust preferred capital securities 1,424 114 8.01% 1,455 117 8.04% 1,401 113 8.07%
- ------------------------------------------------------------- ------------------ -------------------
Total Interest-Bearing
Liabilities 67,803 $3,612 5.33% 117,637 $6,919 5.88% 100,154 $5,926 5.92%
====== ====== ======
Noninterest-bearing deposits
In domestic offices 2,578 2,766 2,331
In foreign offices 1,597 1,497 842
- -------------------------------------------------- -------- -------
Total noninterest-bearing deposits 4,175 4,263 3,173
Noninterest-bearing trading liabilities 12,097 23,706 18,199
Acceptances outstanding 218 471 682
All other liabilities 7,856 10,183 8,311
Preferred stock of subsidiary -- 253 45
Stockholders' equity
Preferred stock 393 522 717
Common stockholders' equity 4,096 4,836 5,225
- -------------------------------------------------- -------- -------
Total Liabilities and
Stockholders' Equity $96,638 $161,871 $136,506
================================================== ======== =======
% of liabilities attributable
to foreign offices 43% 46% 49%
Rate spread 1.06% 1.02% 1.09%
Net interest margin (net interest
revenue to total interest-
earning assets)
In domestic offices $44,350 $ 509 1.15% $ 71,763 $ 545 0.76% $ 56,367 $ 427 0.76%
In foreign offices 25,061 313 1.25% 48,887 858 1.76% 47,967 958 2.00%
- ------------------------------------------------------------- ------------------ -------------------
Total $69,411 $ 822 1.18% $120,650 $1,403 1.16% $104,334 $1,385 1.33%
============================================================= ================== ===================
</TABLE>
Bankers Trust Corporation and its Subsidiaries 63
<PAGE>
- --------------------------------------------------------------------------------
Volume/Rate Analysis of Changes in Net Interest Revenue
The following table attributes changes in fully taxable net interest revenue to
changes in either average daily balances or average rates for both
interest-earning assets and interest-bearing sources of funds. Because of the
numerous simultaneous balance and rate changes during any period, it is not
possible to precisely allocate such changes between balances and rates. For
purposes of this table, changes that are not due solely to balance or rate
changes are allocated to such categories based on the respective percentage
changes in average daily balances and average rates.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999/98 1998/97
-------------------------- ---------------------------
Increase (decrease) Increase (decrease)
due to change in: due to change in:
-------------------------- ---------------------------
Average Average Average Average
(in millions) Balance Rate Total Balance Rate Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated
Interest Revenue
Interest-bearing deposits with banks $ 91 $ (92) $ (1) $ (123) $ 38 $ (85)
Federal funds sold (37) (14) (51) (49) (6) (55)
Securities purchased under resale agreements (717) (243) (960) 11 272 283
Securities borrowed (765) (74) (839) 454 22 476
Trading assets (1,214) (262) (1,476) 83 (183) (100)
Securities available for sale (331) 27 (304) 250 (37) 213
Loans (76) (113) (189) 321 (47) 274
Customer receivables (51) (17) (68) 3 2 5
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest revenue (3,100) (788) (3,888) 950 61 1,011
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits (702) (69) (771) 182 (63) 119
Trading liabilities (270) (61) (331) 145 (159) (14)
Securities loaned and securities sold under repurchase agreements (1,336) (22) (1,358) 307 177 484
Other short-term borrowings (538) 7 (531) 87 47 134
Long-term debt (100) (213) (313) 308 (42) 266
Trust preferred capital securities (2) (1) (3) 4 -- 4
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense (2,948) (359) (3,307) 1,033 (40) 993
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue $ (152) $(429) $ (581) $ (83) $ 101 $ 18
===================================================================================================================================
Domestic Offices
Interest Revenue
Interest-bearing deposits with banks $ 83 $ (73) $ 10 $ 15 $ (21) $ (6)
Federal funds sold (37) (14) (51) (49) (6) (55)
Securities purchased under resale agreements (472) (184) (656) 76 277 353
Securities borrowed (621) (163) (784) 412 31 443
Trading assets (353) (131) (484) 69 54 123
Securities available for sale (293) 30 (263) 240 (27) 213
Loans 173 (23) 150 174 (47) 127
Customer receivables (51) (17) (68) 3 2 5
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest revenue (1,571) (575) (2,146) 940 263 1,203
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits (368) (121) (489) 285 3 288
Trading liabilities (167) 53 (114) 25 (59) (34)
Securities loaned and securities sold under repurchase agreements (976) (67) (1,043) 432 189 621
Other short-term borrowings (372) (33) (405) 121 (41) 80
Long-term debt (40) 4 (36) 135 (9) 126
Trust preferred capital securities (2) (1) (3) 4 -- 4
Funds provided to foreign offices (137) 418 281 (297) (47) (344)
Funds provided by foreign offices (62) (389) (451) 475 150 625
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense (2,124) (136) (2,260) 1,180 186 1,366
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue $ 553 $(439) $ 114 $ (240) $ 77 $ (163)
===================================================================================================================================
Foreign Offices
Interest Revenue
Interest-bearing deposits with banks $ 5 $ (16) $ (11) $ (111) $ 32 $ (79)
Securities purchased under resale agreements (215) (89) (304) (53) (17) (70)
Securities borrowed (135) 80 (55) 43 (10) 33
Trading assets (806) (186) (992) 20 (243) (223)
Securities available for sale (51) 10 (41) 17 (17) --
Loans (248) (91) (339) 147 -- 147
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest revenue (1,450) (292) (1,742) 63 (255) (192)
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits (337) 55 (282) (111) (58) (169)
Trading liabilities (159) (58) (217) 111 (91) 20
Securities loaned and securities sold under repurchase agreements (347) 32 (315) (72) (65) (137)
Other short-term borrowings (165) 39 (126) (37) 91 54
Long-term debt (54) (223) (277) 162 (22) 140
Funds provided by domestic offices 137 (418) (281) 297 47 344
Funds provided to domestic offices 62 389 451 (475) (150) (625)
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense (863) (184) (1,047) (125) (248) (373)
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue $ (587) $(108) $ (695) $ 188 $ (7) $ 181
===================================================================================================================================
</TABLE>
64 Bankers Trust Corporation and its Subsidiaries
<PAGE>
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Interest Rate Sensitivity
Interest rate sensitivity data for the Corporation at December 31, 1999 is
presented in the table below. For purposes of this presentation, the
interest-earning/bearing components of trading assets and trading liabilities
are assumed to reprice within three months.
The interest rate gaps reported in the table arise when assets are funded
with liabilities having different repricing intervals, after considering the
effect of off-balance sheet hedging instruments. Since these gaps are actively
managed and change daily as adjustments are made in interest rate views and
market outlook, positions at the end of any period may not be reflective of the
Corporation's interest rate view in subsequent periods. Active management
dictates that longer-term economic views are balanced against prospects of
short-term interest rate changes in all repricing intervals.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
By Repricing Interval
-----------------------------------------------------
After three After six After Non-
Within months months one year After interest-
three but within but within but within five bearing
(in millions) December 31, 1999 months six months one year five years years funds Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits with banks $ 2,209 $ 9 $ 18 $ 2,457 $ -- $ -- $ 4,693
Federal funds sold 2,472 -- -- -- -- -- 2,472
Securities purchased under resale agreements 6,525 -- 239 -- -- -- 6,764
Trading assets 5,621 -- -- -- -- 13,396 19,017
Securities available for sale 2,197 237 194 326 298 -- 3,252
Customer receivables 306 -- -- -- -- -- 306
Gross loans 16,905 1,288 219 909 641 -- 19,962
Noninterest-earning assets and allowance for credit losses -- -- -- -- -- 11,691 11,691
- ------------------------------------------------------------------------------------------------------------------------------------
Total 36,235 1,534 670 3,692 939 25,087 68,157
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing deposits 14,094 1,112 189 657 2,428 -- 18,480
Trading liabilities 53 -- -- -- -- 5,213 5,266
Securities loaned and securities sold under
repurchase agreements 56 -- -- -- -- -- 56
Other short-term borrowings 10,993 264 283 -- -- -- 11,540
Long-term debt 5,882 753 105 6,734 1,532 -- 15,006
Mandatorily redeemable capital securities of
subsidiary trusts holding solely junior subordinated
deferrable interest debentures -- -- -- -- 1,428 -- 1,428
Preferred stock 251 125 -- -- -- -- 376
Noninterest-bearing liabilities, including allowance for
credit losses, and common stockholders' equity -- -- -- -- -- 16,005 16,005
- ------------------------------------------------------------------------------------------------------------------------------------
Total 31,329 2,254 577 7,391 5,388 21,218 68,157
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of off-balance sheet hedging instruments (5,465) 3,961 80 970 454 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Gap $ (559) $3,241 $ 173 $(2,729) $(3,995) $ 3,869 $ --
====================================================================================================================================
Cumulative Interest Rate Sensitivity Gap $ (559) $2,682 $2,855 $ 126 $(3,869) $ -- $ --
====================================================================================================================================
</TABLE>
Bankers Trust Corporation and its Subsidiaries 65
<PAGE>
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Deposits
The Corporation's certificates of deposit and other time deposits issued
by domestic and foreign offices in amounts of $100,000 or more, together with
their remaining maturities, and other interest-bearing deposits at December 31,
1999 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(in millions) Domestic Foreign Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Certificates of deposit of $100,000 or more
3 months or less $ 637 $ 32 $ 669
Over 3 through 6 months 1,241 122 1,363
Over 6 through 12 months 38 8 46
Over 12 months 511 3 514
- ------------------------------------------------------------------------------------------------------------------------------------
Total 2,427 165 2,592
- ------------------------------------------------------------------------------------------------------------------------------------
Other time deposits of $100,000 or more
3 months or less 181 4,188 4,369
Over 3 through 6 months 8 209 217
Over 6 through 12 months 1 119 120
Over 12 months 153 111 264
- ------------------------------------------------------------------------------------------------------------------------------------
Total 343 4,627 4,970
- ------------------------------------------------------------------------------------------------------------------------------------
Other 9,348 1,570 10,918
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits $12,118 $6,362 $18,480
====================================================================================================================================
</TABLE>
Deposits by foreign depositors in domestic offices amounted to $1.5
billion, $1.4 billion and $1.0 billion at December 31, 1999, 1998 and 1997,
respectively.
66 Bankers Trust Corporation and its Subsidiaries
<PAGE>
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DESCRIPTION OF BUSINESS
- --------------------------------------------------------------------------------
Acquisition by Deutsche Bank AG
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"), 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").
On June 5, 1999, Bankers Trust transferred its wholly-owned subsidiary BT
Alex. Brown Incorporated ("BTAB") and substantially all of its interest in
Bankers Trust International PLC ("BTI") to Deutsche Bank Securities Inc.
("DBSI") and Deutsche Holdings (BTI) Ltd., respectively, which are wholly-owned
subsidiaries of Deutsche Bank. The transfer of BTAB to DBSI took the form of an
exchange of stock pursuant to which BTAB became a wholly-owned subsidiary of
DBSI and Bankers Trust received shares of DB U.S. Financial Markets Holding
Corporation ("DBUSH"), the parent of DBSI. In the third quarter of 1999, Bankers
Trust sold its shares of DBUSH to Taunus for approximately $800 million. The
transfer of substantially all of Bankers Trust's interest in BTI was for cash in
the amount of approximately $1.7 billion.
On August 31, 1999, Bankers Trust Corporation completed the sale of
Bankers Trust Australia Limited ("BTAL"), a wholly-owned subsidiary, to the
Principal Financial Group for a price of approximately $1.3 billion. Prior to
the sale, BTAL remitted to Bankers Trust Corporation a dividend for accumulated
retained earnings that included proceeds from BTAL's sale of its investment
banking division to Macquarie Bank. Bankers Trust Corporation also received cash
for the assumption of certain BTAL long-term debt. In addition, according to the
sale agreement Bankers Trust Corporation is entitled to receive an additional
payment. The amount and timing of such payment is not known at this time. When
such payment is received, it will be reflected in Bankers Trust's results of
operations. Bankers Trust Corporation recognized a pre-tax gain of approximately
$779 million in the third quarter of 1999 on the sale of BTAL.
In connection with the Acquisition and in addition to the foregoing
transactions, Bankers Trust Corporation together with its subsidiaries (the
"Corporation" or the "Firm") 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.
In conjunction with the Acquisition and to strengthen the Corporation's
capital base, Deutsche Bank made a capital contribution of $1.4 billion in the
second quarter of 1999.
See Note 1 of Notes to Financial Statements for more information on the
Acquisition by Deutsche Bank.
Prior to the Acquisition, the Corporation was a global financial
institution, providing products and services to its clients worldwide.
Subsequent to the Acquisition and associated reorganization activities, the
Corporation and its subsidiaries conduct their business primarily in the
Americas, focusing their activities principally in the asset management,
lending, institutional services, private equity and private banking businesses.
Bankers Trust Corporation
Bankers Trust Corporation is a registered bank holding company that was
incorporated in 1965. Bankers Trust, which accounted for 3 percent of
consolidated assets at December 31, 1999, is the parent of Bankers Trust Company
("BTCo" or the "Bank") and its other subsidiaries.
Bankers Trust is a legal entity separate and distinct from its
subsidiaries, including BTCo. There are various legal limitations governing the
extent to which certain of Bankers Trust's subsidiaries may extend credit, pay
dividends or otherwise supply funds to, or engage in transactions with, Bankers
Trust or certain of its other subsidiaries. The rights of Bankers Trust to
participate in any distribution of assets of any subsidiary upon its
dissolution, winding-up, liquidation or reorganization or otherwise are subject
to the prior claims of creditors of that subsidiary, except to the extent that
Bankers Trust may itself be a creditor of that subsidiary and its claims are
recognized. Claims on Bankers Trust's subsidiaries by creditors other than
Bankers Trust include long-term debt and substantial obligations with respect to
deposit liabilities, trading liabilities, federal funds purchased, securities
sold under repurchase agreements and commercial paper, as well as short-term
borrowings and accounts payable.
Business Segments
In conjunction with the Acquisition, the Corporation realigned its
business activities to conform to Deutsche Bank's management structure. In this
regard, the Retail and Private Banking division provides banking services to
private clients, self-employed individuals as well as to smaller business
clients, and offers a wide variety of banking products to these clients
including financial planning services and market research and investment
strategies for high net worth individuals. The Asset Management division
combines the institutional asset management and retail investment fund
businesses. The Global Corporates and Institutions division integrates
long-standing relationship and credit-oriented commercial banking with the
product and transactional orientation of investment banking for corporate
clients and financial institutions. This business segment also includes credit
business, trade finance, structured finance and cash management in addition to
the Corporation's private equity business and trading activities. Global
Technology and Services comprises custody services, payment settlement,
securities settlement, and electronic banking services.
Corporate Items include revenue and expenses that have not been allocated
to business segments, the operating income and expenses of BTAL and Consorcio,
and the results of smaller businesses that are not included in the main business
segments.
See Note 22 of Notes to Financial Statements for a description of these
Business Segments.
Bankers Trust Corporation and its Subsidiaries 67
<PAGE>
- --------------------------------------------------------------------------------
Bankers Trust Company
Bankers Trust's principal banking subsidiary is Bankers Trust Company, which,
along with its subsidiaries accounted for 75 percent of the Corporation's
consolidated assets at December 31, 1999. BTCo, founded in 1903, originates
loans and other forms of credit, accepts deposits, arranges financings and
provides numerous other commercial banking and financial services.
Bankers Trust (Delaware)
Bankers Trust (Delaware) is a state bank chartered under the laws of
Delaware, which, along with its subsidiaries, accounted for 2 percent of the
Corporation's consolidated assets at December 31, 1999. Bankers Trust (Delaware)
engages in commercial banking activities, with an emphasis on lending, funding
and corporate finance.
Supervision and Regulation
Bankers Trust is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, and as such is required to register with the Federal
Reserve Board. As a registered bank holding company, Bankers Trust is required
to file with the Federal Reserve Board certain reports and information and is
restricted in certain of its acquisitions, some of which are subject to approval
by the Federal Reserve Board. In addition, Bankers Trust may be required to
obtain the approval of the New York State Banking Department in order for it to
acquire certain bank and non-bank subsidiaries.
Bankers Trust and its nonbank subsidiaries are affiliates of BTCo and
Bankers Trust (Delaware) within the meaning of applicable federal statutes, and
such banks are therefore subject to restrictions on loans and other extensions
of credit to Bankers Trust and certain other affiliates and on certain other
types of transactions with them or involving their securities.
BTCo is subject to the supervision of, and to examination by, the New York
State Banking Department, the Federal Reserve Board and the Federal Deposit
Insurance Corporation. Bankers Trust (Delaware) is subject to regulation by the
Office of the State Bank Commissioner of the State of Delaware and by the
Federal Deposit Insurance Corporation. See Note 14 of Notes to Financial
Statements for the required reserve balances maintained by the Corporation's
subsidiary banks at a Federal Reserve Bank and limitations on the availability
of BTCo's undistributed earnings for the payment of dividends.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") provides for cross-guarantees of the liabilities of insured
depository institutions pursuant to which any bank or savings association
subsidiary of a holding company may be required to reimburse the FDIC for any
loss or anticipated loss to the FDIC that arises from a default of any other
subsidiary bank or savings association of the parent holding company or
assistance provided to such an institution in danger of default.
In December 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted. FDICIA substantially revised the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and
revised several other federal banking statutes.
FDICIA establishes five capital categories, ranging from "well
capitalized," to "critically undercapitalized." A depository institution is well
capitalized if it significantly exceeds the minimum level required by regulation
for each relevant capital measure. Under FDICIA, an institution that is not well
capitalized is generally prohibited from accepting brokered deposits and
offering interest rates on deposits higher than the prevailing rate in its
market; in addition, "pass through" insurance coverage may not be available for
certain employee benefit accounts. FDICIA also requires an undercapitalized
depository institution to submit an acceptable capital restoration plan to the
appropriate federal bank regulatory agency. One requisite element of such a plan
is that the institution's parent holding company must guarantee compliance by
the institution with the plan, subject to certain limitations. In the event of
the parent holding company's bankruptcy, the guarantee, and any other
commitments that the parent holding company has made to federal bank regulators
to maintain the capital of its depository institution subsidiaries, would be
assumed by the bankruptcy trustee and entitled to priority in payment.
Based on their respective regulatory capital ratios at December 31, 1999,
both BTCo and Bankers Trust (Delaware) are well capitalized, based on the
definitions in the regulations issued by the Federal Reserve Board and the other
federal bank regulatory agencies setting forth the general capital requirements
mandated by FDICIA. See Note 15 of Notes to Financial Statements for information
regarding the Corporation's and BTCo's regulatory capital ratios.
FDICIA contains numerous other provisions, including reporting
requirements, termination of the "too big to fail" doctrine except for special
cases, limitations on the FDIC's payment of deposits at foreign branches and
revised regulatory standards for, among other things, real estate lending and
capital adequacy.
A federal depositor preference statute was enacted in 1993 providing that
deposits and certain claims for administrative expenses and employee
compensation against an insured depository institution would be afforded a
priority over other general claims against such an institution, including
federal funds and letters of credit, in the "liquidation or other resolution" of
such an institution by any receiver.
In November 1999 federal financial modernization legislation was enacted
which allows qualifying banks and bank holding companies to elect to be treated
as financial holding companies ("FHCs"). FHCs may engage in a broader range of
activity than non-FHCs, which will be limited to the activities traditionally
permissible for bank holding companies. Although bank regulatory authorities
have issued interim and proposed regulations, the full scope of the new powers
available to FHCs will only become clear after the bank regulatory authorities
adopt final implementing regulations. The expanded activities will include
insurance underwriting and agency activities, and expanded securities, mutual
fund and merchant banking activities. The ability to engage in information
technology and data processing related businesses will also be expanded. The
expanded scope of activities permits the affiliation of firms, such as banks and
insurance companies, not permissible under prior law. In order to qualify to
make the FHC election, the electing foreign bank or the bank subsidiaries of the
electing bank
68 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
holding company, as the case may be, must be "well capitalized", "well managed",
and, if subject to the CRA, have at least a "satisfactory" CRA rating. In the
case of Bankers Trust, Deutsche Bank, BTCo and Bankers Trust (Delaware) would
all be required to meet the standards (or their equivalent) for it to elect FHC
status.
The modernization legislation also modifies current law related to
financial privacy and community reinvestment. The new financial privacy
provisions will generally prohibit financial institutions, including the
Corporation, from disclosing nonpublic personal financial information to third
parties unless customers have the opportunity to "opt out" of the disclosure.
Although Deutsche Bank has received FHC status, the Corporation at this time is
unable to predict the impact the modernization legislation may have on it and
its affiliates.
In addition to banking and securities laws, regulations and regulatory
agencies governing the Corporation worldwide, the Corporation also is subject to
various other laws, regulations and regulatory agencies throughout the United
States and in other countries, including Germany. Furthermore, various
proposals, bills and regulations have been, and may in the future be, considered
in the United States Congress, the New York State Legislature and various other
governmental regulatory and legislative bodies, which could result in changes in
the profitability and governance of the Corporation.
References under the caption "Supervision and Regulation" to applicable
statutes, regulations and orders are brief summaries of portions thereof which
do not purport to be complete and which are qualified in their entirety by
reference thereto.
Important Factors Relating to Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information about their companies without fear of litigation so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in such statements. In
connection with certain statements made in this report and those that may be
made in the future by or on behalf of the Corporation which are identified as
forward-looking statements, the Corporation notes that the following important
factors, among others, could cause actual results to differ materially from
those set forth in any such forward-looking statements. Further, such
forward-looking statements speak only as of the date on which such statement or
statements are made, and the Corporation undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events.
The business and profitability of a large financial services organization
such as the Corporation is influenced by prevailing economic conditions and
governmental policies, both foreign and domestic. The actions and policy
directives of the Federal Reserve Board determine to a significant degree the
cost and the availability of funds obtained from money market sources for
lending and investing. Federal Reserve Board policies and regulations also
influence, directly and indirectly, the rates of interest paid by commercial
banks on their interest-bearing deposits and may also impact the value of
financial instruments held by the Corporation. The nature and impact on the
Corporation of future changes in economic and market conditions and monetary and
fiscal policies, both foreign and domestic, are not predictable and are beyond
the Corporation's control. In addition, these conditions and policies can impact
the Corporation's customers and counterparties which may increase the risk of
default on their obligations to the Corporation and its affiliates. They can
also affect the competitive conditions in the markets and products within which
the Corporation operates, which can have an adverse impact on the Corporation's
ability to maintain its revenue streams.
As part of its ongoing business, the Corporation assumes financial
exposures to interest rates, currencies, equities and other financial products.
In doing so, the Corporation is subject to unforeseen events which may not have
been anticipated or which may have effects which exceed those assumed within its
risk management processes. This risk can be accentuated by volatility and
reduction in liquidity in those markets which in turn can impact the
Corporation's ability to hedge and trade the positions concerned. In addition,
the Corporation is dependent on the ability of Deutsche Bank to access the
financial markets for its funding needs.
The operations of the Corporation and its affiliates, which are widely
diversified geographically and vary from country to country, involve certain
economic, political and legal risks which differ from those associated with
their U.S. operations. These risks include, among others, the possibility of
expropriation of assets, exchange rate fluctuations, severe reductions in
business levels, restrictions on the withdrawal of funds, balance-of-payments
problems and changes in laws and regulations. In addition, in certain
jurisdictions the operations of the Corporation and its affiliates may involve
legal uncertainties. See "Cross-Border Outstandings" on page 21. Further,
certain financial institutions with which the Corporation competes may not be
subject to the same regulatory restrictions as the Corporation and its
affiliates which may make it more difficult for the Corporation to compete with
those institutions for business.
Bankers Trust Corporation and its Subsidiaries 69
<PAGE>
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As noted in "Supervision and Regulation" on page 68, the Corporation is
regulated by and subject to various domestic and international regulators. The
actions of these regulators can have an impact on the profitability and
governance of the Corporation. Increases by regulatory authorities of minimum
capital, reserve, deposit insurance and other financial viability requirements
can also affect the Corporation's profitability.
The Corporation is subject to operational and control risk which is the
potential for loss caused by a breakdown in communication, information,
processing and settlement systems or processes or a lack of compliance with the
procedures on which they rely either within the Corporation and its affiliates
or within the broader financial systems infrastructure.
As with any large financial institution, the Corporation is also subject
to the risk of litigation and to an unexpected or adverse outcome in such
litigation. Competitive pressures in the marketplace and unfavorable or adverse
publicity and news coverage can have the effect of lessening customer demand for
the Corporation's services. Ultimately, the Corporation's businesses and their
success are dependent on the Corporation's ability to attract and retain high
quality employees.
Properties
BTCo owns a 39-story building at 130 Liberty Street, a 10-story office building
at 4 Albany Street, both in Manhattan, and a 998-year leasehold interest in an
eight-story office building in the Broadgate complex in London, England. The
other principal office premises leased are a portion of a 42-story office
building located at 280 Park Avenue, (formerly an owned property), seven stories
of a 37-story building at 14-16 Wall Street, four stories of the office complex
at the World Trade Center, all in Manhattan, an eight-story building in Jersey
City, New Jersey, and a three-story building in Nashville, Tennessee. Portions
of certain of these properties are leased to tenants or subtenants. In addition
to the offices referred to above, branch offices and locations for other
activities are occupied in cities throughout the world under various types of
ownership and leaseholds. See Note 7 of Notes to Financial Statements for
additional information concerning lease commitments.
Litigation and Related Matters
Pursuant to an agreement (the "Agreement") with the United States Attorney's
Office in the Southern District of New York entered into in 1999, BTCo pleaded
guilty to misstating entries in the bank's books and records, constituting a
criminal violation of Title 18, United States Code, Section 1005 and paid a fine
to federal and state authorities. Although the Agreement concludes the United
States Attorney's Office's investigation of BTCo, BTCo continues to cooperate
with and provide information to the United States Attorney's Office and other
regulatory agencies and authorities, including the Securities and Exchange
Commission ("Commission"), regarding this matter. As a consequence of its guilty
plea, BTCo and/or certain affiliates have received certain exemptions and
continue to seek other exemptions from regulatory agencies and authorities,
including the Commission, to continue to provide certain services to its
clients. Although no assurance can be given that such exemptions will be
granted, the Corporation does not expect further consequences of the Agreement
to be materially adverse to the consolidated financial statements of the
Corporation. Additional information with respect to the foregoing is set forth
in the Corporation's Current Report on Form 8-K filed on March 12, 1999 with the
Commission.
In addition to the matter described above, various legal actions and
proceedings involving Bankers Trust and various of its subsidiaries are
currently pending. Management, after discussions with counsel, does not
anticipate that losses, if any, resulting from such actions and proceedings
would be material.
Proposed Merger of Deutsche Bank AG and Dresdner Bank AG
On March 9, 2000, Deutsche Bank AGand Dresdner Bank AG announced their
intention to merge. Dresdner Bank AG is one of the largest banks in Germany.
The merger, which the parties expect to complete by January 2001, is
subject to the approval of the shareholders of Deutsche Bank AG and Dresdner
Bank AG and of various authorities worldwide.
70 Bankers Trust Corporation and its Subsidiaries
<PAGE>
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Directors of the Registrant
Dr. Josef Ackermann
Director since 1999
Member of the Group Board of Deutsche Bank AG
Chairman of the Board, Chief Executive Officer and President of the Corporation
and Bankers Trust Company
Chairman of the Supervisory Board of Deutsche Bank Luxembourg S.A, and member of
the Supervisory Boards of Eurex Frankfurt AG, Eurex Zurich AG, Linde AG, Stora
Enso Oyj and Mannesmann AG. Dr. Ackermann relinquished his title as President of
the Corporation and Bankers Trust Company effective January 1, 2000. Age 52.
Hans H. Angermueller
Director since 1999
Director of Bankers Trust Company. Counsel, Shearman & Sterling. Age 75.
George B. Beitzel
Director since 1977
Director of Various Corporations
Director of Bankers Trust Company. Retired Senior Vice President and Director,
International Business Machines Corporation. Also a director of Computer Task
Group, Inc. and Staff Leasing, Inc. Age 71.
William R. Howell
Director since 1986
Retired Chief Executive Officer and Chairman of the Board of J.C. Penney
Company, Inc.
Director of Bankers Trust Company. Also a director of Exxon Mobil Corporation,
Halliburton Company, Warner-Lambert Corporation, Williams, Inc., and Central &
South West Corp.; and chairman, Southern Methodist University Board of Trustees.
Age 64.
Hermann-Josef Lamberti
Director since 1999
Member of the Group Board of Deutsche Bank AG
Executive Vice President of Deutsche Bank AG
Director of Bankers Trust Company. Vice Chairman of Bankers Trust Corporation
and Bankers Trust Company since August 19, 1999. Board member of Euroclear plc
(London), Euroclear sc. (Brussels) and The Clearing House Interbank Payments Co.
L.L.C. (New York); and supervisory board member of GZS (Frankfurt) and European
Transaction Bank (e.t.b.); and Advisory Council Member of Carl Zeiss Stiftung,
Oberkochen. Mr. Lamberti relinquished his title as Vice Chairman of Bankers
Trust Company effective January 1, 2000. Age 44.
John A. Ross
Director since 1999
Chief Executive Officer of Deutsche Bank Americas Holding Corp.
Director of Bankers Trust Company. President of the Corporation and Bankers
Trust Company as of January 1, 2000. Member of the Group Management Committee of
Deutsche Bank AG. Also a director and chief executive officer of Taunus
Corporation and director of Deutsche Bank Securities Inc. and DB Alex. Brown
LLC. Age 55.
Dr. Ronaldo H. Schmitz
Director since 1999
Member of the Group Board of Deutsche Bank AG
Director of Bankers Trust Company. Chairman of Deutsche Bank Americas Holding
Corp. Also a director of Deutsche Bank S.A.E.--Spain, Rohm and Haas and
INSEAD--Paris, France; member of the advisory board, Morgan Grenfell Private
Equity Fund; member of the Supervisory Board of Bertelsmann AG; non-executive
board member, Glaxo Wellcom plc; member of the board of trustees, American
Institute for Advanced Studies and American Institute for Contemporary German
Studies; member of the board, Harvard Business School; and member, Central
Capital Committee of Bundesverband Deutscher Banken (Federation of German
Banks). Age 61.
Bankers Trust Corporation and its Subsidiaries 71
<PAGE>
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EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------------------------------------
Set forth below are the names and ages of the executive officers of Bankers
Trust, positions held and the year from which held. These officers are elected
annually by the Board of Directors. There are no family relationships among such
persons.*
Dr. Josef Ackermann, 52
Chairman of the Board and Chief Executive Officer
Chairman of the Board, Chief Executive Officer and President of Bankers Trust
and BTCo since July 1, 1999. Member of the Group Board of Deutsche Bank AG.
Also, Chairman of the Supervisory Board of Deutsche Bank Luxembourg S.A. Dr.
Ackermann formerly held the position of President of the Executive Board of
Credit Suisse from 1993 to 1996, of which he was a member since 1990. Dr.
Ackermann relinquished his title as President of Bankers Trust and BTCo.
effective January 1, 2000.
Mary Cirillo, 52
Executive Vice President
Executive Vice President of Bankers Trust and Managing Director of BTCo since
June 1997. Executive Vice President of BTCo, effective January 1, 2000. Chief
Executive Officer of BTCo's Global Institutional Services business and
Divisional Board Member of BTCo's Global Technology & Services business. Ms.
Cirillo formerly held many positions in her 20-year career at Citicorp,
including division executive from 1989 to 1992; senior corporate officer for the
business evaluation and corporate re-engineering unit from 1993 to 1994; and
Senior Vice President of Global Finance Operations and Technology from 1994 to
1997. Ms. Cirillo resigned as an officer of Bankers Trust and BTCo effective
March 1, 2000.
Yves C. de Balmann, 53
Vice Chairman
Vice Chairman of Bankers Trust since April 1997. Senior Vice President of
Bankers Trust 1995-1997. Managing Director of BTCo from 1988 to September 1997.
He is Co-Chairman and Co-Chief Executive Officer of DB Alex.Brown LLC and
Deutsche Bank Securities Inc., and Co-Head of Global Investment Banking for
Deutsche Bank.
Michael Fazio, 38
Executive Vice President and Chief Administrative Officer
Executive Vice President and Chief Operating Officer of Bankers Trust and
Managing Director and Chief Operating Officer of BTCo since August 1, 1999.
Effective January 1, 2000, Executive Vice President and Chief Administrative
Officer of both Bankers Trust and BTCo. Mr. Fazio was formerly a Partner at
Arthur Andersen LLP, where he was in charge of the New York Banking, Brokerage
and Investment Banking Industry Program, the Business Process Risk Consulting
Services for financial market clients, as well as a member of the firm's Global
Financial Markets Advisory Committee. Mr. Fazio resigned as an officer of
Bankers Trust and BTCo effective March 1, 2000.
Hermann-Josef Lamberti, 44
Vice Chairman
Vice Chairman of Bankers Trust and BTCo. since August 19, 1999. Executive Vice
President of Deutsche Bank AG since December 1998. Member of the Group Board of
Deutsche Bank AG. Mr. Lamberti formerly held the position of General Manager of
IBM, Germany from 1997 to 1998 and Vice President Marketing and Brand Management
from 1995 to 1996. Mr. Lamberti relinquished his title as Vice Chairman of BTCo
effective January 1, 2000.
Troland S. Link, 63
General Counsel
General Counsel of Bankers Trust and Managing Director and General Counsel of
BTCo since July 21, 1999. Also, General Counsel of Deutsche Bank Americas since
1997. Mr. Link was formerly a Partner at Davis Polk & Wardwell.
Eugene A. Ludwig, 53
Vice Chairman
Vice Chairman of Bankers Trust and BTCo since May 1998. Mr. Ludwig formerly held
the positions of Comptroller of the Currency of the United States from 1993 to
April 1998, chairman of the Federal Financial Institutions Examination Council,
chairman of Neighborhood Housing Services, and director of the Federal Deposit
Insurance Corporation. Mr. Ludwig was head of the Control Committee and Capital
Commitment Committee and was responsible for risk and control, legal, regulatory
and other governmental issues central to implementing global strategies in
securities underwriting, lending and related businesses. In addition, Mr. Ludwig
was responsible for the Firm's corporate responsibility area. Mr. Ludwig
resigned as an officer of Bankers Trust and BTCo effective December 31, 1999.
Rodney A. McLauchlan, 46
Executive Vice President
Executive Vice President of Bankers Trust since April 1997. Senior Vice
President of Bankers Trust from 1992 to April 1997. Managing Director of BTCo
1987-1995 and since 1998. He has held the position of Managing Director of DB
Alex. Brown LLC (and its predecessors BT Securities Corporation and BT Alex.
Brown Incorporated) since 1995. Mr. McLauchlan is Chief Executive Officer of
Latin America for the Deutsche Bank Group.
John A. Ross, 55
President
President of Bankers Trust and BTCo since January 1, 2000. Chief Executive
Officer of Deutsche Bank Americas Holding Corp. since October 25, 1999. Mr. Ross
formerly held senior management positions in his 21-year career at The Bank of
New York, including Executive Vice President, Head of Global Asset and Liability
Management.
Mayo A. Shattuck III, 45
Vice Chairman
Vice Chairman of Bankers Trust since September 1997. He formerly held the
positions of President and Chief Operating Officer of Alex. Brown Incorporated
from 1991 to September 1997. He is Co-Chairman and Co-Chief Executive Officer of
DB Alex. Brown LLC and Deutsche Bank Securities Inc., and Co-Head of Global
Investment Banking for Deutsche Bank.
* Certain of the executive officers held the Senior Managing Director title
for a portion of 1996 and 1997. BTCo eliminated the title effective
January 1, 1998 and reverted to the use of the Managing Director title as
the most senior title below that of Vice Chairman.
72 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
Interest of Directors and Executive Officers and Their Associates in
Transactions with the Corporation
Some of the Corporation's directors and executive officers and their associates,
including affiliates and related interests, are customers of the Corporation
and/or subsidiaries of the Corporation, and some of the Corporation's directors
and executive officers and their associates, including affiliates and related
interests, from time to time are directors or officers of, or investors in,
corporations or members of partnerships or have an interest in other entities
which are customers of the Corporation and/or such subsidiaries. As such
customers, they have had transactions in the ordinary course of business with
the Corporation and/or such subsidiaries, including borrowings, all of which
were on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons
and did not involve more than normal risk of collectibility or present other
unfavorable features.
Extension of Directors and Officers Liability Insurance Program
Deutsche Bank maintains Directors & Officers Liability Insurance, under which
Bankers Trust Corporation is co-insured. This program will reimburse Bankers
Trust and/or any of its subsidiaries for certain payments they may be required
to make in indemnifying their directors and officers, and covers directors and
officers against certain liabilities and expenses for which they may not or
cannot be indemnified by Bankers Trust and/or any of its subsidiaries. The
program also includes coverage for a director or an officer who serves as a
director of a non-subsidiary corporation at the request of the Corporation. This
program is written by Zurich Insurance and other major insurance companies.
Committees of the Board of Directors
Following is a description of each of the Board Committees maintained by the
Corporation and the Bank. Included with the description is the number of times
each Committee met since that date and a list of the current members of each
such Committee:
Executive Committee (also functions as the Dividend and Price Committees)-- 2
Meetings
The Executive Committee acts for the Board of Directors when the Board is not in
session, subject to certain statutory limitations on its authority. The
Committee also considers and acts on matters which do not require full Board
consideration and approval and, upon the request of Management, it considers
some matters on a preliminary basis before their submission for full Board
consideration and approval. This Committee also serves as the Dividend Committee
to declare and set aside contractually required dividends (such as those
dividends declared from time to time on preferred stock issues) which may become
due during the periods between scheduled Board meetings. Current Members: Josef
Ackermann, Chair; Hans H. Angermueller; George B. Beitzel; John A. Ross; and
Ronaldo H. Schmitz.
Audit and Fiduciary Committee -- 7 Meetings
The Audit and Fiduciary Committee is comprised entirely of independent outside
directors and is appointed annually by the Board of Directors to oversee the
accounting, reporting and audit practices established by Management. The
function of the Committee, which meets at least quarterly, is twofold. It
monitors the effectiveness and quality of the system of internal accounting
policies, standards and controls designed to insure the accurate and efficient
reporting of financial activities, safeguarding of assets, proper exercise of
fiduciary powers and compliance with laws and regulations. The Committee meets
regularly with Management, the internal auditors, the internal credit auditors
and the independent external auditors (the "Auditors"). The Auditors have free
access to the Committee without the presence of Management. The Committee also
reviews the quality and effectiveness of the organizational structure of the
trust and fiduciary business units of the Corporation and the Bank and its
subsidiaries to ensure the proper exercise of fiduciary policies. In addition,
the Committee monitors the activities of management fiduciary committees
appointed from time to time by the Board of Directors, reviews the effective
implementation of policies, practices and procedures to prevent conflicts of
interest or improper interrelation between the administration of the fiduciary
and banking functions of the Bank. The Committee reports regularly to the Board
of Directors on its activities and such other matters as it deems necessary.
Current Members: Hans H. Angermueller, Chair; George B. Beitzel; and William R.
Howell.
Bankers Trust Corporation and its Subsidiaries 73
<PAGE>
- --------------------------------------------------------------------------------
Committee on Public Responsibility and Concern -- 2 Meetings
The Committee on Public Responsibility and Concern, which is appointed annually
by the Board of Directors, reviews policy and audits the performance of the
Corporation in the discharge of its social responsibilities, which include, but
are not limited to, the Corporation's Equal Opportunity and Vendor Outreach
programs, community reinvestment activities, contributions program and
compliance with labor and employment laws and regulations. Current Members: John
A. Ross, Chair; George B. Beitzel; William R. Howell; Hermann-Josef Lamberti;
and Ronaldo H. Schmitz.
Transaction Authorization Committee -- 2 Meetings
The Transaction Authorization Committee, which is comprised of at least two
directors appointed annually by the Board of Directors, acts for the Board to
approve certain transactions, including rated securitization transactions.
Current Members: John A. Ross, Chair; and Josef Ackermann.
In addition to the Committee meetings shown above, there were six regularly
scheduled meetings of the Board of Directors following the Deutsche Bank
acquisition of the Corporation. Director attendance at Board meetings during the
period June 22-December 13, 1999 averaged 88%; aggregate attendance at Committee
meetings during the same period averaged 87%. Meeting attendance was below 75%
for Mr. Howell and Dr. Schmitz, due to previously scheduled commitments.
Compensation of Non-Officer Directors
Each director who is not also an employee of the Corporation, the Bank or
Deutsche Bank AG (each, a "non-officer director") receives an annual cash
retainer of $32,000. For each Board, Executive Committee and Committee on Public
Responsibility and Concern meeting he attends, a non-officer director receives a
fee of $1,000. The Chairman of the Committee on Public Responsibility and
Concern receives an additional annual fee of $3,000. Members of the Audit and
Fiduciary Committee receive a fee of $5,000 for each meeting he attends and the
Chairman of the Committee receives an additional annual fee of $5,000. No fees
are paid to members of the Transaction Authorization Committee. Travel and
out-of-pocket expenses of the directors in connection with their attendance at
Board or Committee meetings are either paid for or reimbursed by the Committee.
74 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
I. Summary Compensation Table ($000 omitted)
<TABLE>
<CAPTION>
Long Term
Compensation
---------------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------- ---------------------- ---------
Bonus
--------------------------------- Shares
Total Other Annual Restricted Underlying LTIP
Named Executive Officer Year Salary Cash(c) + Stock(d) = Bonus Compensation(e) Stock Awards Options Payouts(f)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Frank N. Newman(a) 1999 $ 900.0 $ 1,799.2 $ -- $ 1,799.2 $ 6.6 -- -- $19,509.3
Chairman, Chief Executive 1998 900.0 -- -- -- 148.4 -- -- 2,989.6
Officer & President 1997 900.0 5,760.7 4,204.6 9,965.3 72.1 -- 80,000 1,031.3
Dr. Josef Ackermann(b) 1999 -- -- -- -- -- -- -- --
Yves C. de Balmann 1999 350.0 5,005.0 2,145.0 7,150.0 2,827.2 -- -- 22,542.7
Vice Chairman 1998 350.0 1,012.0 4,048.0 5,060.0 923.2 -- -- 2,391.7
1997 350.0 4,030.7 3,821.0 7,851.7 -- -- 60,000 825.0
Mayo A. Shattuck III 1999 350.0 5,005.0 2,145.0 7,150.0 2,825.7 -- -- 6,965.9
Vice Chairman 1998 350.0 1,012.0 4,048.0 5,060.0 -- -- 60,000 --
1997 66.7 5,510.7 1,000.0 6,510.7 -- -- 80,000 6,572.7
Mary Cirillo 1999 350.0 3,650.0 -- 3,650.0 -- -- -- 5,941.9
Executive Vice President 1998 350.0 580.0 2,320.0 2,900.0 44.6 -- -- --
1997 175.0 1,350.0 1,577.3 2,927.3 -- 901.3 50,000 --
Rodney A. McLauchlan 1999 350.0 2,650.0 -- 2,650.0 7,500.0 -- -- 15,059.1
Executive Vice President
<CAPTION>
All Other
Named Executive Officer Compensation(g)
- ---------------------------------------------
<S> <C>
Frank N. Newman(a) $ 9.6
Chairman, Chief Executive 691.6
Officer & President 617.6
Dr. Josef Ackermann(b) --
Yves C. de Balmann 9.6
Vice Chairman 1,077.5
907.8
Mayo A. Shattuck III 9.6
Vice Chairman 79.7
9.0
Mary Cirillo 9.6
Executive Vice President 102.1
719.1
Rodney A. McLauchlan 9.6
Executive Vice President
</TABLE>
(a) Mr. Newman resigned as Chairman, Chief Executive Officer and President
effective June 30, 1999.
(b) Dr. Ackermann received no compensation for acting as President and Chief
Executive Officer of the Corporation subsequent to the Acquisition.
Compensation is paid to Dr. Ackermann by Deutsche Bank for services
performed by Dr. Ackermann for Deutsche Bank and its affiliates other than
the Corporation and its subsidiaries.
(c) Includes annual bonus part of which was paid in July 1999. Mr. Newman
received a pro rata bonus in July 1999.
(d) Includes the value of shares under Deutsche Bank's Share Scheme Plan.
Under this Plan, shares are deferred and vest in equal installments for
three years. For 1999, Messrs. de Balmann and Shattuck were each awarded
shares under the Share Scheme Plan valued at $2,145,000.
(e) Other Annual Compensation reflects amounts as follows: Newman -- $6,598
for ground transportation; de Balmann -- $27,207 for ground
transportation; and Shattuck -- $25,697 for ground transportation. Other
Annual Compensation also reflects the value of Deutsche Bank stock
appreciation rights. For 1999, Messrs. de Balmann and Shattuck were each
awarded stock appreciation rights valued at $2,799,976. Other Annual
Compensation for Mr. McLauchlan represents a retention payment from the
Corporation.
(f) Includes LTIP payouts for all deferred compensation amounts, awarded in
prior years, which vested in full on June 4, 1999, the change-of-control
("COC") date. Also, includes payment for unexercised options outstanding
on the COC date at $93.00 per option less the exercise price. Total COC
payouts (excluding pro rata bonus included in bonus column) were as
follows: Newman -- $19,509,264; de Balmann -- $22,542,695; Shattuck --
$6,965,877; McLauchlan -- $15,059,068; and Cirillo -- $5,941,861. Messrs.
de Balmann, Shattuck, and Ms. Cirillo received one-third of the payout in
July 1999. The remaining two-thirds was deferred over the next two years
pursuant to the Employment Agreements described below.
(g) Includes company contributions to defined contribution plans.
Bankers Trust Corporation and its Subsidiaries 75
<PAGE>
- --------------------------------------------------------------------------------
Employment Agreements
In connection with the Acquisition of the Corporation by Deutsche Bank, the
Corporation entered into agreements with Yves C. de Balmann, Mayo A. Shattuck
III, Mary Cirillo and Rodney A. McLauchlan (the "Employment Agreements"). Each
Employment Agreement is generally for a three-year term expiring on the third
anniversary of the date of the Acquisition. Each Employment Agreement provides
for an annual base salary (the "Base Salary") of at least $350,000 and an annual
bonus (the "Annual Bonus") of at least $7.15 million (in the case of Messrs. de
Balmann and Shattuck), $3.65 million (in the case of Ms. Cirillo) and $2.65
million (in the case of Mr. McLauchlan). A portion of each exec utive's Annual
Bonus will be payable in cash, with the balance payable in, or based on the
value of, Deutsche Bank common stock (the "Equity Bonus Portion"). The Equity
Bonus Portion of the Annual Bonus for the executives will vest in three equal
installments on the first, second and third anniversaries of the date of the
Acquisition (in the case of awards made in respect of 1999), in two equal
installments on each of the second and third anniversaries of the date of the
Acquisition (in the case of awards made in respect of 2000) and in full on the
third anniversary of the date of the Acquisition (in the case of awards made in
respect of 2001). Certain of the Employment Agreements provide for the deferral
of certain amounts otherwise due to the executives under incentive compensation
plans of the Corporation. Each Employment Agreement also provides for a
retention bonus (the "Retention Bonus"), 50% of the value of which is payable in
cash and 50% of the value of which may be paid in, or based on the value of,
Deutsche Bank common stock. The Retention Bonus is payable in two equal
installments on each of the second and third anniversaries of the Acquisition
date. The initial values of the Retention Bonuses were $8 million in the case of
Ms. Cirillo, $15 million in the case of each of Messrs. de Balmann and Shattuck
and $7.5 million, in the case of Mr. McLauchlan. Mr. McLauchlan subsequently
entered into an agreement pursuant to which his Retention Bonus was paid to him
in cash in 1999. During the employment period, each executive will be eligible
to participate in the employee benefit plans of the Corporation and its
affiliates and will generally receive service credit for all prior service with
the Corporation and its affiliates.
If, during the employment period, the employment of an executive is
terminated by the Corporation without Cause (as such term is defined in the
Employment Agreements) or such executive terminates his or her employment for
Good Reason (as such term is defined in the Employment Agreements), such
executive will be entitled to receive (i) any unpaid Base Salary and Annual
Bonus for the remainder of the employment period, (ii) any unvested Equity Bonus
Portion of the Annual Bonus will become vested and payable based on the
prevailing value of Deutsche Bank common stock, and (iii) any unpaid Retention
Bonus will become vested and payable. The termination benefits payable under the
Employment Agreements generally supercede and replace any benefits due the
executive under the Bankers Trust Change of Control Severance Plan I described
below. If an amount payable to an executive under the Employment Agreement or
otherwise would subject such executive to the excise tax under Section 4999 of
the Code, the Corporation will make an additional payment to such executive such
that after the payment of all income and excise taxes, the executive will be in
the same after-tax position as if no excise tax under Section 4999 of the Code
had been imposed.
In connection with the Acquisition, the Corporation entered into a similar
Employment Agreement with Frank N. Newman which would have expired in December
2003, and provided for an annual Base Salary of at least $900,000 and an Annual
Bonus of at least $10.1 million, a portion of which would have been payable in,
or based upon the value of Deutsche Bank common stock. Mr. Newman was also
entitled to rights similar to those described above. Subsequent to the
Acquisition, Mr. Newman resigned from his positions at the Corporation, and his
rights under the Employment Agreement were terminated pursuant to a Separation
Agreement described below.
In June 1999, Frank N. Newman, former Chairman of the Board and Chief
Executive Officer of the Corporation, terminated his Employment Agreement with
the Corporation. In connection therewith, Mr. Newman and the Corporation entered
into a Separation Agreement (the "Separation Agreement"), the princi-pal terms
of which provided for, in addition to long-term incentive plan payouts described
under "Summary Compensation Table" to Mr. Newman, cash payments and other
benefits having a value of approximately $57 million. The Corporation also
agreed to honor its obligations with respect to excise taxes on the payments
under the Employment Agreement described above, and to continue certain health
and similar benefits for a period of time.
In February 2000, Mary Cirillo resigned, effective March 1, 2000. In
connection with such resignation, Ms. Cirillo entered into a Solicitation and
Consulting Agreement with Deutsche Bank, the principal terms of which provided
for a payment of $17 million (the total of the annual payments remaining due
under the Employment Agreement) and the continued deferral of certain other
amounts payable pursuant to her Employment Agreement described above. Deutsche
Bank also agreed to continue certain health and welfare benefits for a period of
time. Ms. Cirillo agreed to act as a consultant for a twelve-month period
following the termination date.
Change of Control Agreements
Pursuant to the Corporation's Change of Control Severance Plan I, upon
termination of employment by the Corporation without "Cause" or by the executive
officer for "Good Reason" (as such terms are defined in the Change of Control
Severance Plan) during the two-year period immediately following a "Change of
Control" of the Corporation (as defined below), each of the named executive
officers would be entitled to receive a severance benefit equal to three times
the sum of his base salary and the greater of average
76 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
annual bonus paid during the three-year period immediately preceding the Change
of Control or annual bonus paid in the year immediately preceding the Change of
Control. Such severance benefits may not exceed $7.5 million per employee. Under
the Corporation's stock option and stock award plans, upon a Change of Control,
all Stock Options become exercisable and all deferred stock, restricted stock
and other stock-based awards become vested and immediately payable. Similarly,
upon a Change of Control, the POPI and POP II units become vested and
immediately payable.
A Change of Control is defined generally as (i) the acquisition of 20% or
more of the outstanding voting securities of the Corporation by an individual,
entity, or group, other than from the Corporation; (ii) a change in the majority
of the board of directors of the Corporation that is not approved by at least a
majority of the current directors and those directors similarly approved
("incumbent directors"); (iii) the consummation of a merger, consolidation, or
similar transaction involving the Corporation, unless immediately following such
transaction:(A) more than 60% of the voting power of the resulting corporation's
voting securities are represented by the Corporation's voting securities that
were outstanding immediately prior to the transaction, (B) no person becomes the
beneficial owner of 20% or more of the outstanding voting securities of the
resulting corporation and (C) at least a majority of the board of directors of
the resulting corporation were incumbent directors of the Corporation at the
time of the approval of the transaction by the Corporation's board of directors;
or (iv) the sale or disposition of all or substantially all of the assets of the
Corporation or a liquidation of the Corporation.
In the event any of the named executive officers is subject to the 20%
excise tax under Section 4999 of the Code, such individual would be reimbursed
in an amount sufficient to offset such excise tax unless such reimbursement
could be avoided by reducing the severance payments received by the named
executive officer by an amount that is less than 10% of his severance payments.
The Change of Control Severance Policy also provides that, contingent on a
Change of Control, the named executive officers would be entitled to certain
welfare benefits for up to three years following termination.
The foregoing benefits were generally replaced by, and certain amounts
payable thereunder were deferred pursuant to, the Employment Agreements referred
to above.
Pension Plan
Effective January 1, 1999, the Corporation's tax-qualified defined benefit
pension plan was amended to: (i) convert to a cash balance plan (a type of
defined benefit plan) for employees active on December 31, 1998. Opening
balances were established based upon participants' December 31, 1998 accrued
pension benefit plus, in certain cases based on age and length of service, 5
percent, GAM83 unisex mortality tables and the thirty (30) year Treasury bond
rate for November, 1998. Special transition rules were used for participants
eligible to retire under the prior plan and for participants age 50 or greater
or whose age and service equaled 60 or greater. Participant cash balance
accounts increase through annual Pay Credits (a percentage of base pay, up to
the IRS limit, based on age) and monthly Interest Credits (based on the one (1)
year Treasury bill rate for the November of the prior year plus 1 percent); (ii)
change the vesting schedule to 25 percent vested after three (3) years, 50
percent after four (4) years and 100 percent after five (5) years of service;
and (iii) include former Alex. Brown employees as participants in the Plan
effective January 1, 1999 with eligibility (vesting) service from their original
date of hire.
At December 31, 1999, cash balances for Messrs. de Balmann, Shattuck,
McLauchlan and Ms. Cirillo were $245,874, $11,200, $322,112 and $24,488,
respectively.
Bankers Trust Corporation and its Subsidiaries 77
<PAGE>
- --------------------------------------------------------------------------------
Form 10-K Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 30, 2000.
Bankers Trust Corporation
By /S/ JAMES T. BYRNE, JR.
----------------------------------------------------------
(James T. Byrne, Jr., Senior Vice President and Secretary)
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 30, 2000.
DR. JOSEF ACKERMANN* Chairman of the Board,
- --------------------------- Chief Executive Officer
(Dr. Josef Ackermann) and Director (Principal
Executive Officer)
DOUGLAS R. BARNARD* Chief Financial Officer
- --------------------------- (Principal Financial Officer)
(Douglas R. Barnard)
RONALD HASSEN* Senior Vice President and
- --------------------------- Controller (Principal
(Ronald Hassen) Accounting Officer)
HANS H. ANGERMUELLER* Director
- ---------------------------
(Hans H. Angermueller)
GEORGE B. BEITZEL* Director
- ---------------------------
(George B. Beitzel)
MICHAEL DOBSON* Director
- --------------------------- (elected a Director effective 2/24/2000)
(Michael Dobson)
WILLIAM R. HOWELL* Director
- ---------------------------
(William R. Howell)
HERMANN-JOSEF LAMBERTI* Director
- ---------------------------
(Hermann-Josef Lamberti)
JOHN A. ROSS* President and Director
- ---------------------------
(John A. Ross)
DR. RONALDO H. SCHMITZ* Director
- ---------------------------
(Dr. Ronaldo H. Schmitz)
*By /S/ JAMES T. BYRNE, JR.
- ---------------------------
(James T. Byrne, Jr., Attorney-in-Fact)
78 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM 10-K
Filed Under
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
BANKERS TRUST CORPORATION
79 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
BANKERS TRUST CORPORATION
EXHIBIT INDEX TO FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
3. Articles of Incorporation and By-laws, as amended
(i) Restated Certificate of Incorporation of the Registrant
filed with the State of New York on June 4, 1999 *
(ii) By-laws as in effect June 22, 1999 *
4. Instruments Defining the Rights of Security Holders, Including Indentures
(ii) Long-Term Debt Indentures 1
10. Material Contracts
(ii) (D) Leases for Principal Premises Described on Page 70
Lease Agreement relating to the seven stories of a
37-story building located at 14-16 Wall Street (2)
Lease Agreement relating to the eight-story building
located in Jersey City, New Jersey (3)
Lease Agreement relating to the eight-story building
located in London, England (4)
Lease Agreement relating to the three-story building in
Nashville, Tennessee (5)
Lease abstract relating to Four World Trade Center,
New York (16)
Bankers Trust Corporation and its Subsidiaries 80
<PAGE>
- --------------------------------------------------------------------------------
(iii) (A) Management Contracts and Compensation Plans
(1) Employment Contract for Frank N. Newman (11)
(2) Severance agreement with B.J. Kingdon (12)
(3) Employment agreements in connection with the
Agreement and Plan of Merger between Bankers
Trust and Deutsche Bank
(a) Frank N. Newman (16)
(b) Mary Cirillo (16)
(c) Mayo A. Shattuck III (16)
(d) Yves C. de Balmann (16)
(4) 1994 Stock Option and Stock Award Plan (7)
(5) 1991 Stock Option and Stock Award Plan (8)
(6) 1985 Stock Option and Stock Award Plan (9)
January, 1989 amendments thereto (6)
(7) Additional Capital Accumulation Plan (10)
(8) The Supplemental Executive Retirement Plan (4)
(9) Deferred Compensation Plan for Directors (1)
(10) January, 1989 amendments to the Deferred
Compensation Plan for Directors and The
Supplemental Executive Retirement Plan (7)
(11) Partnership for One-Hundred Plan II (13)
(12) Bankers Trust New York Corporation (16)
Change in Control Severance Plan I
(13) Split Dollar Insurance Agreement (14)
(14) Alex. Brown Incorporated 1996 Equity Incentive
Plan (14)
(15) Stock Option Agreement, dated as of November
30, 1998 between Bankers Trust Corporation and
Deutsche Bank A.G. (15)
12. Statements Re Computation of Ratios
Computation of Consolidated Ratios of Earnings to Fixed Charges 83
Computation of Consolidated Ratios of Earnings to Combined Fixed
Charges and Preferred Stock Dividend Requirements 84
21. Subsidiaries of the Registrant 85
23. Consents of Experts 86
24. Power of Attorney 87
27. Financial Data Schedule *
99. Additional Exhibits
Unaudited Pro Forma Condensed Financial Statements for the year
ended December 31, 1999 89
* Filed herewith.
(NOTE: FOOTNOTE REFERENCES FOR THIS INDEX APPEAR ON THE NEXT PAGE.)
81 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
BANKERS TRUST CORPORATION
EXHIBIT INDEX TO FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
FOOTNOTE REFERENCES
(1) This document is incorporated by reference from Bankers Trust
Corporation's Form 8-K dated November 10, 1995, file number 1-5920.
(2) This document is incorporated by reference from Bankers Trust
Corporation's Form 10-K for the year ended December 31, 1986, file number
1-5920.
(3) This document is incorporated by reference from Bankers Trust
Corporation's Form 10-K for the year ended December 31, 1983, file number
1-5920.
(4) This document is incorporated by reference from Bankers Trust
Corporation's Form 10-K for the year ended December 31, 1987, file number
1-5920.
(5) This document is incorporated by reference from Bankers Trust
Corporation's Form 10-K for the year ended December 31, 1992, file number
1-5920.
(6) This document is incorporated by reference from Bankers Trust
Corporation's Form 10-K for the year ended December 31, 1993, file number
1-5920.
(7) This document is incorporated by reference from Bankers Trust
Corporation's Registration Statement on Form S-8 (No. 33-54971) as filed
on August 9, 1994.
(8) This document is incorporated by reference from Bankers Trust
Corporation's Registration Statement on Form S-8 (No. 33-41014) as filed
on June 10, 1991.
(9) This document is incorporated by reference from Bankers Trust
Corporation's Proxy Statement dated as of March 21, 1988, file number
1-5920.
(10) This document is incorporated by reference from Bankers Trust
Corporation's Form 10-K for the year ended December 31, 1989, file number
1-5920.
(11) This document is incorporated by reference from Bankers Trust
Corporation's Form 10-K for the year ended December 31, 1995, file number
1-5920.
(12) This document is incorporated by reference from Bankers Trust
Corporation's Form 10-Q dated May 15, 1997, file number 1-5920.
(13) This document is incorporated by reference from Bankers Trust
Corporation's Form 10-Q dated August 14, 1997, file number 1-5920.
(14) This document is incorporated by reference from Bankers Trust
Corporation's Form 10-Q dated November 14, 1997, file number 1-5920.
(15) This document is incorporated by reference from Bankers Trust
Corporation's Form 8-K dated November 30, 1998, file number 1-5920.
(16) This document is incorporated by reference from Bankers Trust
Corporation's Form 10-K for the year ended December 31, 1998.
Bankers Trust Corporation and its Subsidiaries 82
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 12(a)
BANKERS TRUST CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
(dollars in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
1. Income (loss) before income taxes $ 469 $1,131 $ 1,239 $ (77) $(1,415)
2. Add: Fixed charges excluding capitalized interest (Line 10) 5,138 5,483 5,959 6,954 3,654
3. Less: Equity in undistributed income of unconsolidated
subsidiaries and affiliates 28 30 (117) 15 75
- -----------------------------------------------------------------------------------------------------------------
4. Earnings including interest on deposits 5,579 6,584 7,315 6,862 2,164
5. Less: Interest on deposits 1,360 1,355 2,076 2,195 1,424
- -----------------------------------------------------------------------------------------------------------------
6. Earnings excluding interest on deposits $4,219 $5,229 $ 5,239 $ 4,667 740
=================================================================================================================
Fixed Charges:
7. Interest expense $5,105 $5,451 $ 5,926 $ 6,919 $ 3,612
8. Estimated interest component of net rental expense 33 32 33 35 42
9. Amortization of debt issuance expense -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
10. Total fixed charges including interest on deposits and
excluding capitalized interest 5,138 5,483 5,959 6,954 3,654
11. Add: Capitalized interest -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
12. Total fixed charges 5,138 5,483 5,959 6,954 3,654
13. Less: Interest on deposits (Line 5) 1,360 1,355 2,076 2,195 1,424
- -----------------------------------------------------------------------------------------------------------------
14. Fixed charges excluding interest on deposits $3,778 $4,128 $ 3,883 $ 4,759 2,230
=================================================================================================================
Consolidated Ratios of Earnings to Fixed Charges:
Including interest on deposits (Line 4/Line 12) 1.09 1.20 1.23 .99 N/A
=================================================================================================================
Excluding interest on deposits (Line 6/Line 14) 1.12 1.27 1.35 .98 N/A
=================================================================================================================
</TABLE>
For the years ended December 31, 1999 and 1998, earnings, as defined, did not
cover fixed charges, including and excluding interest on deposits by $1,490
million and $92 million, respectively, as a result of a net loss recorded during
the period.
N/A--Not Applicable.
83 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 12(b)
BANKERS TRUST CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(dollars in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
1. Income (loss) before income taxes $ 469 $1,131 $ 1,239 $ (77) $(1,415)
2. Add: Fixed charges excluding capitalized interest (Line 13) 5,138 5,483 5,959 6,954 3,654
3. Less: Equity in undistributed income of unconsolidated
subsidiaries and affiliates 28 30 (117) 15 75
- -------------------------------------------------------------------------------------------------------------------------------
4. Earnings including interest on deposits 5,579 6,584 7,315 6,862 2,164
5. Less: Interest on deposits 1,360 1,355 2,076 2,195 1,424
- -------------------------------------------------------------------------------------------------------------------------------
6. Earnings excluding interest on deposits $4,219 $5,229 $ 5,239 $ 4,667 740
===============================================================================================================================
Preferred Stock Dividend Requirements:
7. Preferred stock dividend requirements $ 51 $ 51 $ 49 $ 32 23
8. Ratio of income (loss) from continuing operations before income taxes
to income (loss) from continuing operations after income taxes 151% 148% 143% 105% 88%
- -------------------------------------------------------------------------------------------------------------------------------
9. Preferred stock dividend requirements on a pretax basis $ 77 $ 75 $ 70 $ 34 20
===============================================================================================================================
Fixed Charges:
10. Interest Expense $5,105 $5,451 $ 5,926 $ 6,919 $ 3,612
11. Estimated interest component of net rental expense 33 32 33 35 42
12. Amortization of debt issuance expense -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
13. Total fixed charges including interest on deposits and
excluding capitalized interest 5,138 5,483 5,959 6,954 3,654
14. Add: Capitalized interest -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
15. Total fixed charges 5,138 5,483 5,959 6,954 3,654
16. Add: Preferred stock dividend requirements--pretax (Line 9) 77 75 70 34 20
- -------------------------------------------------------------------------------------------------------------------------------
17. Total combined fixed charges and preferred
stock dividend requirements on a pretax basis 5,215 5,558 6,029 6,988 3,674
18. Less: Interest on deposits (Line 5) 1,360 1,355 2,076 2,195 1,424
- -------------------------------------------------------------------------------------------------------------------------------
19. Combined fixed charges and preferred stock dividend requirements
on a pretax basis excluding interest on deposits $3,855 $4,203 $ 3,953 $ 4,793 2,250
===============================================================================================================================
Consolidated Ratios of Earnings to Combined Fixed Charges and
Preferred Stock Dividend Requirements:
Including interest on deposits (Line 4/Line 17) 1.07 1.18 1.21 .98 N/A
===============================================================================================================================
Excluding interest on deposits (Line 6/Line 19) 1.09 1.24 1.32 .97 N/A
===============================================================================================================================
</TABLE>
For the years ended December 31, 1999 and 1998, earnings, as defined, did not
cover fixed charges and preferred stock dividend requirements, including and
excluding interest on deposits, by $1,510 million and $126 million,
respectively, as a result of a net loss recorded during the period.
N/A--Not Applicable.
Bankers Trust Corporation and its Subsidiaries 84
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 21
BANKERS TRUST CORPORATION
SUBSIDIARIES OF THE REGISTRANT
DECEMBER 31, 1999
Subsidiary(1) State of Incorporation
------------- ----------------------
Bankers Trust Company New York
BT Holdings (NY) Inc. New York
All other subsidiaries of the Corporation, in the aggregate, would not
constitute a significant subsidiary, as defined.
(1) Subsidiaries' names listed hereon are names under which such subsidiaries
do business.
85 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 33-13278, 33-58340, 33-50395, 33-51615, 33-65301, 333-15089,
333-15089-01 through -04, 333-32909, Form S-4 Nos. 333-22733, 333-22733-01 and
Form S-8 Nos. 333-12181, 333-19963, 333-57427 and 333-74999) of our report dated
February 25, 2000, with respect to the consolidated balance sheet of Bankers
Trust Corporation and Subsidiaries (a wholly owned indirect subsidiary of
Deutsche Bank AG) as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in stockholders' equity, comprehensive income and
cash flows for each of the years in the three-year period ended December 31,
1999, which report appears in the December 31, 1999 Annual Report on Form 10-K
of Bankers Trust Corporation.
/S/ KPMG LLP
------------------------------------
KPMG LLP
New York, New York
March 28, 2000
Bankers Trust Corporation and its Subsidiaries 86
<PAGE>
- --------------------------------------------------------------------------------
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of Bankers Trust Corporation hereby constitute and appoint Dr. Josef
Ackermann, John A. Ross, James T. Byrne, Jr., Douglas R. Barnard and Troland S.
Link, or any one of them, their true and lawful attorney or attorneys and agent
or agents, with the power and authority to sign the names of the undersigned to
the Annual Report on Form 10-K for the year 1999 of Bankers Trust Corporation
pursuant to Section 13 of the Securities and Exchange Act of 1934 and any
amendments thereto and each of the undersigned does hereby ratify and confirm
all that said attorney or attorneys and agent or agents or any one of them shall
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents.
March 23, 2000 Bankers Trust Corporation
By /S/ DR. JOSEF ACKERMANN
---------------------------------
Dr. Josef Ackermann
Chairman of the Board
/S/ DR. JOSEF ACKERMANN
------------------------------------
Dr. Josef Ackermann
Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
/S/ DOUGLAS R. BARNARD
------------------------------------
Douglas R. Barnard
Chief Financial Officer
(Principal Financial Officer)
/S/ RONALD HASSEN
------------------------------------
Ronald Hassen
Senior Vice President and Controller
(Principal Accounting Officer)
87 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
March 23, 2000
/S/ HANS H. ANGERMUELLER
---------------------------------------------------
Hans H. Angermueller Director
/S/ GEORGE B. BEITZEL
---------------------------------------------------
George B. Beitzel Director
/S/ MICHAEL DOBSON
---------------------------------------------------
Michael Dobson Director
(elected a Director effective 2/24/2000)
/S/ WILLIAM R. HOWELL
---------------------------------------------------
William R. Howell Director
/S/ HERMANN-JOSEF LAMBERTI
---------------------------------------------------
Hermann-Josef Lamberti Director
/S/ JOHN A. ROSS
---------------------------------------------------
John A. Ross President and Director
/S/ DR. RONALDO H. SCHMITZ
---------------------------------------------------
Dr. Ronaldo H. Schmitz Director
Bankers Trust Corporation and its Subsidiaries 88
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BANKERS
TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CONDITION AT
DECEMBER 31, 1999 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,212
<INT-BEARING-DEPOSITS> 4,693
<FED-FUNDS-SOLD> 9,236
<TRADING-ASSETS> 19,017
<INVESTMENTS-HELD-FOR-SALE> 3,252
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 19,962
<ALLOWANCE> 491
<TOTAL-ASSETS> 68,157
<DEPOSITS> 23,469
<SHORT-TERM> 11,596<F1>
<LIABILITIES-OTHER> 7,042<F2>
<LONG-TERM> 16,434
0
376
<COMMON> 0
<OTHER-SE> 3,974
<TOTAL-LIABILITIES-AND-EQUITY> 68,157
<INTEREST-LOAN> 1,522
<INTEREST-INVEST> 384
<INTEREST-OTHER> 1,597<F3>
<INTEREST-TOTAL> 4,419
<INTEREST-DEPOSIT> 1,424
<INTEREST-EXPENSE> 3,612
<INTEREST-INCOME-NET> 807
<LOAN-LOSSES> (58)
<SECURITIES-GAINS> (89)
<EXPENSE-OTHER> 5,780
<INCOME-PRETAX> (1,415)
<INCOME-PRE-EXTRAORDINARY> (1,415)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,603)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 1.18
<LOANS-NON> 737
<LOANS-PAST> 0
<LOANS-TROUBLED> 11
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 652
<CHARGE-OFFS> 91
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 491<F4>
<ALLOWANCE-DOMESTIC> 339<F4>
<ALLOWANCE-FOREIGN> 152<F4>
<ALLOWANCE-UNALLOCATED> 0<F4>
<FN>
<F1>Short-term borrowings include the following:
Securities loaned and securities sold under
repurchase agreements 56
Other short-term borrowings 11,540
Total 11,596
<F2>Other liabilities include the following:
Accounts payable and accrued expenses 3,314
Other liabilities 3,462
Acceptances outstanding 266
Total 7,042
<F3>Other interest income includes the
following:
Interest-bearing deposits with banks 309
Federal funds sold 160
Securities purchased under resale agreements 675
Securities borrowed 383
Customer receivables 70
Total 1,597
<F4>Amount pertains to the allowance related to loans.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
EXHIBIT 99.1
BANKERS TRUST CORPORATION
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(in millions)
The following Unaudited Pro Forma Condensed Statement of Income for the year
ended December 31, 1999 give effect to Bankers Trust Corporation's ("BT" or the
"Corporation") sale of its wholly-owned subsidiary Bankers Trust Australia
Limited ("BTAL") to the Principal Financial Group for a price of approximately
$1.4 billion. In addition, the following Unaudited Pro Forma Condensed Statement
of Income for the year ended December 31, 1999 give effect to the Corporation's
transfer on June 5, 1999 of its wholly-owned subsidiary BT Alex. Brown
Incorporated ("BTAB") and substantially all of its interest in Bankers Trust
International PLC ("BTI") to Deutsche Bank Securities Inc. and Deutsche Holdings
(BTI) Ltd., respectively, which are wholly-owned subsidiaries of Deutsche Bank
AG.
The pro forma information is based on the historical consolidated
financial statements of BT after giving effect to the pro forma adjustments
described in the Notes to the Unaudited Pro Forma Condensed Financial
Statements. The pro forma financial data are not necessarily indicative of the
results that actually would have occurred had the sale of BTAL and transfer of
BTAB and BTI been consummated on the dates indicated or that may be obtained in
the future.
89 Bankers Trust Corporation and its Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
BANKERS TRUST CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
(in millions)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
-----------------------------------------------------
BT BTAB, BTI Pro Forma
Consolidated and BTAL** Adjustments Pro Forma
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Not Interest Revenue (a) (b) (c)
Interest revenue $ 4,419 $(1,316) $ 576 $ 3,679
Interest expense 3,612 (774) 253 3,091
- -------------------------------------------------------------------------------------------------------
Net Interest Revenue 807 (542) 323 588
Provision for credit losses--loans (58) 26 -- (32)
- -------------------------------------------------------------------------------------------------------
Net Interest Revenue After Provision for
Credit Losses--Loans 865 (568) 323 620
- -------------------------------------------------------------------------------------------------------
Noninterest Revenue
Trading 42 260 (2) 300
Fiduciary and funds management 1,017 (178) -- 839
Corporate finance fees 542 (304) -- 238
Other fees and commissions 538 (186) -- 352
Net revenue from equity investments 356 -- -- 356
Securities available for sale gains (losses) (89) 108 -- 19
Insurance premiums 86 -- -- 86
Other 1,008 107 212 1,327
- -------------------------------------------------------------------------------------------------------
Total noninterest revenue 3,500 (193) 210 3,517
- -------------------------------------------------------------------------------------------------------
Noninterest Expenses
Salaries and commissions 1,039 (310) -- 729
Incentive compensation and employee benefits* 2,189 (919) -- 1,270
Agency and other professional service fees 430 (54) 54 430
Communication and data services 206 (53) -- 153
Occupancy, net 198 (35) -- 163
Furniture and equipment 221 (33) -- 188
Travel and entertainment 114 (48) -- 66
Provision for policyholder benefits 114 -- -- 114
Other 636 (153) 412 895
Restructuring and other related activities 633 -- -- 633
- -------------------------------------------------------------------------------------------------------
Total noninterest expenses 5,780 (1,605) 466 4,641
- -------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (1,415) 844 67 (504)
Income taxes 188 456
- ------------------------------------------------------------ --------
Net Loss $(1,603) $ (960)
============================================================ ========
</TABLE>
* Includes charges of approximately $1.1 billion in change-in-control
related costs.
**Includes results of operations of BTAB and BTI through the transfer date, June
5, 1999 and includes results of operations of BTAL through the sale date,
August 31, 1999.
See Notes to Unaudited Pro Forma Condensed Financial Statements.
Bankers Trust Corporation and its Subsidiaries 90
<PAGE>
- --------------------------------------------------------------------------------
BANKERS TRUST CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) Amounts represent the elimination of BTAB's, BTI's and BTAL's third-party
amounts from BT's historical consolidated financial statements.
(b) Adjustments to record BTAB, BTI and BTAL intercompany amounts as
third-party revenue or expense, as applicable. Intercompany amounts were
eliminated in BT's historical consolidated financial statements.
(c) Pro forma amounts reflect the gain on the sale of BTAL.
91 Bankers Trust Corporation and its Subsidiaries
Exhibit 3(i)
RESTATED
CERTIFICATE OF INCORPORATION
OF
BANKERS TRUST CORPORATION
Under Section 807 of the Business Corporation Law
The undersigned, being respectively the president and the secretary of Bankers
Trust Corporation, a New York corporation, hereby certify that:
1. The name of the corporation is Bankers Trust Corporation, and the name
under which it was formed was BT New York Corporation.
2. The certificate of incorporation was filed by the Department of State
on the 12th of May, 1965.
3. The text of the certificate of incorporation is hereby amended to (i)
change the purposes of the corporation, (ii) change the authorized stock of the
corporation by (A) deleting 299,999,800 of the shares of common stock, par value
$1.00 per share, (B) deleting 9,809,900 of the shares, without par value,
designated as Series Preferred Stock, (C) deleting paragraph (b) of Article
FOURTH, which sets forth certain rights, preferences and limitations of the
common stock, (D) deleting paragraph (c) of Article FOURTH, which contains
certain general provisions, and (E) deleting paragraph (d) of Article FOURTH,
which contains all matters set forth in the certificate of incorporation with
respect to Series C Junior Participating Preferred Stock, none of the authorized
shares of which are presently outstanding, (iii) change the process address, and
(iv) designate a registered agent. The text of the certificate of incorporation
is hereby amended to read as herein set forth in full:
1
<PAGE>
FIRST: The name of the corporation is BANKERS TRUST CORPORATION.
SECOND: The purposes for which it is formed are as follows:
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the Business
Corporation Law, provided, however, that the corporation is not formed to
engage in any act or activity requiring the consent or approval of any
state official, department, board, agency or other body without first
obtaining the consent of such body.
THIRD: The office of the corporation in the State of New York is to be
located in the City of New York, County of New York.
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is 190,300 divided into 190,100 shares without par value
designated as Series Preferred Stock and 200 shares of common stock, par value $
1.00 per share.
(A) Series Preferred Stock
1. Board Authority: The Series Preferred Stock may be issued from time to
time by the Board of Directors as herein provided in one or more series. The
designations, relative rights, preferences and limitations of the Series
Preferred Stock, and particularity of the shares of each series thereof, may, to
the extent permitted by law, be similar to or may differ from those of any other
series. The Board of Directors of the corporation is hereby expressly granted
authority, subject to the provisions of this Article FOURTH to issue from time
to time Series Preferred Stock in one or more series and to fix from time to
time before issuance thereof, by filing a certificate pursuant to the Business
Corporation Law, the number of shares in each such series of such class and all
designations, relative rights (including the right, to the extent permitted by
law, to convert into shares of any class or into shares of any series of any
class), preferences and limitations of the shares in each such series, including
but without limiting the generality of the foregoing, the following:
(i) The number of shares to constitute such series (which number may
at any time, or from time to time, be increased or decreased by the Board
of Directors, notwithstanding that shares of the series may be outstanding
at the time of such increase or decrease, unless the Board of Directors
shall have otherwise provided in creating such series) and the distinctive
designation thereof;
2
<PAGE>
(ii) The dividend rate on the shares of such series, whether or not
dividends on the shares of such series shall be cumulative, and the date
or dates, if any, from which dividends thereon shall be cumulative;
(iii) Whether or not the shares of such series shall be redeemable,
at the option of the corporation, the holder or another person or upon the
happening of a specified event and, if redeemable, the date or dates upon
which of after which they shall be redeemable, the cash, property,
indebtedness or securities for which each share shall be redeemable and
the redemption prices or rates and adjustment thereto;
(iv) The right, if any, of holders of shares of such series to
convert the same into, or exchange the same for, Common Stock or other
stock as permitted by law, and the terms and conditions of such conversion
or exchange, as well as provisions for adjustment of the conversion rate
in such events as the Board of Directors shall determine;
(v) The amount per share payable on the shares of such series upon
the voluntary and involuntary Liquidation, dissolution or winding up of
the corporation;
(vi) Whether the holders of shares of such series shall have voting
power, full or limited, in addition to the voting powers provided by law,
and in case additional voting powers are accorded to fix the extent
thereof; and
(vii) Generally to fix the other rights and privileges and any
qualifications, limitations or restrictions of such rights and privileges
of such series, provided, however, that no such rights, privileges,
qualifications, limitations or restrictions shall be in conflict with the
Certificate of Incorporation of the corporation or with the resolution or
resolutions adopted by the Board of Directors providing for the issue of
any series of which there are shares outstanding.
With respect to all shares of Series Preferred Stock issued prior to
April 23, 1998, all Series Preferred Stock of the same series shall be
identical in all respects, except that shares of any one series issued at
different times may differ as to dates, if any, from which dividends
thereon may accumulate. With respect to all shares of Series Preferred
Stock issued prior to April 23, 1998, all shares of Series Preferred Stock
of all series shall be of equal rank and shall be identical in all
respects except that to the extent not otherwise limited in this Article
FOURTH any series may differ from any other series with respect to any one
or more of the designations, relative rights, preferences and limitations
described or referred to in subparagraphs (i) to (vii) inclusive above.
With respect to any series of Series Preferred Stock authorized or
issued on or after April 23, 1998, except to the extent otherwise required
by law, shares of any
3
<PAGE>
series of Series Preferred Stock may have the same or different relative
rights, preferences and limitations and each series of Series Preferred
Stock may have the same or different relative rights, preferences and
limitations, in each case, as determined by the Board of Directors.
2. Dividends: Dividends on the outstanding Series Preferred Stock of each
series shall be declared and paid or set apart for payment before any dividends
shall be declared and paid or set apart for payment on the Common Stock with
respect to the same quarterly dividend period. Dividends on any shares of Series
Preferred Stock shall be cumulative only if and to the extent set forth in a
certificate filed pursuant to law. After dividends on all shares of Series
Preferred Stock (including cumulative dividends if and to the extent any such
shares shall be entitled thereto) shall have been declared and paid or set apart
for payment with respect to any quarterly dividend period, then and not
otherwise so long as any shares of Series Preferred Stock remain outstanding,
dividends may be declared and paid or set apart for payment with respect to the
same quarterly dividend period on the Common Stock out of the assets or funds of
the corporation legally available therefor.
With respect to all shares of Series Preferred Stock issued prior to April
23, 1998, all shares of Series Preferred Stock of all series shall be of equal
rank, preference and priority as to dividends irrespective of whether or not the
rates of dividends to which the same shall be entitled shall be the same and
when the stated dividends are not paid in full, the shares of all series of the
Series Preferred Stock shall share ratably in the payment thereof in accordance
with the sums which would be payable on such shares if all dividends were paid
in full, provided, however, that any two or more series of the Series Preferred
Stock may differ from each other as to the existence and extent of the right to
cumulative dividends, as aforesaid.
With respect to all shares of Series Preferred Stock authorized or issued
on or after April 23, 1998, the Board of Directors may authorize and issue
series of Series Preferred Stock that do not share ratably in the payment of
dividends and may fix the relative rights of each series of Series Preferred
Stock to receive dividends.
3. Voting Rights: Except as otherwise specifically provided in the
certificate filed pursuant to law with respect to any series of the Series
Preferred Stock, or as otherwise provided by law, the Series Preferred Stock
shall not have any right to vote for the election of directors or for any other
purpose and the Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes.
4. Liquidation: In the event of any liquidation, dissolution or winding up
of the corporation, whether voluntary or involuntary, each series of Series
Preferred Stock shall have preference and priority over the Common Stock for
payment of the amount to which each outstanding series of Series Preferred Stock
shall be entitled in accordance with
4
<PAGE>
the provisions thereof and each holder of Series Preferred Stock shall be
entitled to be paid in full such amount, or have a sum sufficient for the
payment in full set aside, before any payments shall be made to the holders of
the Common Stock. With respect to all shares of Series Preferred Stock issued
prior to April 23, 1998, if, upon liquidation, dissolution or winding up of the
corporation, the assets of the corporation or proceeds thereof, distributable
among the holders of the shares of all series of the Series Preferred Stock
shall be insufficient to pay in full the preferential amount aforesaid, then
such assets, or the proceeds thereof, shall be distributed among such holders
ratably in accordance with the respective amounts which would be payable if all
amounts payable thereon were paid in full. After the payment to the holders of
Series Preferred Stock of all such amounts to which they are entitled, as above
provided, the remaining assets and funds of the corporation shall be divided and
paid to the holders of Common Stock.
With respect to all shares of Series Preferred Stock authorized or issued
on or after April 23, 1998, the Board of Directors may authorize and issue
series of Series Preferred Stock that do not share ratably in the payment of
amounts upon the voluntary or involuntary liquidation, dissolution or winding up
of the corporation.
5. Redemption: In the event that the Series Preferred Stock of any series
shall be made redeemable as provided in clause (iii) of paragraph 1 of section
(A) of this Article FOURTH, the corporation, at the option of the Board of
Directors, may redeem at any time or times, and from time to time, all or any
part of any one or more series of Series Preferred Stock outstanding by paying
for each share the then applicable redemption price fixed by the Board of
Directors as provided herein, plus an amount equal to accrued and unpaid
dividends to the date fixed for redemption, upon such notice and terms as may be
specifically provided in the certificate filed pursuant to law with respect to
the series.
6. Preemptive Rights: No holder of Series Preferred Stock of the
corporation shall be entitled, as such, as a matter of right, to subscribe for
or purchase any part of any new or additional issue of stock of any class or
series whatsoever, any rights or options to purchase stock of any class or
series whatsoever, or any securities convertible into, exchangeable for or
carrying rights or options to purchase stock of any class or series whatsoever,
whether now or hereafter authorized, and whether issued for cash or other
consideration or by way of dividend.
(B) Provisions relating to the Series Q Preferred Stock.
1. Designation. The distinctive serial designation of the series
established hereby shall be "Adjustable Rate Cumulative Preferred Stock, Series
Q" (hereinafter called the "Series Q Preferred Stock").
2. Number. The number of shares of Series Q Preferred Stock shall
initially be 80,000, which number may not be increased, but may from time to
time be
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decreased (but not below the number of shares of Series Q Preferred Stock then
outstanding) by a resolution duly adopted by the Board of Directors of the
corporation. Shares of Series Q Preferred Stock redeemed, purchased or otherwise
acquired by the corporation shall be canceled and shall revert to authorized but
unissued Series Preferred Stock undesignated as to series.
3. Dividends. (a) Holders of shares of Series Q Preferred Stock shall be
entitled to receive cumulative cash dividends when, as and if declared by the
Board of Directors of the corporation, out of funds legally available therefor,
from the date of original issuance of such shares to and including May 31, 1994
(the "Initial Dividend Period"), and for each dividends period commencing on
each March 1, June 1, September 1 and December 1 thereafter, and ending on and
including the day next preceding the first day of the next dividend period (such
Initial Dividend Period and each of such other periods being hereinafter
referred to as a "Dividend Period") at a rate per annum for each Dividend Period
equal to the Applicable Rate (as defined in paragraph 4 below) in respect of
such Dividend Period. The amount of dividends per share payable for the Initial
Dividend Period and for any portion of any other Dividend Period less than a
full Dividend Period shall be computed on the basis of a 360-day year consisting
of twelve 30-day months and the actual number of days elapsed in the Dividend
Period for which the dividends are payable, and by multiplying the Applicable
Rate with respect to each Dividend Period, by $2,500.
Dividends as provided for in this paragraph 3 will accrue from the date of
original issuance and will be payable when, as and if declared by the Board of
Directors of the corporation, out of funds legally available therefor, quarterly
on March 1, June 1, September 1 and December 1 in each year, commencing June 1,
1994 (each, a "Dividend Payment Date"), to the holders of record on such
respective dates, not exceeding 30 days preceding the related Dividend Payment
Date, as may be determined by the Board of Directors of the corporation, or a
duly authorized committee of the Board of Directors, in advance of such Dividend
Payment Date. Dividends as provided for in this paragraph 3, to the extent not
declared and paid for any past Dividend Periods, may be declared and paid at any
time, without reference to any regular Dividend Payment Date, to holders of
record on such date, not exceeding 30 days preceding the payment date therefor,
as may be fixed by the Board of Directors of the corporation, or a duly
authorized committee of the Board of Directors. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend that is not paid
when it accrues.
(b) No dividend shall be declared and paid or set apart for payment on any
share of Series Q Preferred Stock or any share of any other series of Series
Preferred Stock or any share of any class of stock, or series thereof, ranking
on a parity with the Series Q Preferred Stock as to dividends, for any Dividend
Period unless at the same time a like proportionate dividend for the same
Dividend Period, ratably in proportion to the respective dividends applicable
thereto (adjusted in the case of the Initial Dividend Period to reflect the
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length of such period), shall be declared and paid or set apart for payment on
all shares of Series Q Preferred Stock and all shares of all other series of
Series Preferred Stock and all shares of any class, or series thereof, ranking
on a parity with the Series Q Preferred Stock as to dividends, then issued and
outstanding and entitled to receive dividends. Holders of shares of Series Q
Preferred Stock shall not be entitled to any dividend, whether payable in cash,
property or stock, in excess of full cumulative dividends, as herein provided,
on the Series Q Preferred Stock.
(c) So long as any shares of Series Q Preferred Stock shall be
outstanding, unless the full cumulative dividends on all outstanding shares of
Series Q Preferred Stock shall have been declared and paid or set apart for
payment for all past Dividend Periods and except as provided in paragraph 3(b),
(i) no dividend (other than a dividend in Common Stock or in any other stock of
the corporation ranking junior to the Series Q Preferred Stock as to dividends
and distribution of assets upon liquidation, dissolution or winding up) shall be
declared and paid or set apart for payment, or other distribution declared or
made, on the Common Stock or on any other stock ranking junior to or on a parity
with Series Q Preferred Stock as to dividends or distribution of assets upon
liquidation, dissolution or winding up, and (ii) no shares of Common Stock or
shares of any other stock of the corporation ranking junior to or on a parity
with Series Q Preferred Stock as to dividends or distribution of assets upon
liquidation, dissolution or winding up shall be redeemed, purchased or otherwise
acquired for any consideration by the corporation or any subsidiary of the
corporation (nor shall any moneys be paid to or made available for a sinking or
other fund for the redemption, purchase or other acquisition of any shares of
any such stock), other than by conversion into or exchange for Common Stock or
any other stock of the corporation ranking junior to Series Q Preferred Stock as
to dividends and distribution of assets upon liquidation, dissolution or winding
up.
4. Applicable Rate. (a) The dividend rate per annum referred to in
paragraph 3(a) for any Dividend Period (the "Applicable Rate") shall be equal to
(i) in the case of the Initial Dividend Period, 5.90% per annum and (ii) in the
case of any Dividend Period subsequent to the Initial Dividend Period, 10-1/2%
per annum; provided, however, that if a lower dividend rate for any such
Dividend Period would result, then the Applicable Rate for such Dividend Period
shall be equal to 85% of the Effective Rate (as defined below), but in no event
less than 4-1/2% per annum. The "Effective Rate" for any Dividend Period shall
be equal to 25 basis points over the highest of the Treasury Bill Rate, the Ten
Year Constant Maturity Rate and the Thirty Year Constant Maturity Rate (each as
hereinafter defined) for such Dividend Period. If the corporation determines in
good faith that for any reason:
(i) any one of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate and the Thirty Year Constant Maturity Rate cannot be
determined for any Dividend Period, then the Effective Rate for such
Dividend Period will be equal to 25 basis points above the higher of
whichever two such Rates can be so determined;
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(ii) only one of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate and the Thirty Year Constant Maturity Rate can be determined
for any Dividend Period, then the Effective Rate for such Dividend Period
will be equal to 25 basis points above whichever such Rate can be so
determined; or
(iii) none of the Treasury Bill Rate, the Ten Year Constant Maturity
Rate and the Thirty Year Constant Maturity Rate can be determined for any
Dividend Period, then the Effective Rate for the preceding Dividend Period
will be continued for such Dividend Period.
Except as provided below in this paragraph, the "Treasury Bill Rate" for
each Dividend Period shall be the arithmetic average of the two most recent
weekly per annum market discount rates (or the one weekly per annum market
discount rate, if only one such rate shall be published during the relevant
Calendar Period, as defined below) for three-month U.S. Treasury bills, as
published weekly by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") during the Calendar Period immediately preceding the
last ten calendar days preceding the Dividend Period for which the dividend rate
on the Series Q Preferred Stock is being determined. If the Federal Reserve
Board does not publish such a weekly per annum market discount rate during any
such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall
be the arithmetic average of the two most recent weekly per annum market
discount rates (or the one weekly per annum market discount rate, if only one
such rate shall be published during the relevant Calendar Period) for
three-month U.S. Treasury bills, as published weekly during such Calendar Period
by any Federal Reserve Bank or by any U.S. Government department or agency
selected by the corporation. If a weekly per annum market discount rate for
three-month U.S. Treasury bills shall not be published by the Federal Reserve
Board or by any Federal Reserve Bank or by any U.S. Government department or
agency during such Calendar Period, then the Treasury Bill Rate for such
Dividend Period shall be the arithmetic average of the two most recent weekly
per annum market discount rates (or the one weekly per annum market discount
rate, if only one such rate shall be published during the relevant Calendar
Period) for all of the U.S. Treasury bills then having remaining maturities of
not less than 80 nor more than 100 days, as published during such Calendar
Period by the Federal Reserve Board or, if the Federal Reserve Board shall not
publish such rates, by any Federal Reserve Bank or by any U.S. Government
department or agency selected by the corporation. If the corporation determines
in good faith that for any reason no such U.S. Treasury bill rates are published
as provided above during such Calendar Period, then the Treasury Bill Rate for
such Dividend Period shall be the arithmetic average of the per annum market
discount rates based upon the closing bids during such Calendar Period for each
of the issues of marketable noninterest-bearing U.S. Treasury securities with a
remaining maturity of not less than 80 nor more than 100 days from the date of
each such quotation, as chosen and quoted daily for each business day in The
City of New York (or less frequently if daily quotations shall not be generally
available) to the corporation by at least three recognized dealers in U.S.
Government securities selected by
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the corporation. If the corporation determines in good faith that for any reason
the corporation cannot determine the Treasury Bill Rate for any Dividend Period
as provided above in this paragraph, the Treasury Bill Rate for such Dividend
Period shall be the arithmetic average of the per annum market discount rates
based upon the closing bids during such Calendar Period for each of the issues
of marketable interest-bearing U.S. Treasury securities with a remaining
maturity of not less than 80 not more than 100 days from the date of each such
quotation, as chosen and quoted daily for each business day in The City of New
York (or less frequently if daily quotations shall not be generally available)
to the corporation by at least three recognized dealers in U.S. Government
securities selected by the corporation.
Except as provided below in this paragraph, the, "Ten Year Constant
Maturity Rate" for each Dividend Period shall be the arithmetic average of the
two most recent weekly per annum Ten Year Average Yields, as defined below (or
the one weekly per annum Ten Year Average Yield, if only one such Yield shall be
published during the relevant Calendar Period), as published weekly by the
Federal Reserve Board during the Calendar Period immediately preceding the last
ten calendar days preceding the Dividend Period for which the dividend rate on
the Series Q Preferred Stock is being determined. If the Federal Reserve Board
does not publish such a weekly per annum Ten Year Average Yield during any such
Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend
Period shall be the arithmetic average of the two most recent weekly per annum
Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if
only one such Yield shall be published during the relevant Calendar Period), as
published weekly during such Calendar Period by any Federal Reserve Bank or by
any U.S. Government department or agency selected by the corporation. If a
weekly per annum Ten Year Average Yield shall not be published by the Federal
Reserve Board or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Ten Year Constant
Maturity Rate for such Dividend Period shall be the arithmetic average of the
two most recent weekly per annum average yields to maturity (or the one weekly
per annum average yield to maturity, if only one such yield shall be published
during the relevant Calendar Period) for all of the actively traded marketable
U.S. Treasury fixed interest rate securities (other than Special Securities, as
defined below) then having remaining maturities of not less than eight nor more
than twelve years, as published during such Calendar Period by the Federal
Reserve Board or, if the Federal Reserve Board shall not publish such yields, by
any Federal Reserve Bank or by any U.S. Government department or agency selected
by the corporation. If the corporation determines in good faith that for any
reason the corporation cannot determine the Ten Year Constant Maturity Rate for
any Dividend Period as provided above in this paragraph, then the Ten Year
Constant Maturity Rate for such Dividend Period shall be the arithmetic average
of the per annum average yields to maturity based upon the closing bids during
such Calendar Period for each of the issues of actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities) with a
final maturity date not less than eight nor more than twelve years from the date
of each such quotation, as chosen and quoted daily for each business day in The
City of New York (or less frequently if daily quotations shall not be
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<PAGE>
generally available) to the corporation by at least three recognized dealers in
U.S. Government securities selected by the corporation.
Except as provided below in this paragraph, the "Thirty Year Constant
Maturity Rate" for each Dividend Period shall be the arithmetic average of the
two most recent weekly per annum Thirty Year Average Yields, as defined below
(or the one weekly per annum Thirty Year Average Yield, if only one such Yield
shall be published during the relevant Calendar Period), as published weekly by
the Federal Reserve Board during the Calendar Period immediately preceding the
last ten calendar days preceding the Dividend Period for which the dividend rate
on the Series Q Preferred Stock is being determined. If the Federal Reserve
Board does not publish such a weekly per annum Thirty Year Average Yield during
any such Calendar Period, then the Thirty Year Constant Maturity Rate for such
Dividend Period shall be the arithmetic average of the two most recent weekly
per annum Thirty Year Average Yields (or the one weekly per annum Thirty Year
Average Yield, if only one such Yield shall be published during the relevant
Calendar Period), as published weekly during such Calendar Period by any Federal
Reserve Bank or by any U.S. Government department or agency selected by the
corporation. If a per annum Thirty Year Average Yield shall not be published by
the Federal Reserve Board or by any Federal Reserve Bank or by any U.S.
Government department or agency during such Calendar Period, then the Thirty
Year Constant Maturity Rate for such Dividend Period shall be the arithmetic
average of the two most recent weekly per annum average yields to maturity (or
the one weekly per annum average yield to maturity, if only one such yield shall
be published during the relevant Calendar Period) for all the actively traded
marketable U.S. Treasury fixed interest rate securities (other than Special
Securities) then having remaining maturities of not less than twenty-eight nor
more than thirty years, as published during such Calendar Period by the Federal
Reserve Board or, if the Federal Reserve Board shall not publish such yields, by
any Federal Reserve Bank or by any U.S. Government department or agency selected
by the corporation. If the corporation determines in good faith that for any
reason the corporation cannot determine the Thirty Year Constant Maturity Rate
for any Dividend Period as provided above in this paragraph, then the Thirty
Year Constant Maturity Rate for such Dividend Period shall be the arithmetic
average of the per annum average yields to maturity based upon the closing bids
during such Calendar Period for each of the issues of actively traded marketable
U.S. Treasury fixed interest rate securities (other than Special Securities)
with a final maturity date not less than twenty-eight nor more than thirty years
from the date of each such quotation, as chosen and quoted daily for each
business day in The City of New York (or less frequently if daily quotations
shall not be generally available) to the corporation by at least three
recognized dealers in U.S. government securities selected by the corporation.
The Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Thirty
Year Constant Maturity Rate shall each be rounded to the nearest five hundredths
of a percentage point.
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(b) The Applicable Rate with respect to each Dividend Period commencing
after the Initial Dividend Period will be calculated as promptly as practicable
by the corporation according to the appropriate method described herein. The
corporation will cause each such Applicable Rate (separately identifying the
Effective Rate) to be published in a daily newspaper of general circulation in
The City of New York prior to the commencement of the first Dividend Period to
which it applies and will cause notice of such Applicable Rate (separately
identifying The Effective Rate) to be included with the dividend payment checks
next mailed to the holders of the Series Q Preferred Stock.
(c) For purposes of this paragraph 4, the per annum market discount rates
for three-month U.S. Treasury bills shall be secondary market rates (quoted on a
bank-discount basis), and the term:
(i) "Calendar Period" shall mean 14 calendar days;
(ii) "Special Securities" shall mean securities which can, at the
option of the holder, be surrendered at face value in payment of any
federal estate tax or which provide tax benefits to the holder and are
priced to reflect such tax benefits or which were originally issued at a
deep or substantial discount;
(iii) "Ten Year Average Yield" shall mean the average yield to
maturity for actively traded marketable U.S. Treasury fixed interest rate
securities (adjusted to constant maturities of ten years); and
(iv) "Thirty Year Average Yield" shall mean the average yield to
maturity for actively traded marketable U.S. Treasury fixed interest rate
securities (adjusted to constant maturities of thirty years).
5. Liquidation. (a) Upon any liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, the holders of the shares of
Series Q Preferred Stock shall be entitled to receive in full out of the net
assets of the corporation or the proceeds thereof, whether from capital or
surplus, before any payment or distribution shall be made or set aside for
payment on the Common Stock or on any other class or series of stock ranking
junior to Series Q Preferred Stock as to distribution of assets upon such
liquidation, dissolution or winding up, liquidating distributions in the amount
of $2,500.00 per share, plus in each case an amount equal to accrued and unpaid
dividends (whether or not declared) to the date of final distribution (the
"Liquidation Preference").
(b) In the event the assets of the corporation, or the proceeds thereof,
available for distribution to the holders of shares of Series Q Preferred Stock
upon any liquidation, dissolution or winding up of the corporation, whether
voluntary or involuntary, shall be insufficient to pay the full Liquidation
Preference to which such holders are entitled pursuant to paragraph 5(a), no
such distribution shall be made on account of any shares of any
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other series of Series Preferred Stock or any other class of stock, or series
thereof ranking on a parity with the shares of Series Q Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up, unless
proportionate distributive amounts shall be paid on account of the shares of
Series Q Preferred Stock, ratably in proportion to the preferential sums which
would be payable in such distribution if all sums payable in respect of the
shares of all series of Series Preferred Stock and any such other class or
series as aforesaid were paid in full.
(c) After the payment to the holders of the shares of Series Q Preferred
Stock of the full Liquidation Preference, the holders of shares of Series Q
Preferred Stock, as such, shall have no right or claim to any of the remaining
assets of the corporation, or the proceeds thereof.
(d) A consolidation or merger of the corporation with or into another
corporation or corporations, or a sale, lease or conveyance, whether for cash,
shares of stock, securities or properties, of all or substantially all or any
part of the assets of the corporation, shall not be deemed or construed to be a
liquidation, dissolution or winding up of the corporation within the meaning of
this paragraph 5.
6. Redemption. (a) Issued and outstanding shares of Series Q Preferred
Stock shall be redeemable, at the option of the corporation, as a whole or from
time to time in part, at any time on or after March 1, 1999 at a redemption
price of $2,500.00 per share, plus, in each case, an amount equal to accrued and
unpaid dividends (whether or not declared) to the date fixed for redemption.
(b)(i) In the event the corporation shall redeem shares of Series Q
Preferred Stock, notice of such redemption shall be given by first-class mail,
postage prepaid, mailed not more than 60 nor less than 30 days prior to the date
fixed for redemption, to each holder of record of the shares to be redeemed, at
such holder's address as the same appears on the books of the corporation. Each
such notice shall state: (A) the date fixed for redemption; (B) the number of
shares of Series Q Preferred Stock to be redeemed and, if less than all of the
shares of Series Q Preferred Stock held by such holder are to be redeemed, the
number of such shares (and the certificate numbers of such shares) to be
redeemed from such holder; (C) the redemption price (specifying the amount of
accrued and unpaid dividends to be included therein) and the manner in which
such redemption price is to be paid and delivered; (D) the place or places
(which shall include a place in the Borough of Manhattan, The City of New York)
where certificates for such shares are to be surrendered for payment of the
redemption price; and (E) that dividends on the shares to be redeemed will cease
to accrue on such date fixed for redemption. No defect in the notice of
redemption or in the mailing thereof shall affect the validity of the redemption
proceedings, and the failure to give notice to any holder of shares of Series Q
Preferred Stock to be so redeemed shall not affect the validity
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of the notice given to the other holders of shares of Series Q Preferred Stock
to be so redeemed.
(ii) Notice having been mailed as aforesaid, from and after the date fixed
for redemption (unless default shall be made by the corporation in providing
funds for the payment of the redemption price), dividends on the shares of
Series Q Preferred Stock so called for redemption shall cease to accrue, and
such shares shall no longer be deemed to be outstanding, and all rights of the
holders thereof as holders of Series Q Preferred Stock (except the right to
receive from the corporation the redemption price, but without interest) shall
cease. The corporation's obligation to provide funds in accordance with the
preceding sentence shall be deemed fulfilled if, on or before 12:00 noon, New
York City time on the date fixed for redemption, the corporation shall deposit
with a paying agent (which may be an affiliate of the corporation) (a "Paying
Agent"), which shall be a bank or trust company organized and in good standing
under the laws of the United States or the State of New York having an office or
agency in the Borough of Manhattan, The City of New York, and having, together
with its corporate parent, capital, surplus and undivided profits aggregating at
least $50,000,000, funds necessary for such redemption, in trust, with
irrevocable instructions and authorization that such funds be applied to the
redemption of the shares of Series Q Preferred Stock so called for redemption
upon surrender of certificates for such shares (properly endorsed or assigned
for transfer).
(iii) If such notice of redemption shall have been duly mailed or if the
corporation shall have given to a Paying Agent irrevocable authorization
promptly to mail such notice, and if, on or before 12:00 noon, New York City
time on the redemption date specified therein, the funds necessary for such
redemption shall have been deposited by the corporation with such Paying Agent
in trust for the pro rata benefit of the holders of the shares of Series Q
Preferred Stock called for redemption, together with irrevocable instructions
that such funds be applied to such redemption, then, notwithstanding that any
certificate for shares of Series Q Preferred Stock so called for redemption
shall not have been surrendered for cancellation, from and after the time of
such deposit, all shares of Series Q Preferred Stock so called for redemption
shall no longer be deemed to be outstanding and all rights with respect to such
shares of Series Q Preferred Stock shall forthwith cease and terminate, except
only the right of the holders thereof to receive from such Paying Agent at any
time after the time of such deposit the funds so deposited, without any interest
thereon.
(iv) Any interest accrued on funds deposited with a Paying Agent in
connection with any redemption of shares of Series Q Preferred Stock shall be
paid to the corporation from time to time and the holders of any such shares to
be redeemed with such money shall have no claim to any such interest. Any funds
deposited and unclaimed at the end of two years from any redemption date shall
be repaid or released to the corporation, after which the holder or holders of
shares of Series Q Preferred Stock so called for redemption
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shall look only to the corporation for payment of the redemption price, without
any interest thereon.
(c) Upon surrender in accordance with such notice of the certificates for
any shares to be redeemed (properly endorsed or assigned for transfer), such
shares shall be redeemed by the corporation at the applicable redemption price.
If fewer than all the outstanding shares of Series Q Preferred Stock are to be
redeemed, the shares to be redeemed shall be determined by lot or pro rata as
may be determined by the Board of Directors of the corporation.
(d) In no event shall the corporation redeem, purchase or otherwise
acquire fewer than all the outstanding shares of Series Q Preferred Stock unless
full cumulative dividends shall have been declared and paid or set apart for
payment on all outstanding shares of Series Q Preferred Stock for all prior
Dividend Periods; provided, however, that the foregoing shall not prevent, if
otherwise permitted, the purchase or acquisition of shares of Series Q Preferred
Stock pursuant to a tender or exchange offer made on the same terms to holders
of all the outstanding shares of Series Q Preferred Stock and mailed to the
holders of record of all such outstanding shares at such holders' addresses as
the same appear on the books of the corporation; and provided further, however,
that if some, but fewer than all, of the shares of Series Q Preferred Stock are
to be purchased or otherwise acquired pursuant to such tender or exchange offer
and the number of shares so tendered exceeds the number of shares so to be
purchased or otherwise acquired by the corporation, the shares of Series Q
Preferred Stock so tendered shall be Purchased or otherwise acquired by the
corporation on a pro rata basis (with adjustments to eliminate fractions)
according to the number of such shares duly tendered by each holder so tendering
shares of Series Q Preferred Stock for such purchase or exchange.
7. Conversion and Exchange. The holders of shares of Series Q Preferred
Stock shall not have any rights to convert such shares into or to exchange such
shares for shares of Common Stock or any other stock of the corporation.
8. Voting Rights. (a) Except as hereinafter in this paragraph 8 expressly
provided and as otherwise from time to time required by the laws of the State of
New York, the Series Q Preferred Stock shall not have any voting rights.
(b) Whenever, at any time or times, dividends payable on shares of Series
Q Preferred Stock shall be in arrears in an amount equivalent to dividends for
six full Dividend Periods, then, immediately upon the happening of such event,
the number of directors of the corporation shall be increased by two and the
holders of outstanding shares of Series Q Preferred Stock shall have the right,
voting together as a single class with holders of shares of any other series of
Series Preferred Stock then outstanding upon which like voting rights have been
conferred and are then exercisable, to the exclusion of the holders of the
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Common Stock, the holders of any other series of Series Preferred Stock upon
which such voting rights have not been conferred or are not then exercisable,
and the holders of any other stock of the corporation having general voting
rights, to vote for the election of two members of the Board of Directors of the
corporation to fill such newly created directorships, until all dividends in
arrears on the Series Q Preferred Stock have been declared and paid or set apart
for payment in full. The right of the holders of Series Q Preferred Stock to
elect members of the Board of Directors of the corporation as aforesaid shall
continue until such time as all dividends in arrears on the Series Q Preferred
Stock shall have been declared and paid or set apart for payment in full, at
which time such right shall terminate, except as herein or by law expressly
provided, subject to revesting in the event of each and every subsequent
arrearage in the amount above mentioned. Upon any termination of the right of
such holders to elect directors as herein provided, the term of office of all
directors then in office elected thereby, and the vacancies created pursuant to
this paragraph 8(b), shall terminate immediately. Any director who shall have
been so elected pursuant to this paragraph 8(b) may be removed at any time, with
or without cause, and any vacancy thereby created may be filled, only by the
affirmative vote of the holders of Series Q Preferred Stock voting together as a
single class with the holders of shares of any other series of Series Preferred
Stock upon which like voting rights have been conferred and are then
exercisable. If the office of any director so elected pursuant to this paragraph
8(b) becomes vacant for any reason other than removal from office as aforesaid,
the remaining director may choose a successor who shall hold office for the
unexpired term in respect of which such vacancy occurred.
(c) So long as any shares of Series Q Preferred Stock shall be
outstanding, unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the affirmative vote or consent of (a) the
holders of at least 66-2/3% of the shares of Series Q Preferred Stock and (b)
the holders of at least a majority of the shares of Series Q Preferred Stock and
of any other series of Series Preferred Stork then outstanding upon which like
voting rights have been conferred and are then exercisable, voting together as a
single class, in each case given in person or by proxy either in writing or by
resolution at any special or annual meeting called for the purpose, shall be
necessary to authorize, permit, effect or validate any one or more of the
following:
(i) the authorization or any increase in the authorized amount of
any class of stock, or the establishment or designation of any series of
stock (unless the class of which such series is a part has been authorized
previously pursuant to this paragraph 8(c)(i)), or the issuance or sale of
any obligation, security or instrument convertible into, exchangeable for,
or evidencing the right to purchase, acquire or subscribe for shares of a
class or series of stock, if such class or series of stock ranks prior to
the Series Q Preferred Stock as to dividends or distribution of assets
upon liquidation, dissolution or winding up (unless the class or series
has been authorized previously pursuant to this paragraph 8 (c) (i)), and
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(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the certificate of
incorporation as amended hereby, which would materially and adversely
affect any right, preference, privilege or voting rights of the Series
Preferred Stock then outstanding; provided, however, that in the event
that any such amendment, alteration or repeal would materially and
adversely affect the rights of only the Series Q Preferred Stock, then
such amendment, alteration or repeal may be effected only with the
affirmative vote or consent of the holders of at least 66-2/3% of the
shares of Series Q Preferred Stock then outstanding; provided further,
however, that the authorization, establishment, designation, issuance or
sale of other Series Preferred Stock shall not have, or be deemed to have,
such material adverse effect; and provided further, however, that an
increase in the authorized amount of Series Preferred Stock, or the
authorization, establishment, designation, issuance or sale of any shares
of stock that do not rank prior to the Series Preferred Stock as to
dividends or distribution of assets upon liquidation, dissolution or
winding up, shall not have, or be deemed to have, such material adverse
effect.
In addition, unless the vote or consent of the holders of a greater number
of shares shall then be required by law, the affirmative vote or consent of the
holders of at least a majority of the shares of Series Q Preferred Stock and any
other series of Series Preferred Stock then outstanding upon which like voting
rights have been conferred and are then exercisable, voting together as a single
class, given in person or by proxy either in writing or by resolution at any
special or annual meeting called for the purpose, shall be necessary to
authorize an increase in the authorized amount of the Series Preferred Stock or
the new class of serial preferred stock of the corporation authorized by the
stockholders of the corporation prior to the creation of the Series Q Preferred
Stock (the "Serial Preferred Stock"), or the creation of a class of stock that
would rank pari passu with the Series Preferred Stock or the Serial Preferred
Stock as to dividends or distribution of assets upon liquidation, dissolution or
winding up, or to authorize, permit, effect or validate the voluntary
liquidation, dissolution or winding up of the corporation; provided, however,
that a consolidation or merger of the corporation with or into another
corporation or corporations, or a sale, lease or conveyance, whether for cash,
shares of stock, securities or properties, of all or substantially all or any
part of the assets of the corporation, shall not be deemed or construed to be a
liquidation, dissolution or winding up of the corporation within the meaning of
this paragraph.
(d) The foregoing provisions regarding voting rights shall not apply if,
at or prior to the time when the act with respect to which such provisions would
otherwise apply to a vote required to effect such act, (i) all shares of Series
Q Preferred Stock then outstanding shall have been redeemed or called for
redemption and sufficient funds, together with irrevocable instructions to the
Paying Agent to apply such funds, shall have been deposited in trust to effect
such redemption in accordance with paragraph 6(b)(ii) and 6(b)(iii), or (ii) all
shares of Series Q Preferred Stock have been purchased or otherwise acquired and
canceled.
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(e) Holders of Series Q Preferred Stock, and the holders of shares of any
other series of Series Preferred Stock upon which like voting rights have been
conferred and are then exercisable (other than the Series C Junior
Participating Preferred Stock), shall be entitled to one vote for each share of
such stock held on matters as to which such holders shall be entitled to vote.
9. Definitions. For purposes hereof, any class or series of stock of the
corporation shall be deemed to rank:
(i) prior to the Series Q Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, if the
holders of such class or series shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the holders
of Series Q Preferred Stock;
(ii) on a parity with the Series Q Preferred Stock as to dividends
or distribution of assets upon liquidation, dissolution or winding up,
whether or not the dividend rates, dividend payment dates, redemption
prices or liquidation preferences per share thereof are different from
those of the Series Q Preferred Stock, if the holders of such class or
series of stock and of the Series Q Preferred Stock shall be entitled to
the receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in proportion to their
respective dividend amounts or liquidation preferences, without preference
or priority to the holders of Series Q Preferred Stock; and
(iii) junior to the Series Q Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, if
such stock shall be Common Stock or if the holders of the Series Q
Preferred Stock shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders of shares of such
class or series.
(C) Provisions relating to the Series R Preferred Stock.
1. Designation, The distinctive serial designation of the series
established hereby shall be "Adjustable Rate Cumulative Preferred Stock, Series
R" (hereinafter called the "Series R Preferred Stock").
2. Number. The number of shares of Series R Preferred Stock shall
initially be 60,000, which number may not be increased, but may from time to
time be decreased (but not below the number of shares of Series R Preferred
Stock then outstanding) by a resolution duly adopted by the Board of Directors
of the corporation. Shares of Series R Preferred Stock redeemed, purchased or
otherwise acquired by the corporation shall be
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canceled and shall revert to authorized but unissued Series Preferred Stock
undesignated as to series.
3. Dividends. (a) Holders of shares of Series R Preferred Stock shall be
entitled to receive cumulative cash dividends when, as and if declared by the
Board of Directors of the corporation, out of funds legally available therefor,
from the date of original issuance of such shares to and including November 30,
1994 (the "Initial Dividend Period"), and for each dividend period commencing on
each March 1, June 1, September 1 and December 1 thereafter, and ending on and
including the day next preceding the first day of the next dividend period (such
Initial Dividend Period and each of such other periods being hereinafter
referred to as a "Dividend Period") at a rate per annum for each Dividend Period
equal to the Applicable Rate (as defined in paragraph 4 below) in respect of
such Dividend Period. The amount of dividends per share payable for the Initial
Dividend Period and for any portion of any other Dividend Period less than a
full Dividend Period shall be computed on the basis of a 360-day year and the
actual number of days elapsed in the Dividend Period for which the dividends are
payable, and by multiplying the Applicable Rate with respect to each Dividend
Period, by $2,500.
Dividends as provided for in this paragraph 3 will accrue from the date of
original issuance and will be payable when, as and if declared by the Board of
Directors of the corporation, out of funds legally available therefor, quarterly
on March 1, June 1, September 1 and December 1 in each year, commencing December
1, 1994 (each, a "Dividend Payment Date"), to the holders of record on such
respective dates, not exceeding 30 days preceding the related Dividend Payment
Date, as may be determined by the Board of Directors of the corporation, or a
duly authorized committee of the Board of Directors, in advance of such Dividend
Payment Date. Dividends as provided for in this paragraph 3, to the extent not
declared and paid for any past Dividend Periods, may be declared and paid at any
time, without reference to any regular Dividend Payment Date, to holders of
record on such date, not exceeding 30 days preceding the payment date therefor,
as may be fixed by the Board of Directors of the corporation, or a duly
authorized committee of the Board of Directors. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend that is not paid
when it accrues.
(b) No dividend shall be declared and paid or set apart for payment on any
share of Series R Preferred Stock or any share of any other series of Series
Preferred Stock or any share of any class of stock, or series thereof, ranking
on a parity with the Series R Preferred Stock as to dividends, for any Dividend
Period unless at the same time a like proportionate dividend for the same
Dividend Period, ratably in proportion to the respective dividends applicable
thereto (adjusted in the case of the Initial Dividend Period to reflect the
length of such period), shall be declared and paid or set apart for payment on
all shares of Series R Preferred Stock and all shares of all other series of
Series Preferred Stock and all shares of any class, or series thereof, ranking
on a parity with the Series R Preferred Stock as
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to dividends, then issued and outstanding and entitled to receive dividends.
Holders of shares of Series R Preferred Stock shall not be entitled to any
dividend, whether payable in cash, property or stock, in excess of full
cumulative dividends, as herein provided, on the Series R Preferred Stock.
(c) So long as any shares of Series R Preferred Stock shall be
outstanding, unless the full cumulative dividends on all outstanding shares of
Series R Preferred Stock shall have been declared and paid or set apart for
payment for all past Dividend Periods and except as provided in paragraph 3(b),
(i) no dividend (other than a dividend in Common Stock or in any other stock of
the corporation ranking junior to the Series R Preferred Stock as to dividends
and distribution of assets upon liquidation, dissolution or winding up) shall be
declared and paid or set apart for payment, or other distribution declared or
made, on the Common Stock or on any other stock ranking junior to or on a parity
with Series R Preferred Stock as to dividends or distribution of assets upon
liquidation, dissolution or winding up, and (ii) no shares of Common Stock or
shares of any other stock of the corporation ranking junior to or on a parity
with Series R Preferred Stock as to dividends or distribution of assets upon
liquidation, dissolution or winding up shall be redeemed, purchased or otherwise
acquired for any consideration by the corporation or any subsidiary of the
corporation (nor shall any moneys be paid to or made available for a sinking or
other fund for the redemption, purchase or other acquisition of any shares of
any such stock), other than by conversion into or exchange for Common Stock or
any other stock of the corporation ranking junior to Series R Preferred Stock as
to dividends and distribution of assets upon liquidation, dissolution or winding
up.
4. Applicable Rate. (a) The dividend rate per annum referred to in
paragraph 3(a) for any Dividend Period (the "Applicable Rate") shall be equal to
(i) in the case of the Initial Dividend Period, 6.42% per annum and (ii) in the
case of any Dividend Period subsequent to the Initial Dividend Period, 10-1/2%
per annum; provided, however, that if a lower dividend rate for any such
Dividend Period would result, then the Applicable Rate for such Dividend Period
shall be equal to 84.5% of the Effective Rate (as defined below), but in no
event less than 4-1/2% per annum. The "Effective Rate" for any Dividend Period
shall be equal to the highest of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate and the Thirty Year Constant Maturity Rate (each as hereinafter
defined) for such Dividend Period. If the corporation determines in good faith
that for any reason:
(i) any one of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate and the Thirty Year Constant Maturity Rate cannot be
determined for any Dividend Period, then the Effective Rate for such
Dividend Period will be equal to the higher of whichever two such Rates
can be so determined;
(ii) only one of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate and the Thirty Year Constant Maturity Rate can be determined
for any Dividend
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Period, then the Effective Rate for such Dividend Period will be equal to
whichever such Rate can be so determined; or
(iii) none of the Treasury Bill Rate, the Ten Year Constant Maturity
Rate and the Thirty Year Constant Maturity Rate can be determined for any
Dividend Period, then the Effective Rate for the preceding Dividend Period
will be continued for such Dividend Period.
Except as provided below in this paragraph, the "Treasury Bill Rate" for
each Dividend Period shall be the arithmetic average of the two most recent
weekly per annum market discount rates (or the one weekly per annum market
discount rate, if only one such rate shall be published during the relevant
Calendar Period, as defined below) for three-month U.S. Treasury bills, as
published weekly by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") during the Calendar Period immediately preceding the
last ten calendar days preceding the Dividend Period for which the dividend rate
on the Series R Preferred Stock is being determined. If the Federal Reserve
Board does not publish such a weekly per annum market discount rate during any
such Calendar Period, then the Treasury Bill Rate for such Dividend Period shall
be the arithmetic average of the two most recent weekly per annum market
discount rates (or the one weekly per annum market discount rate, if only one
such rate shall be published during the relevant Calendar Period) for
three-month U.S. Treasury bills, as published weekly during such Calendar Period
by any Federal Reserve Bank or by any U.S. Government department or agency
selected by the corporation. If a weekly per annum market discount rate for
three-month U.S. Treasury bills shall not be published by the Federal Reserve
Board or by any Federal Reserve Bank or by any U.S. Government department or
agency during such Calendar Period, then the Treasury Bill Rate for such
Dividend Period shall be the arithmetic average of the two most recent weekly
per annum market discount rates (or the one weekly per annum market discount
rate, if only one such rate shall be published during the relevant Calendar
Period) for all of the U.S. Treasury bills then having remaining maturities of
not less than 80 nor more than 100 days, as published during such Calendar
Period by the Federal Reserve Board or, if the Federal Reserve Board shall not
publish such rates, by any Federal Reserve Bank or by any U.S. Government
department or agency selected by the corporation. If the corporation determines
in good faith that for any reason no such U.S. Treasury bill rates are published
as provided above during such Calendar Period, then the Treasury Bill Rate for
such Dividend Period shall be the arithmetic average of the per annum market
discount rates based upon the closing bids during such Calendar Period for each
of the issues of marketable noninterest-bearing U.S. Treasury securities with a
remaining maturity of not less than 80 nor more than 100 days from the date of
each such quotation, as chosen and quoted daily for each business day in The
City of New York (or less frequently if daily quotations shall not be generally
available) to the corporation by at least three recognized dealers in U.S.
Government securities selected by the corporation. If the corporation determines
in good faith that for any reason the corporation cannot determine the Treasury
Bill Rate for any Dividend Period as provided
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above in this paragraph, the Treasury Bill Rate for such Dividend Period shall
be the arithmetic average of the per annum market discount rates based upon the
closing bids during such Calendar Period for each of the issues of marketable
interest-bearing U.S. Treasury securities with a remaining maturity of not less
than 80 nor more than 100 days from the date of each such quotation, as chosen
and quoted daily for each business day in The City of New York (or less
frequently if daily quotations shall not be generally available) to the
corporation by at least three recognized dealers in U.S. Government securities
selected by the corporation.
Except as provided below in this paragraph the "Ten Year Constant Maturity
Rate" for each Dividend Period shall be the arithmetic average of the two most
recent weekly per annum Ten Year Average Yields, as defined below (or the one
weekly per annum Ten year Average Yield, if only one such Yield shall be
published during the relevant Calendar Period), as published weekly by the
Federal Reserve Board during the Calendar Period immediately preceding the last
ten calendar days preceding the Dividend Period for which the dividend rate on
the Series R Preferred Stock is being determined. If the Federal Reserve Board
does not publish such a weekly per annum Ten Year Average Yield during any such
Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend
Period shall be the arithmetic average of the two most recent weekly per annum
Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if
only one such Yield shall be published during the relevant Calendar Period), as
published weekly during such Calendar Period by any Federal Reserve Bank or by
any U.S. Government department or agency selected by the corporation. If a
weekly per annum Ten Year Average Yield shall not be published by the Federal
Reserve Board or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Ten Year Constant
Maturity Rate for such Dividend Period shall be the arithmetic average of the
two most recent weekly per annum average yields to maturity (or the one weekly
per annum average yield to maturity, if only one such yield shall be published
during the relevant Calendar Period) for all of the actively traded marketable
U.S. Treasury fixed interest rate securities (other than Special Securities, as
defined below) then having remaining maturities of not less than eight nor more
than twelve years, as published during such Calendar Period by the Federal
Reserve Board or, if the Federal Reserve Board shall not publish such yields, by
any Federal Reserve Bank or by any U.S. Government department or agency selected
by the corporation. If the corporation determines in good faith that for any
reason the corporation cannot determine the Ten Year Constant Maturity Rate for
any Dividend Period as provided above in this paragraph, then the Ten Year
Constant Maturity Rate for such Dividend Period shall be the arithmetic average
of the per annum average yields to maturity based upon the closing bids during
such Calendar Period for each of the issues of actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities) with a
final maturity date not less than eight nor more than twelve years from the date
of each such quotation, as chosen and quoted daily for each business day in The
City of New York (or less frequently if daily quotations shall not be generally
available) to the corporation by at least three recognized dealers in U.S.
Government securities selected by the corporation.
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Except as provided below in this paragraph, the "Thirty Year Constant
Maturity Rate" for each Dividend Period shall be the arithmetic average of the
two most recent weekly per annum Thirty Year Average Yields, as defined below
(or the one weekly per annum Thirty Year Average Yield, if only one such Yield
shall be published during the relevant Calendar Period), as published weekly by
the Federal Reserve Board during the Calendar Period immediately preceding the
last ten calendar days preceding the Dividend Period for which the dividend rate
on the Series R Preferred Stock is being determined. If the Federal Reserve
Board does not publish such a weekly per annum Thirty Year Average Yield during
any such Calendar Period, then the Thirty Year Constant Maturity Rate for such
Dividend Period shall be the arithmetic average of the two most recent weekly
per annum Thirty Year Average Yields (or the one weekly per annum Thirty Year
Average Yield, if only one such Yield shall be published during the relevant
Calendar Period), as published weekly during such Calendar Period by any Federal
Reserve Bank or by any U.S. Government department or agency selected by the
corporation. If a per annum Thirty Year Average Yield shall not be published by
the Federal Reserve Board or by any Federal Reserve Bank or by any U.S.
Government department or agency during such Calendar Period, then the Thirty
Year Constant Maturity Rate for such Dividend Period shall be the arithmetic
average of the two most recent weekly per annum average yields to maturity (or
the one weekly per annum average yield to maturity, if only one such yield shall
be published during the relevant Calendar Period) for all the actively traded
marketable U.S. Treasury fixed interest rate securities (other than Special
Securities) then having remaining maturities of not less than twenty-eight nor
more than thirty years, as published during such Calendar Period by the Federal
Reserve Board or, if the Federal Reserve Board shall not publish such yields, by
any Federal Reserve Bank or by any U.S. Government department or agency selected
by the corporation. If the corporation determines in good faith that for any
reason the corporation cannot determine the Thirty Year Constant Maturity Rate
for any Dividend Period as provided above in this paragraph, then the Thirty
Year Constant Maturity Rate for such Dividend Period shall be the arithmetic
average of the per annum average yields to maturity based upon the closing bids
during such Calendar Period for each of the issues of actively traded marketable
U.S. Treasury fixed interest rate securities (other than Special Securities)
with a final maturity date not less than twenty-eight nor more than thirty years
from the date of each such quotation, as chosen and quoted daily for each
business day in The City of New York (or less frequently if daily quotations
shall not be generally available) to the corporation by at least three
recognized dealers in U.S. government securities selected by the corporation.
The Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Thirty
Year Constant Maturity Rate shall each be rounded to the nearest five hundredths
of a percentage point.
(b) The Applicable Rate with respect to each Dividend Period commencing
after the Initial Dividend Period will be calculated as promptly as practicable
by the corporation according to the appropriate method described herein. The
corporation will cause
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each such Applicable Rate to be published in a daily newspaper of general
circulation in The City of New York prior to the commencement of the first
Dividend Period to which it applies and will cause notice of such Applicable
Rate to be included with the dividend payment checks next mailed to the holders
of the Series R Preferred Stock .
(c) For purposes of this paragraph 4, the per annum market discount rates
for three-month U.S. Treasury bills shall be secondary market rates (quoted on a
bank-discount basis), and the term:
(i) "Calendar Period" shall mean 14 calendar days;
(ii) "Special Securities" shall mean securities which can, at the
option of the holder, be surrendered at face value in payment of any
federal estate tax or which provide tax benefits to the holder and are
priced to reflect such tax benefits or which were originally issued at a
deep or substantial discount;
(iii) "Ten Year Average Yield" shall mean the average yield to
maturity for actively traded marketable U.S. Treasury fixed interest rate
securities (adjusted to constant maturities of ten years); and
(iv) "Thirty Year Average Yield" shall mean the average yield to
maturity for actively traded marketable U.S. Treasury fixed interest rate
securities (adjusted to constant maturities of thirty years).
5. Liquidation. (a) Upon any liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, the holders of the shares of
Series R Preferred Stock shall be entitled to receive in full out of the net
assets of the corporation or the proceeds thereof, whether from capital or
surplus, before any payment or distribution shall be made or set aside for
payment on the Common Stock or on any other class or series of stock ranking
junior to Series R Preferred Stock as to distribution of assets upon such
liquidation, dissolution or winding up, liquidating distributions in the amount
of $2,500.00 per share, plus in each case an amount equal to accrued and unpaid
dividends (whether or not declared) to the date of final distribution (the
"Liquidation Preference").
(b) In the event the assets of the corporation, or the proceeds thereof,
available for distribution to the holders of shares of Series R Preferred Stock
upon any liquidation, dissolution or winding up of the corporation, whether
voluntary or involuntary, shall be insufficient to pay the full Liquidation
Preference to which such holders are entitled pursuant to paragraph 5(a), no
such distribution shall be made on account of any shares of any other series of
Series Preferred Stock or any other class of stock, or series thereof, ranking
on a parity with the shares of Series R Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up, unless proportionate
distributive amounts shall be paid on account of the shares of Series R
Preferred Stock, ratably in proportion to the preferential
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sums which would be payable in such distribution if all sums payable in respect
of the shares of all series of Series Preferred Stock and any such other class
or series as aforesaid were paid in full.
(c) After the payment to the holders of the shares of Series R Preferred
Stock of the full Liquidation Preference, the holders of shares of Series R
Preferred Stock, as such, shall have no right or claim to any of the remaining
assets of the corporation, or the proceeds thereof.
(d) A consolidation or merger of the corporation with or into another
corporation or corporations, or a sale, lease or conveyance, whether for cash,
shares of stock, securities or properties, of all or substantially all or any
part of the assets of the corporation, shall not be deemed or construed to be a
liquidation, dissolution or winding up of the corporation within the meaning of
this paragraph 5.
6. Redemption. (a) Issued and outstanding shares of Series R Preferred
Stock shall be redeemable, at the option of the corporation, as a whole or from
time to time in part, at any time on or after September 1, 1999 at a redemption
price of $2,500.00 per share, plus, in each case, an amount equal to accrued and
unpaid dividends (whether or not declared) to the date fixed for redemption.
(b)(i) In the event the corporation shall redeem shares of Series R
Preferred Stock, notice of such redemption shall be given by first-class mail,
postage prepaid, mailed not more than 60 nor less thin 30 days prior to the date
fixed for redemption, to each holder of record of the shares to be redeemed, at
such holder's address as the same appears on the books of the corporation. Each
such notice shall state: (A) the date fixed for redemption; (B) the number of
shares of Series R preferred Stock to be redeemed and, if less than all of the
shares of Series R Preferred Stock held by such holder are to be redeemed, the
number of such shares (and the certificate numbers of such shares) to be
redeemed from such holder, (C) the redemption price (specifying the amount of
accrued and unpaid dividends to be included therein) and the manner in which
such redemption price is to be paid and delivered, (D) the place or places
(which shall include a place in the Borough of Manhattan, The City of New York)
where certificates for such shares are to be surrendered for payment of the
redemption price; and (E) that dividends on the shares to be redeemed will cease
to accrue on such date fixed for redemption. No defect in the notice of
redemption or in the mailing thereof shall affect the validity of the redemption
proceedings, and the failure to give notice to any holder of shares of Series R
Preferred Stock to be so redeemed shall not affect the validity of the notice
given to the other holders of shares of Series R Preferred Stock to be so
redeemed.
(ii) Notice having been mailed as aforesaid, from and after the date fixed
for redemption (unless default shall be made by the corporation in providing
funds for the
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payment of the redemption price), dividends on the shares of Series R Preferred
Stock so called for redemption shall cease to accrue, and such shares shall no
longer be deemed to be outstanding, and all rights of the holders thereof as
holders of Series R Preferred Stock (except the right to receive from the
corporation the redemption price, but without interest) shall cease. The
corporation's obligation to provide funds in accordance with the preceding
sentence shall be deemed fulfilled if, on or before 12:00 noon, New York City
time on the date fixed for redemption, the corporation shall deposit with a
paying agent (which may be an affiliate of the corporation) (a "Paying Agent"),
which shall be a bank or trust company organized and in good standing under the
laws of the United States or the State of New York having an office or agency in
the Borough of Manhattan, The City of New York, and having, together with its
corporate parent, capital, surplus and undivided profits aggregating at least
$50,000,000, funds necessary for such redemption, in trust, with irrevocable
instructions and authorization that such funds be applied to the redemption of
the shares of Series R Preferred Stock so called for redemption upon surrender
of certificates for such shares (properly endorsed or assigned for transfer).
(iii) If such notice of redemption shall have been duly mailed or if the
corporation shall have given to a Paying Agent irrevocable authorization
promptly to mail such notice, and if, on or before 12:00 noon, New York City
time on the redemption date specified therein, the funds necessary for such
redemption shall have been deposited by the corporation with such Paying Agent
in trust for the pro rata benefit of the holders of the shares of Series R
Preferred Stock called for redemption, together with irrevocable instructions
that such funds be applied to such redemption, then, notwithstanding that any
certificate for shares of Series R Preferred Stock so called for redemption
shall not have been surrendered for cancellation, from and after the time of
such deposit, all shares of Series R Preferred Stock so called for redemption
shall no longer be deemed to be outstanding and all rights with respect to such
shares of Series R Preferred Stock shall forthwith cease and terminate, except
only the right of the holders thereof to receive from such Paying Agent at any
time after the time of such deposit the funds so deposited, without any interest
thereon.
(iv) Any interest accrued on funds deposited with a Paying Agent in
connection with any redemption of shares of Series R Preferred Stock shall be
paid to the corporation from time to time and the holders of any such shares to
be redeemed with such money shall have no claim to any such interest. Any funds
deposited and unclaimed at the end of two years from any redemption date shall
be repaid or released to the corporation, after which the holder or holders of
shares of Series R Preferred Stock so called for redemption shall look only to
the corporation for payment of the redemption price, without any interest
thereon.
(c) Upon surrender in accordance with such notice of the certificates for
any shares to be redeemed (properly endorsed or assigned for transfer), such
shares shall be redeemed by the corporation at the applicable redemption price.
If fewer than all the
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outstanding shares of Series R Preferred Stock are to be redeemed, the shares to
be redeemed shall be determined by lot or pro rata as may be determined by the
Board of Directors of the Corporation.
(d) In no event shall the corporation redeem, purchase or otherwise
acquire fewer than all the outstanding shares of Series R Preferred Stock unless
full cumulative dividends shall have been declared and paid or set apart for
payment on all outstanding shares of Series R Preferred Stock for all prior
Dividend Periods; provided, however, that the foregoing shall not prevent, if
otherwise permitted, the purchase or acquisition of shares of Series R Preferred
Stock pursuant to a tender or exchange offer made on the same terms to holders
of all the outstanding shares of Series R Preferred Stock and mailed to the
holders of record of all such outstanding shares at such holders' addresses as
the same appear on the books of the corporation; and provided further, however,
that if some, but fewer than all, of the shares of Series R Preferred Stock are
to be purchased or otherwise acquired pursuant to such tender or exchange offer
and the number of shares so tendered exceeds the number of shares so to be
purchased or otherwise acquired by the corporation, the shares of Series R
Preferred Stock so tendered shall be purchased or otherwise acquired by the
corporation on a pro rata basis (with adjustments to eliminate fractions)
according to the number of such shares duly tendered by each holder so tendering
shares of Series R Preferred Stock for such purchase or exchange.
7. Conversion and Exchange. The holders of shares of Series R Preferred
Stock shall not have any rights to convert such shares into or to exchange such
shares for shares of Common Stock or any other stock of the corporation.
8. Voting Rights. (a) Except as hereinafter in this paragraph 8 expressly
provided and as otherwise from time to time required by the laws of the State of
New York, the Series R Preferred Stock shall not have any voting rights.
(b) Whenever, at any time or times, dividends payable on shares of Series
R Preferred Stock shall be in arrears in an amount equivalent to dividends for
six full Dividend Periods, then, immediately upon the happening of such event,
the number of directors of the corporation shall be increased by two and the
holders of outstanding shares of Series R Preferred Stock shall have the right,
voting together as a single class with holders of shares of any other series of
Series Preferred Stock then outstanding upon which like voting rights have been
conferred and are then exercisable, to the exclusion of the holders of the
Common Stock, the holders of any other series of Series Preferred Stock upon
which such voting rights have not been conferred or are not then exercisable,
and the holders of any other stock of the corporation having general voting
rights, to vote for the election of two members of the Board of Directors of the
corporation to fill such newly created directorships, until all dividends in
arrears on the Series R Preferred Stock have been declared and paid or set apart
for payment in full. The right of the holders of Series R Preferred Stock to
elect members of
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the Board of Directors of the corporation as aforesaid shall continue until such
time as all dividends in arrears on the Series R Preferred Stock shall have been
declared and paid or set apart for payment in full, at which time such right
shall terminate, except as herein or by law expressly provided, subject to
revesting in the event of each and every subsequent arrearage in the amount
above mentioned. Upon any termination of the right of such holders to elect
directors as herein provided, the term of office of all directors then in office
elected thereby, and the vacancies created pursuant to this paragraph 8(b),
shall terminate immediately. Any director who shall have been so elected
pursuant to this paragraph 8(b) may be removed at any time, with or without
cause, and any vacancy thereby created may be filled, only by the affirmative
vote of the holders of Series R Preferred Stock voting together as a single
class with the holders of shares of any other series of Series Preferred Stock
upon which like voting rights have been conferred and are then exercisable. If
the office of any director so elected pursuant to this paragraph 8(b) becomes
vacant for any reason other than removal from office as aforesaid, the remaining
director may choose a successor who shall hold office for the unexpired term in
respect of which such vacancy occurred.
(c) So long as any shares of Series R Preferred Stock shall be
outstanding, unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the affirmative vote or consent of (a) the
holders of at least 66-2/3% of the shares of Series R Preferred Stock and (b)
the holders of at least a majority of the shares of Series R Preferred Stock and
of any other series of Series Preferred Stock then outstanding upon which like
voting rights have been conferred and are then exercisable, voting together as a
single class, in each case given in person or by proxy either in writing or by
resolution at any special or annual meeting called for the purpose, shall be
necessary to authorize, permit, effect or validate any one or more of the
following:
(i) the authorization or any increase in the authorized amount of
any class of stock, or the establishment or designation of any series of
stock (unless the class of which such series is a pan has been authorized
previously pursuant to this paragraph 8(c) (i)), or the issuance or sale
of any obligation, security or instrument convertible into, exchangeable
for, or evidencing the right to purchase, acquire or subscribe for shares
of a class or series of stock, if such class or series of stock ranks
prior to the Series R Preferred Stock as to dividends or distribution of
assets upon liquidation, dissolution or winding up (unless the class or
series has been authorized previously pursuant to this paragraph 8 (c)
(i)), and
(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the certificate of
incorporation, as amended hereby, which would materially and adversely
affect any right, preference, privilege or voting rights of the Series
Preferred Stock then outstanding; provided, however, that in the event
that any such amendment, alteration or repeal would materially and
adversely affect the rights of only the Series R Preferred Stock, then
such amendment,
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alteration or repeal may be effected only with the affirmative vote or
consent of the holders of at least 66-2/3% of the shares of Series R
Preferred Stock then outstanding; provided further, however, that the
authorization, establishment, designation, issuance or sale of other
Series Preferred Stock shall not have, or be deemed to have, such material
adverse effect; and provided further, however, that an increase in the
authorized amount of Series Preferred Stock, or the authorization,
establishment, designation, issuance or sale of any shares of stock that
do not rank prior to the Series Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, shall
not have, or be deemed to have, such material adverse effect.
In addition, unless the vote or consent of the holders of a greater number
of shares shall then be required by law, the affirmative vote or consent of the
holders of at least a majority of the shares of Series R Preferred Stock and any
other series of Series Preferred Stock then outstanding upon which like voting
rights have been conferred and are then exercisable, voting together as a single
class, given in person or by proxy either in writing or by resolution at any
special or annual meeting called for the purpose, shall be necessary to
authorize an increase in the authorized amount of the Series Preferred Stock or
the new class of serial preferred stock of the corporation authorized by the
shareholders of the corporation prior to the creation of the Series R Preferred
Stock (the "Serial Preferred Stock"), or the creation of a class of stock that
would rank pari passu with the Series Preferred Stock or the Serial Preferred
Stock as to dividends or distribution of assets upon liquidation, dissolution or
winding up, or to authorize, permit, effect or validate the voluntary
liquidation, dissolution or winding up of the corporation; provided, however,
that a consolidation or merger of the corporation with or into another
corporation or corporations, or a sale, lease or conveyance, whether for cash,
shares of stock, securities or properties, of all or substantially all or any
part of the assets of the corporation, shall not be deemed or construed to be a
liquidation, dissolution or winding up of the corporation within the meaning of
this paragraph.
(d) The foregoing provisions regarding voting rights shall not apply if,
at or prior to the time when the act with respect to which such provisions would
otherwise apply to a vote required to effect such act, (i) all shares of Series
R Preferred Stock then outstanding shall have been redeemed or called for
redemption and sufficient funds, together with irrevocable instructions to the
Paying Agent to apply such funds, shall have been deposited in trust to effect
such redemption in accordance with paragraph 6 (b) (ii) and 6 (b) (iii), or (ii)
all shares of Series R Preferred Stock have been purchased or otherwise acquired
and canceled.
(e) Holders of Series R Preferred Stock, and the holders of shares of any
other series of Series Preferred Stock upon which like voting rights have been
conferred and are then exercisable (other than the Series C Junior Participating
Preferred Stock), shall be entitled to one vote for each share of such stock
held on matters as to which such holders shall be entitled to vote.
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9. Definitions. For purposes hereof, any class or series of stock of the
corporation shall be deemed to rank:
(i) prior to the Series R Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, if the
holders of such class or series shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding, up, as the case may be, in preference or priority to the holders
of Series R Preferred Stock;
(ii) on a parity with the Series R Preferred Stock to its dividends
or distribution of assets upon liquidation, dissolution or winding up,
whether or not the dividend rates, dividend payment dates, redemption
prices or liquidation preferences per share thereof are different from
those of the Series R Preferred Stock, if the holders of such class or
series of stock and of the Series R Preferred Stock shall be entitled to
the receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in proportion to their
respective dividend amounts or liquidation preferences, without preference
or priority to the holders of Series R Preferred Stock; and
(iii) junior to the Series R Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, if
such stock shall be Common Stock or if the holders of the Series R
Preferred Stock shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders of shares of such
class or series
(D) Provisions relating to the Series S Preferred Stock.
1. Designation. The distinctive serial designation of the series
established hereby shall be "7-3/4% Cumulative Preferred Stock, Series S"
(hereinafter called the "Series S Preferred Stock").
2. Number. The number of shares of Series S Preferred Stock without par
value shall initially be 50,000, which number may not be increased, but may from
time to time be decreased (but not below the sum of the number of shares of
Series S Preferred Stock then outstanding ) by a resolution duly adopted by the
Board of Directors of the corporation. Shares of Series S Preferred Stock
redeemed, purchased or otherwise acquired by the corporation shall be canceled
and shall revert to authorized but unissued Series Preferred Stock undesignated
as to series.
3. Dividends (a) Holders of shares of Series S Preferred Stock shall be
entitled to receive cumulative cash dividends when, as and if declared by the
Board of Directors of the corporation, out of funds legally available therefor,
from the date of original
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issuance of such shares to (but excluding) the March 1, June 1, September 1 or
December 1 next succeeding such date of original issuance of such shares (the
"Initial Dividend Period"), and for each dividend period commencing on each
March 1, June 1, September 1 or December 1 thereafter, and ending on and
including the day next preceding the first day of the next dividend period (such
Initial Dividend Period and each of such other periods being hereinafter
referred to as a "Dividend Period") at a rate of 7-3/4% per annum (the "Dividend
Rate"). The amount of dividends per share of Series S Preferred Stock payable
for any portion of any Dividend Period less than a full quarter shall be
computed on the basis of a 360-day year consisting of twelve 30-day months and
the actual number of days elapsed in the Dividend Period for which the dividends
are payable, and by multiplying the Dividend Rate by $2,500.00
Dividends as provided for in this Paragraph 3 will accrue from the date of
original issuance of a share of Series S Preferred Stock and will be payable
when, as and if declared by the Board of Directors of the corporation, out of
funds legally available therefor, quarterly on March 1, June 1, September 1 and
December 1 in each year (each, a "Dividend Payment Date"), commencing on the
Dividend Payment Date next succeeding the date of original issuance of such
share, to the holder of record at the close of business on the fifteenth day of
the month next preceding the month in which such Dividend Payment Date occurs.
Dividends as provided for in this Paragraph 3, to the extent not declared and
paid for any past Dividend Periods, may be declared and paid at any time,
without reference to any regular Dividend Payment Date, to holders of record on
such date, not exceeding 30 days preceding the payment date therefor, as may be
fixed by the Board of Directors of the corporation, or a duly authorized
committee of the Board of Directors. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend that is not paid when it
accrues.
(b) No dividend shall be declared and paid or set apart for payment on any
share of Series S Preferred Stock or any share of any other series of Series
Preferred Stock or any share of any class of stock, or series thereof, ranking
on a parity with the Series S Preferred Stock as to dividends, for any Dividend
Period unless at the same time a like proportionate dividend for the same
Dividend Period, ratably in proportion to the respective dividends applicable
thereto, shall be declared and paid or set apart for payment on all shares of
Series S Preferred Stock and all shares of all other series of Series Preferred
Stock and all shares of any class of stock, or series thereof, ranking on a
parity with the Series S Preferred Stock as to dividends, then issued and
outstanding and entitled to receive dividends. Holders of shares of Series S
Preferred Stock shall not be entitled to any dividend, whether payable in cash,
property or stock, in excess of full cumulative dividends, as herein provided,
on the Series S Preferred Stock.
(c) So long as any shares of Series S Preferred Stock shall be
outstanding, unless the full cumulative dividends on all outstanding shares of
Series S Preferred Stock shall have been declared and paid or set apart for
payment for all past Dividend Periods and
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except as provided in Paragraph 3 (b), (i) no dividend (other than a dividend in
Common Stock or in any other stock of the corporation ranking junior to the
Series S Preferred Stock as to dividends and distribution of assets upon
liquidation, dissolution or winding up) shall be declared and paid or set aside
for payment, or other distribution declared or made, on the Common Stock or on
any other stock ranking junior to or on a parity with the Series S Preferred
Stock as to dividends or distribution of assets upon liquidation, dissolution or
winding up, and (ii) no shares of Common Stock or shares of any other stock of
the corporation ranking junior to or on a parity with the Series S Preferred
Stock as to dividends or distribution of assets upon liquidation, dissolution or
winding up shall be redeemed, purchased or otherwise acquired for any
consideration by the corporation or any subsidiary of the corporation (nor shall
any moneys be paid to or made available for a sinking or other fund for the
redemption, purchase or other acquisition of any shares of any such stock),
other than by conversion into or exchange for Common Stock or any other stock of
the corporation ranking junior to the Series S Preferred Stock as to dividends
and distribution of assets upon liquidation, dissolution or winding up.
4. Liquidation. (a) Upon any liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, the holders of the shares of
Series S Preferred Stock shall be entitled to receive in full out of the net
assets of the corporation or the proceeds thereof, whether from capital or
surplus, before any payment or distribution shall be made or set aside for
payment on the Common Stock or on any other class or series of stock ranking
junior to the Series S Preferred Stock as to distribution of assets upon such
liquidation, dissolution or winding up, the amount of $2,500.00 per share, plus
in each case an amount equal to accrued and unpaid dividends (whether or not
declared) to the date of final distribution (the "Liquidation Preference").
(b) In the event that the assets of the corporation, or the proceeds
thereof, available for distribution to the holders of shares of Series S
Preferred Stock upon any liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, shall be insufficient to pay the
full Liquidation Preference to which such holders are entitled pursuant to
Paragraph 4 (a), no such distribution shall be made on account of any shares of
any other series of Series S Preferred Stock or any other class of stock, or
series thereof, ranking on a parity with the shares of Series S Preferred Stock
as to distribution of assets upon liquidation, dissolution or winding up, unless
proportionate distributive amounts shall be paid on account of the shares of
Series S Preferred Stock, ratably in proportion to the preferential sums which
would be payable in such distribution if all sums payable in respect of the
shares of all series of Series Preferred Stock and any such other class or
series as aforesaid were paid in full.
(c) After the payment to the holders of the shares of Series S Preferred
Stock of the full Liquidation Preference, the holders of shares of Series S
Preferred Stock, as
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such, shall have no right or claim to any of the remaining assets of the
corporation, or the proceeds thereof.
(d) A consolidation or merger of the corporation with or into another
corporation or corporations, or a sale, lease or conveyance, whether for cash,
shares of stock, securities or properties, of all or substantially all or any
part of the assets of the corporation, shall not be deemed or construed to be a
liquidation, dissolution or winding up of the corporation within the meaning of
this Paragraph 4.
5. Redemption. (a) Issued and outstanding shares of Series S Preferred
Stock shall be redeemable, at the option of the corporation, as a whole or from
time to time in part, at any time on or after June 1, 2000 at a redemption price
of $2,500.00 per share, plus in each case an amount equal to accrued and unpaid
dividends (whether or not declared) to the date fixed for redemption.
(b)(i) In the event the corporation shall redeem shares of Series S
Preferred Stock, notice of such redemption shall be given by first-class
mail, postage prepaid, mailed not more than 60 nor less than 30 days prior
to the date fixed for redemption, to each holder of record of the shares
to be redeemed, at such holder's address as the same appears on the books
of the corporation. Each such notice shall state: (A) the date fixed for
redemption; (B) the number of shares of Series S Preferred Stock to be
redeemed and, if less than all of the shares of Series S Preferred Stock
held by such holder are to be redeemed, the number of such shares (and the
certificate numbers of such shares) to be redeemed from such holder; (C)
the redemption price (specifying the amount of accrued and unpaid
dividends to be included therein) and the manner in which such redemption
price is to be paid and delivered; (D) the place or places (which shall
include a place in the Borough of Manhattan, The City of New York) where
certificates for such shares are to be surrendered for payment of the
redemption price; and (E) that dividends an the shares to be redeemed will
cease to accrue on such date fixed for redemption. No defect in the notice
of redemption or in the mailing thereof shall affect the validity of the
redemption proceedings, and the failure to give notice to any holder of
share of Series S Preferred Stock to be so redeemed shall not affect the
validity of the notice given to the other holders of shares of Series S
Preferred Stock to be so redeemed.
(ii) Notice having been mailed as aforesaid, from and after the date
fixed for redemption (unless default shall be made by the corporation in
providing funds for the payment of the redemption price), dividends on the
shares of Series S Preferred Stock so called for redemption shall cease to
accrue, and such shares shall no longer be deemed to be outstanding, and
all rights of the holders thereof as holders of Series S Preferred Stock
(except the right to receive from the corporation the redemption price,
but without interest) shall cease. The corporation's obligation to provide
funds in accordance with the preceding sentence shall be deemed fulfilled
if, on or before 12:00 noon, New York City time on the date fixed for
redemption, the corporation shall deposit with a paying agent (which may
be an
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affiliate of the corporation) (a "Paying Agent"), which shall be a bank or
trust company organized and in good standing under the laws of the United
States or the State of New York having an office or agency in the Borough
of Manhattan, The City of New York, and having (together with its
immediate parent) capital, surplus and undivided profits aggregating at
least $50,000,000, funds necessary for such redemption, in trust, with
irrevocable instructions and authorization that such funds be applied to
the redemption of the shares of Series S Preferred Stock so called for
redemption upon surrender of certificates for such shares (properly
endorsed or assigned for transfer).
(iii) If such notice of redemption shall have been duly mailed or if
the corporation shall have given to a Paying Agent irrevocable
authorization promptly to mail such notice, and if on or before the
redemption date specified therein the funds necessary for such redemption
shall have been deposited by the corporation with such Paying Agent in
trust for the pro rata benefit of the holders of the shares of Series S
Preferred Stock called for redemption, together with irrevocable
instructions that such funds be applied to such redemption, then,
notwithstanding that any certificate for shares of Series S Preferred
Stock so called for redemption shall not have been surrendered for
cancellation, from and after the time of such deposit, all shares of
Series S Preferred Stock so called for redemption shall no longer be
deemed to be outstanding and all rights with respect to such shares of
Series S Preferred Stock shall forthwith cease and terminate, except only
the right of the holders thereof to receive from such Paying Agent at any
time after the time of such deposit the funds so deposited, without any
interest thereon.
(iv) Any interest accrued on funds deposited with a Paying Agent in
connection with any redemption of shares of Series S Preferred Stock shall
be paid to the corporation from time to time and the holders of any such
shares to be redeemed with such money shall have no claim to any such
interest. Any funds deposited and unclaimed at the end of two years from
any redemption date shall be repaid or released to the corporation, after
which the holder or holders of shares of Series S Preferred Stock so
called for redemption shall look only to the corporation for payment of
the redemption price, without any interest thereon.
(c) Upon surrender in accordance with such notice of the certificates for
any shares to be redeemed (properly endorsed or assigned for transfer), such
shares shall be redeemed by the corporation at the applicable redemption price.
If less than all the outstanding shares of Series S Preferred Stock are to be
redeemed, the shares to be redeemed shall be determined by lot or pro rata as
may be determined by the Board of Directors of the corporation.
(d) In no event shall the corporation redeem less than all the outstanding
shares of Series S Preferred Stock unless full cumulative dividends shall have
been declared and paid or set apart for payment on all outstanding shares of
Series S Preferred Stock for all
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prior Dividend Periods; provided, however, that the foregoing shall not prevent,
if otherwise permitted, the purchase or acquisition of shares of Series S
Preferred Stock pursuant to a tender or exchange offer made on the same terms to
holders of all the outstanding shares of Series S Preferred Stock and mailed to
the holders of record of all such outstanding shares at such holders' addresses
as the same appear on the books of the corporation; and provided, further,
however, that if some, but less than all, of the shares of Series S Preferred
are to be purchased or otherwise acquired pursuant to such tender or exchange
offer and the number of shares so tendered exceeds the number of shares so to be
purchased or otherwise acquired by the corporation, the shares of Series S
Preferred Stock so tendered shall be purchased or otherwise acquired by the
corporation on a pro rata basis (with adjustments to eliminate fractions)
according to the number of such shares duly tendered by each holder so tendering
shares of Series S Preferred Stock for such purchase or exchange.
6. Conversion and Exchange. The holders of shares of Series S Preferred
Stock shall not have any rights to convert such shares into or to exchange such
shares for shares of Common Stock or any other stock of the corporation.
7. Voting Rights. (a) Except as hereinafter in this Paragraph 7 expressly
provided and as otherwise from time to time required by the laws of the State of
New York, the Series S Preferred Stock shall not have any voting rights.
(b) Whenever, at any time or times, dividends payable on shares of Series
S Preferred Stock shall be in arrears in an amount equivalent to dividends for
six full Dividend Periods, then, immediately upon the happening of such event,
the number of directors of the corporations shall be increased by two and the
holders of outstanding shares of Series S Preferred Stock shall have the right,
voting together as a single class with holders of shares of any other series of
Series Preferred Stock then outstanding upon which like voting rights have been
conferred and are then exercisable, to the exclusion of the holders of the
Common Stock, the holders of any other series of Series Preferred Stock upon
which such voting rights have not been conferred or are not then exercisable,
and the holders of any other stock of the corporation having general voting
rights, to vote for the election of two members of the Board of Directors of the
corporation to fill such newly created directorships, until all dividends in
arrears on the Series S Preferred Stock have been declared and paid or set apart
for payment in full. The right of the holders of Series S Preferred Stock to
elect members of the Board of Directors of the corporation as aforesaid shall
continue until such time as all dividends in arrears on the Series S Preferred
Stock shall have been declared and paid or set apart for payment in full, at
which time such right shall terminate, except as herein or by law expressly
provided, subject to revesting in the event of each and every subsequent
arrearage in the amount above mentioned. Upon any termination of the right of
such holders to elect directors as herein provided, the term of office of all
directors then in office elected thereby, and the vacancies created pursuant to
this Paragraph 7(b), shall terminate immediately. Any director who shall have
been so elected pursuant to this Paragraph 7(b) may be removed at any time,
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with or without cause, and any vacancy thereby created may be filled, only by
the affirmative vote of the holders of Series S Preferred Stock voting together
as a single class with the holders of shares of any other series of Series
Preferred Stock upon which like voting rights have been conferred and are then
exercisable. If the office of any director so elected pursuant to this Paragraph
7 (b) becomes vacant for any reason other than removal from office as aforesaid,
the remaining director may choose a successor who shall hold office for the
unexpired term in respect of which such vacancy occurred.
(c) So long as any shares of Series S Preferred Stock shall be
outstanding, unless the vote or consent of the holders of a greater number of
shares shall then be required by law and subject to any other voting rights that
may be conferred on other series of Series Preferred Stock or greater percentage
that may be required under the terms of such series of Series Preferred Stock,
the affirmative vote or consent of (a) the holders of at least 66-2/3% of the
shares of Series S Preferred Stock and (b) the holders of at least a majority of
the shares of Series S Preferred Stock and of any other series of Series
Preferred Stock then outstanding upon which like voting rights have been
conferred and are then exercisable, voting together as a single class, in each
case given in person or by proxy either in writing or by resolution at any
special or annual meeting called for the purpose, shall be necessary to
authorize, permit, effect or validate any one or more of the following: (i) the
authorization or any increase in the authorized amount of any class of stock, or
the establishment or designation of any series of stock (unless the class of
which such series is a part has been authorized previously pursuant to this
Paragraph 7 (c) (i)), or the issuance or sale of any obligation, security or
instrument convertible into, exchangeable for, or evidencing the right to
purchase, acquire or subscribe for shares of a class or series of stock, if such
class or series of stock ranks prior to the Series S Preferred Stock as to
dividends or distribution of assets upon liquidation, dissolution or winding up
(unless the class or series has been authorized previously pursuant to this
Paragraph 7(c)(i)), and (ii) the amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions of the certificate
of incorporation, as amended hereby, which would materially and adversely affect
any right, preference, privilege or voting rights of the Series Preferred Stock
then outstanding provided; however, that in the event that any such amendment,
alteration or repeal would materially and adversely affect the rights of only
the Series S Preferred Stock, then such amendment, alteration or repeal may be
effected only with the affirmative vote or consent of the holders of at least
66-2/3% of the shares of Series S Preferred Stock then outstanding; provided
further, however, that the authorization, establishment, designation, issuance
or sale of other Series Preferred Stock shall not have, or be deemed to have,
such material adverse effect; and provided further, however, that an increase in
the authorized amount of Series Preferred Stock, or the amount of authorization,
establishment, designation, issuance or sale of any shares of stock that do not
rank prior to the Series Preferred Stock as to dividends or distribution of
assets upon liquidation, dissolution or winding up, shall not have, or be deemed
to have, such material adverse effect.
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In addition, unless the vote or consent of the holders of a greater number
of shares shall then be required by law, the affirmative vote or consent of the
holders of at least a majority of the shares of Series S Preferred Stock and any
other series of Series Preferred Stock then outstanding upon which like voting
rights have been conferred and are then exercisable, voting together as a single
class, given in person or by proxy either in writing or by resolution at any
special or annual meeting called for the purpose, shall be necessary to
authorize an increase in the authorized amount of the Series Preferred Stock or
the new class of serial preferred stock of the corporation authorized by the
stockholders of the corporation prior to the creation of the Series S Preferred
Stock (the "Serial Preferred Stock"), or the creation of a class of stock that
would rank pari passu with the Series Preferred Stock or the Serial Preferred
Stock as to dividends or distribution of assets upon liquidation, dissolution or
winding up, or to authorize, permit, effect or validate the voluntary
liquidation, dissolution or winding up of the corporation; provided, however,
that a consolidation or merger of the corporation with or into another
corporation or corporations, or a sale, lease or conveyance, whether for cash,
shares of stock, securities or properties, of all or substantially all or any
part of the assets of the corporation, shall not be deemed or construed to be a
liquidation, dissolution or winding up of the corporation within the meaning of
this Paragraph.
(d) The foregoing provisions regarding voting rights shall not apply if,
at or prior to the time when the act with respect to which such provisions would
otherwise apply to a vote required to effect such act, (i) all shares of Series
S Preferred Stock then outstanding shall have been redeemed or called for
redemption and sufficient funds, together with irrevocable instructions to the
Paying Agent to apply such funds shall have been deposited in trust to effect
such redemption in accordance with Paragraph 5(b)(ii) or 5(b)(iii) or (ii) all
shares of Series S Preferred Stock have been purchased or otherwise acquired and
canceled
(e) Holders of Series S Preferred Stock, and the holders of shares of any
other series of Series Preferred Stock upon which like voting rights have been
conferred and are then exercisable (other than the Series C Junior Participating
Preferred Stock), shall be entitled to one vote for each share of such stock
held on matters as to which such holders shall be entitled to vote.
8. Definitions. For purposes hereof, any class or series of stock of the
corporation shall be deemed to rank:
(i) prior to Series S Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, if the
holders of such class or series shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the holders
of Series S Preferred Stock;
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(ii) on a parity or pari passu with the Series S Preferred Stock as
to dividends or distribution of assets upon liquidation, dissolution or
winding up, whether or not the dividend rates, dividend payment dates,
redemption prices or liquidation preferences per share thereof are
different from those of the Series S Preferred Stock, if the holders of
such class or series of stock and of the Series S Preferred Stock shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion
to their respective dividend amounts or liquidation preferences, without
preference or priority to the holders of Series S Preferred Stock; and
(iii) junior to the Series S Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, if
such stock shall be Common Stock or if the holders of the Series S
Preferred Stock shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders of shares of such
class or series.
FIFTH: The Secretary of State is designated as the agent of the
corporation upon whom process against the corporation may be served, and the
address to which the Secretary of State shall mail a copy of any process against
the corporation served upon him is c/o CT Corporation System, 1633 Broadway, New
York, New York 10019.
SIXTH: The registered agent of the corporation is CT Corporation System,
whose address is 1633 Broadway, New York, New York 10019. The registered agent
is the agent of the corporation upon whom process against it may be served.
SEVENTH: A director of the corporation shall not be personally liable to
the corporation or its shareholders for damages for any breach of duty in such
capacity except that the liability of a director shall not be eliminated (1) if
a judgment or other final adjudication adverse to him establishes that his acts
or omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that he personally gained in fact a financial profit or
other advantage to which he was not legally entitled or that his acts violated.
Section 719 of
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the New York Business Corporation Law, or (2) his acts or omissions occurred
prior to the adoption of this provision.
4. This Restatement of the certificate. of Incorporation was authorized by
the affirmative unanimous written consent of the Board of Directors of the
corporation, dated June 4, 1999, and the favorable written consent of the sole
shareholder, dated June 4, 1999.
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IN WITNESS WHEREOF, the undersigned have signed this Restatement of the
Certificate of Incorporation and affirm that the statements made herein are true
under the penalties of perjury this 4th day of June, 1999.
-----------------------------------
Name: Frank N. Newman
Title: President
-----------------------------------
Name: James T. Byrne
Title: Senior Vice President and
Secretary
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Exhibit 3(ii)
BY-LAWS
JUNE 22, 1999
Bankers Trust Corporation
(Incorporated under the New York Business Corporation Law)
<PAGE>
BANKERS TRUST CORPORATION
-------------------------------
BY-LAWS
-------------------------------
ARTICLE I
SHAREHOLDERS
SECTION 1.01 Annual Meetings. The annual meetings of shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on the third Tuesday in April of
each year, if not a legal holiday, and if a legal holiday then on the next
succeeding business day, at such hour as shall be designated by the Board of
Directors. If no other hour shall be so designated such meeting shall be held at
3 P.M.
SECTION 1.02 Special Meetings. Special meetings of the shareholders, except
those regulated otherwise by statute, may be called at any time by the Board of
Directors, or by any person or committee expressly so authorized by the Board of
Directors and by no other person or persons.
SECTION 1.03 Place of Meetings. Meetings of shareholders shall be held at such
place within or without the State of New York as shall be determined from time
to time by the Board of Directors or, in the case of special meetings, by such
person or persons as may be authorized to call a meeting. The place in which
each meeting is to be held shall be specified in the notice of such meeting.
SECTION 1.04 Notice of Meetings. A copy of the written notice of the place, date
and hour of each meeting of shareholders shall be given personally or by mail,
not less than ten nor more than fifty days before the date of the meeting, to
each shareholder entitled to vote at such meeting. Notice of a special meeting
shall indicate that it is being issued by or at the direction of the person or
persons calling the meeting and shall also state the purpose or purposes for
which the meeting is called. Notice of any meeting at which is proposed to take
action which would entitle shareholders to receive payment for their shares
pursuant to statutory provisions must include a statement of that purpose and to
that effect. If mailed, such notices of the annual and each special meeting are
given when deposited in the United States mail, postage prepaid, directed to the
shareholder at his address as it appears in the record of shareholders unless he
shall have filed with the Secretary of the corporation a written request that
notices intended for him shall be mailed to some other address, in which case it
shall be directed to him at such other address.
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SECTION 1.05 Record Date. For the purpose of determining the shareholders
entitled to notice of or to vote any meeting of shareholders or any adjournment
thereof, or to express consent to or dissent from any proposal without a
meeting, or for the purpose of determining shareholders entitled to receive
payment of any dividend or the allotment of any rights, or for the purpose of
any other action, the Board of Directors may fix, in advance, a date as the
record date for any such determination of shareholders. Such date shall not be
more than fifty nor less than ten days before the date of such meeting, nor more
than fifty days prior to any other action.
SECTION 1.06 Quorum. The presence, in person or by proxy, of the holders of a
majority of the shares entitled to vote thereat shall constitute a quorum at a
meeting of shareholders for the transaction of business, except as otherwise
provided by statute, by the Certificate of Incorporation or by the By-Laws. The
shareholders present in person or by proxy and entitled to vote at any meeting,
despite the absence of a quorum, shall have power to adjourn the meeting from
time to time, to a designated time and place, without notice other than by
announcement at the meeting, and at any adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment the Board of Directors fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice.
SECTION 1.07 Notice of Shareholder Business at Annual Meeting. At an annual
meeting of shareholders, only such business shall be conducted as shall have
been brought before the meeting (a) by or at the direction of the Board of
Directors or (b) by any shareholder of the corporation who complies with the
notice procedures set forth in this Section 1.07. For business to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than thirty days nor
more than fifty days prior to the meeting; provided, however, that in the event
that less than forty days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be received not later than the close of business on the tenth day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. A shareholder's notice to the Secretary shall
set forth as to each matter the shareholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the corporation's books, of
the shareholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the shareholder and (d) any
material interest of the shareholder in such business. Notwithstanding anything
in these By-Laws to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this Section 1.07
and Section 2.03. The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 1.07
and Section 2.03, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
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ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01 Number and Qualifications. The business of the corporation shall be
managed by its Board of Directors. The number of directors constituting the
entire Board of Directors shall be not less than seven nor more than fifteen, as
shall be fixed from time to time by vote of a majority of the entire Board of
Directors. Each director shall be at least 21 years of age. Directors need not
be shareholders. No Officer-Director who shall have attained age 65, or earlier
relinquishes his responsibilities and title, shall be eligible to serve as a
director.
SECTION 2.02 Election. At each annual meeting of shareholders, directors shall
be elected by a plurality of the votes to hold office until the next annual
meeting. Subject to the provisions of the statute, of the Certificate of
Incorporation and of the By-Laws, each director shall hold office until the
expiration of the term for which elected, and until his successor has been
elected and qualified.
SECTION 2.03 Nomination and Notification of Nomination. Subject to the rights of
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board of Directors or to any committee appointed by
the Board of Directors or by any shareholder entitled to vote in the election of
directors generally. However, any shareholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Secretary of the corporation
not later than (i) with respect to an election to be held at an annual meeting
of shareholders ninety days in advance of such meeting, and (ii) with respect to
an election to be held at a special meeting of shareholders for the election of
directors, the close of business on the seventh day following the date on which
notice of such meeting is first given to shareholders. Each such notice shall
set forth: (a) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the shareholder is a holder of record of stock of the corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (d) such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as a director of the corporation if
so elected. At the request of the Board
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of Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the corporation that information
required to be set forth in a shareholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in the
By-Laws. The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by these By-Laws, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
SECTION 2.04 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such places and times as may be fixed from time to time
by resolution of the Board and a regular meeting for the purpose of organization
and transaction of other business shall be held each year after the adjournment
of the annual meeting of shareholders.
SECTION 2.05 Special Meetings. The Chairman of the Board, the Chief Executive
Officer, the President, the Senior Vice Chairman or any Vice Chairman may, and
at the request of three directors shall, call a special meeting of the Board of
Directors, two days' notice of which shall be given in person or by mail,
telegraph, radio, telephone or cable. Notice of a special meeting need not be
given to any director who submits a signed waiver of notice whether before or
after the meeting, or who attends the meeting without protesting, prior thereto
or at its commencement, the lack of notice to him.
SECTION 2.06 Place of Meeting. The directors may hold their meetings, have one
or more offices, and keep the books of the corporation (except as may be
provided by law) at any place, either within or without the State of New York,
as they may from time to time determine.
SECTION 2.07 Quorum and Vote. At all meetings of the Board of Directors the
presence of one-third of the entire Board, but not less than two directors,
shall constitute a quorum for the transaction of business. Any one or more
members of the Board of Directors or of any committee thereof may participate in
a meeting of the Board of Directors or a committee thereof by means of a
conference telephone or similar communications equipment which allows all
persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at such a
meeting. The vote of a majority of the directors present at the time of the
vote, if a quorum is present at such time, shall be the act of the Board of
Directors, except as may be otherwise provided by statute or the By-Laws.
SECTION 2.08 Vacancies. Newly created directorships resulting from increase in
the number of directors and vacancies in the Board of Directors, whether caused
by resignation, death, removal or otherwise, may be filled by vote of a majority
of the directors then in office, although less than a quorum exists.
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ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
SECTION 3.01 Designation and Authority. The Board of Directors, by resolution
adopted by a majority of the entire Board, may designate from among its members
an Executive Committee and other committees, each consisting of three or more
directors. Each such committee, to the extent provided in the resolution or the
By-Laws, shall have all the authority of the Board, except that no such
committee shall have authority as to:
(i) the submission to shareholders of any action as to which shareholders'
authorization is required by law.
(ii) the filling of vacancies in the Board of Directors or any committee.
(iii) the fixing of compensation of directors for serving on the Board or
on any committee.
(iv) the amendment or appeal of the By-Laws, or the adoption of new
By-Laws.
(v) the amendment or repeal of any resolution of the Board which by its
terms shall not be so amendable or repealable.
The Board may designate one or more directors as alternate members of any such
committee, who may replace any absent member or members at any meeting of such
committee. Each such committee shall serve at the pleasure of the Board of
Directors.
SECTION 3.02 Procedure. Except as may be otherwise provided by statute, by the
By-Laws or by resolution of the Board of Directors, each committee may make
rules for the call and conduct of its meetings. Each committee shall keep a
record of its acts and proceedings and shall report the same from time to time
to the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 4.01 Titles and General. The Board of Directors shall elect from among
their number a Chairman of the Board and a Chief Executive Officer, and may also
elect a President, a Senior Vice Chairman, one or more Vice Chairmen, one or
more Executive Vice Presidents, one or more Senior Vice Presidents, one or more
Principals, one or more Vice Presidents, a Secretary, a Controller, a Treasurer,
a General Counsel, a General Auditor, and a General Credit Auditor, who need not
be directors. The officers of the corporation may also include such other
officers or assistant officers as shall from time to time be elected or
appointed by the Board. The Chairman of the Board or the Chief Executive Officer
or, in their absence, the President, the Senior Vice Chairman or any Vice
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Chairman, may from time to time appoint assistant officers. All officers elected
or appointed by the Board of Directors shall hold their respective offices
during the pleasure of the Board of Directors, and all assistant officers shall
hold office at the pleasure of the Board or the Chairman of the Board or the
Chief Executive Officer or, in their absence, the President, the Senior Vice
Chairman or any Vice Chairman. The Board of Directors may require any and all
officers and employees to give security for the faithful performance of their
duties.
SECTION 4.02 Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the shareholders and of the Board of Directors. Subject to the
Board of Directors, he shall exercise all the powers and perform all the duties
usual to such office and shall have such other powers as may be prescribed by
the Board of Directors or the Executive Committee or vested in him by the
By-Laws.
SECTION 4.03 Chief Executive Officer. The Board of Directors shall designate the
Chief Executive Officer of the corporation, which person may also hold the
additional title of Chairman of the Board, President, Senior Vice Chairman or
Vice Chairman. Subject to the Board of Directors, he shall exercise all the
powers and perform all the duties usual to such office and shall have such other
powers as may be prescribed by the Board of Directors or the Executive Committee
or vested in him by the By-Laws.
SECTION 4.04 Chairman of the Board, President, Senior Vice Chairman, Vice
Chairmen, Executive Vice Presidents, Senior Vice Presidents, Principals and Vice
Presidents. The Chairman of the Board or, in his absence or incapacity the
President or, in his absence or incapacity, the Senior Vice Chairman, the Vice
Chairmen, the Executive Vice Presidents, or in their absence, the Senior Vice
Presidents, in the order established by the Board of Directors shall, in the
absence or incapacity of the Chief Executive Officer perform the duties of the
Chief Executive Officer. The President, the Senior Vice Chairman, the Vice
Chairmen, the Executive Vice Presidents, the Senior Vice Presidents, the
Principals, and the Vice Presidents shall also perform such other duties and
have such other powers as may be prescribed or assigned to them, respectively,
from time to time by the Board of Directors, the Executive Committee, the Chief
Executive Officer, or the By-Laws.
SECTION 4.05 Controller. The Controller shall perform all the duties customary
to that office and except as may be otherwise provided by the Board of Directors
shall have the general supervision of the books of account of the corporation
and shall also perform such other duties and have such powers as may be
prescribed or assigned to him from time to time by the Board of Directors, the
Executive Committee, the Chief Executive Officer, or the By-Laws.
SECTION 4.06 Secretary. The Secretary shall keep the minutes of the meetings of
the Board of Directors and of the shareholders and shall have the custody of the
seal of the corporation. He shall perform all other duties usual to that office,
and shall also perform such other duties and have such powers as may be
prescribed or assigned to him from time to time by the Board of Directors, the
Executive Committee, the Chairman of the Board, the Chief Executive Officer, or
the By-Laws.
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ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 5.01 The corporation shall, to the fullest extent permitted by Section
721 of the New York Business Corporation Law, indemnify any person who is or was
made, or threatened to be made, a party to an action or proceeding, whether
civil or criminal, whether involving any actual or alleged breach of duty,
neglect or error, any accountability, or any actual or alleged misstatement,
misleading statement or other act or omission and whether brought or threatened
in any court or administrative or legislative body or agency, including an
action by or in the right of the corporation to procure a judgment in its favor
and an action by or in the right of any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, which any director or officer of the corporation is
serving or served in any capacity at the request of the corporation by reason of
the fact that he, his testator or intestate, is or was a director or officer of
the corporation, or is serving or served such other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, amounts paid in settlement, and costs, charges and
expenses, including attorneys' fees, or any appeal therein; provided, however,
that no indemnification shall be provided to any such person if a judgment or
other final adjudication adverse to the director or officer establishes that (i)
his acts were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 5.02 The corporation may indemnify any other person to whom the
corporation is permitted to provide indemnification or the advancement of
expenses by applicable law, whether pursuant to rights granted pursuant to, or
provided by, the New York Business Corporation Law or other rights created by
(i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an
agreement providing for such indemnification, it being expressly intended that
these By-Laws authorize the creation of other rights in any such manner.
SECTION 5.03 The corporation shall, from time to time, reimburse or advance to
any person referred to in Section 5.01 the funds necessary for payment of
expenses, including attorneys' fees, incurred in connection with any action or
proceeding referred to in Section 5.01, upon receipt of a written undertaking by
or on behalf of such person to repay such amount(s) if a judgment or other final
adjudication adverse to the director or officer establishes that (i) his acts
were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 5.04 Any director or officer of the corporation serving (i) another
corporation, of which a majority of the shares entitled to vote in the election
of its directors
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is held by the corporation, or (ii) any employee benefit plan of the corporation
or any corporation referred to in clause (i), in any capacity shall be deemed to
be doing so at the request of the corporation. In all other cases, the
provisions of this Article V will apply (i) only if the person serving another
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise so served at the specific request of the corporation, evidenced
by a written communication signed by the Chairman of the Board, the Chief
Executive Officer, the President, the Senior Vice Chairman or any Vice Chairman,
and (ii) only if and to the extent that, after making such efforts as the
Chairman of the Board, the Chief Executive Officer, or the President shall deem
adequate in the circumstances, such person shall be unable to obtain
indemnification from such other enterprise or its insurer.
SECTION 5.05 Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article V may
elect to have the right to indemnification (or advancement of expenses)
interpreted on the basis of the applicable law in effect at the time of the
occurrence of the event or events giving rise to the action or proceeding, to
the extent permitted by law, or on the basis of the applicable law in effect at
the time indemnification is sought.
SECTION 5.06 The right to be indemnified or to the reimbursement or advancement
of expenses pursuant to this Article V (i) is a contract right pursuant to which
the person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the corporation and the director or
officer, (ii) is intended to be retroactive and shall be available with respect
to events occurring prior to the adoption hereof, and (iii) shall continue to
exist after the rescission or restrictive modification hereof with respect to
events occurring prior thereto.
SECTION 5.07 If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the corporation
within thirty days after a written claim has been received by the corporation,
the claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled also to be paid the expenses of prosecuting such
claim. Neither the failure of the corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the claimant is proper in the
circumstances, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel, or its shareholders) that the
claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses, shall be a defense to the action or create a
presumption that the claimant is not so entitled.
SECTION 5.08 A person who has been successful, on the merits or otherwise, in
the defense of a civil or criminal action or proceeding of the character
described in Section 5.01 shall be entitled to indemnification only as provided
in Sections 5.01 and 5.03, notwithstanding any provision of the New York
Business Corporation Law to the contrary.
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ARTICLE VI
SEAL
SECTION 6.01 Corporate Seal. The corporate seal shall contain the name of the
corporation and the year and state of its incorporation. The seal may be altered
from time to time at the discretion of the Board of Directors.
ARTICLE VII
SHARE CERTIFICATES
SECTION 7.01 Form. The certificates for shares of the corporation shall be in
such form as shall be approved by the Board of Directors and shall be signed by
the Chairman of the Board, the Chief Executive Officer, the President, the
Senior Vice Chairman or any Vice Chairman and the Secretary or an Assistant
Secretary, and shall be sealed with the seal of the corporation or a facsimile
thereof. The signatures of the officers upon the certificate may be facsimiles
if the certificate is countersigned by a transfer agent or registered by a
registrar other than the corporation itself or its employees.
ARTICLE VIII
CHECKS
SECTION 8.01 Signatures. All checks, drafts and other orders for the payment of
money shall be signed by such officer or officers or agent or agents as the
Board of Directors may designate from time to time.
ARTICLE IX
AMENDMENT
SECTION 9.01 Amendment of By-Laws. The By-Laws may be amended, repealed or added
to by vote of the holders of the shares at the time entitled to vote in the
election of any directors. The Board of Directors may also amend, repeal or add
to the By-Laws, but any By-Laws adopted by the Board of Directors may be amended
or repealed by the shareholders entitled to vote thereon as provided herein. If
any By-Law regulating an impending election of directors is adopted, amended or
repealed by the Board, there shall be set forth in the notice of the next
meeting of shareholders for the election of directors the
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By-Laws so adopted, amended or repealed, together with concise statement of the
changes made.
ARTICLE X
SECTION 10.01 Construction. The masculine gender, when appearing in these
By-Laws, shall be deemed to include the feminine gender.
I, ______________________________________________________, [Assistant] Secretary
of Bankers Trust Corporation, New York, New York, hereby certify that the
foregoing is a complete, true and correct copy of the By-Laws of Bankers Trust
Corporation, and that the same are in full force and effect at this date.
----------------------------------------
[ASSISTANT] SECRETARY
DATED:
-----------------------------
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State of New York
Department of State
I hereby certify that the annexed copy has been compared with the original
document in the custody of the Secretary of State and that the same is a true
copy of said original.
Witness my hand and seal of the Department of State on
Special Deputy Secretary of State
11
