UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
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 (IRS employer
incorporation or organization) identification no.)
130 Liberty Street
New York, New York 10006
(Address of principal executive offices) (Zip code)
(212) 250-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
The registrant is a wholly-owned subsidiary of Deutsche Bank AG. As of the date
hereof, 1 share of the registrant's Common Stock par value $1 per share, was
issued and outstanding.
<PAGE>
BANKERS TRUST CORPORATION
September 30, 2000 FORM 10-Q
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Statement of Income
Three Months Ended September 30, 2000 and 1999 2
Nine Months Ended September 30, 2000 and 1999 3
Consolidated Statement of Comprehensive Income
Three Months Ended September 30, 2000 and 1999 4
Nine Months Ended September 30, 2000 and 1999
Consolidated Balance Sheet
At September 30, 2000 and December 31, 1999 5
Consolidated Statement of Changes in Stockholder's Equity
Nine Months Ended September 30, 2000 and 1999 6
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 2000 and 1999 7
Consolidated Schedule of Net Interest Revenue
Three Months and Nine Months Ended September 30,
2000 and 1999 8
In the opinion of management, all material adjustments necessary for a
fair presentation of the financial position and results of operations for
the interim periods presented have been made. All such adjustments were of
a normal recurring nature. The results of operations for the three months
and nine months ended September 30, 2000 are not necessarily indicative of
the results of operations for the full year or any other interim period.
The financial statements included in this Form 10-Q should be read
with reference to the Bankers Trust Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 as supplemented by the
first and second quarter 2000 Form 10-Q.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 37
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 38
SIGNATURE 39
<PAGE>
2
PART I. FINANCIAL INFORMATION
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Increase
THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 (Decrease)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $ 954 $ 818 $ 136
Interest expense 822 664 158
-----------------------------------------------------------------------------------------------
Net interest revenue 132 154 (22)
Provision for credit losses-loans (4) (49) 45
-----------------------------------------------------------------------------------------------
Net interest revenue after provision for credit losses-loans 136 203 (67)
-----------------------------------------------------------------------------------------------
NONINTEREST REVENUE
Trading 33 12 21
Fiduciary and funds management 182 250 (68)
Corporate finance fees 25 46 (21)
Other fees and commissions 73 92 (19)
Securities available for sale gains (losses) 9 (7) 16
Other 546 1,035 (489)
-----------------------------------------------------------------------------------------------
Total noninterest revenue 868 1,428 (560)
-----------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and commissions 117 193 (76)
Incentive compensation and employee benefits 103 230 (127)
Agency and other professional service fees 58 93 (35)
Communication and data services 19 40 (21)
Occupancy, net 26 45 (19)
Furniture and equipment 30 51 (21)
Travel and entertainment 10 14 (4)
Other 59 144 (85)
-----------------------------------------------------------------------------------------------
Total noninterest expenses 422 810 (388)
-----------------------------------------------------------------------------------------------
Income before income taxes 582 821 (239)
Income taxes 291 559 (268)
-----------------------------------------------------------------------------------------------
NET INCOME $ 291 $ 262 $ 29
===============================================================================================
</TABLE>
Certain prior period amounts have been reclassified to conform to the current
presentation.
<PAGE>
3
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Increase
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 (Decrease)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $ 2,659 $ 3,622 $ (963)
Interest expense 2,271 2,971 (700)
----------------------------------------------------------------------------------------------
Net interest revenue 388 651 (263)
Provision for credit losses - loans (44) (74) 30
----------------------------------------------------------------------------------------------
Net interest revenue after provision for credit losses - loans 432 725 (293)
----------------------------------------------------------------------------------------------
NONINTEREST REVENUE
Trading 127 (55) 182
Fiduciary and funds management 595 805 (210)
Corporate finance fees 107 488 (381)
Other fees and commissions 235 456 (221)
Securities available for sale gains (losses) 40 (150) 190
Insurance premiums -- 86 (86)
Other 697 1,055 (358)
----------------------------------------------------------------------------------------------
Total noninterest revenue 1,801 2,685 (884)
----------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and commissions 361 903 (542)
Incentive compensation and employee benefits 321 945 (624)
Change in control related incentive
compensation and employee benefits -- 1,101 (1,101)
Agency and other professional service fees 155 343 (188)
Communication and data services 65 172 (107)
Occupancy, net 77 165 (88)
Furniture and equipment 91 189 (98)
Travel and entertainment 31 98 (67)
Provision for policyholder benefits -- 114 (114)
Other 469 424 45
Restructuring charge (46) 459 (505)
----------------------------------------------------------------------------------------------
Total noninterest expenses 1,524 4,913 (3,389)
----------------------------------------------------------------------------------------------
Income (loss) before income taxes 709 (1,503) 2,212
Income taxes 410 43 367
----------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 299 $(1,546) $ 1,845
==============================================================================================
</TABLE>
Certain prior period amounts have been reclassified to conform to the current
presentation.
<PAGE>
4
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $ 291 $ 262 $ 299 $(1,546)
------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized foreign currency translation gains (losses) arising
during period, net of tax(a) (38) 12 (91) 9
Reclassification adjustment for realized foreign currency
translation (gains) losses, net of tax(b) 4 130 8 302
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period, net of tax(c) (78) (3) 5 (27)
Reclassification adjustment for realized (gains)
losses, net of tax(d) (5) 4 (23) 121
------------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) (117) 143 (101) 405
------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 174 $ 405 $ 198 $(1,141)
============================================================================================================
</TABLE>
(a) Amounts are net of income tax expense (benefit) of $(22) million and $9
million for the three months ended September 30, 2000 and September 30,
1999, respectively, and $(52) million and $(10) million for the nine months
ended September 30, 2000 and September 30, 1999, respectively.
(b) Amounts are net of income tax expense (benefit) of $(3) million and $(43)
million for the three months ended September 30, 2000 and September 30,
1999, respectively, and $(1) million and $(34) million for the nine months
ended September 30, 2000 and September 30, 1999, respectively.
(c) Amounts are net of income tax expense (benefit) of $(55) million and $(3)
million for the three months ended September 30, 2000 and September 30,
1999, respectively, and $(42) million and $5 million for the nine months
ended September 30, 2000 and September 30, 1999, respectively.
(d) Amounts are net of income tax expense (benefit) of $4 million and $(3)
million for the three months ended September 30, 2000 and September 30,
1999, respectively, and $17 million and $(29) million for the nine months
ended September 30, 2000 and September 30, 1999, respectively.
<PAGE>
5
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in millions, except par value)
<TABLE>
<CAPTION>
September 30, December 31,
2000* 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,596 $ 3,212
Interest-bearing deposits with banks 4,706 4,693
Federal funds sold 7 2,472
Securities purchased under resale agreements 1,616 6,764
Trading assets:
Government securities 103 2,296
Corporate debt securities 594 1,367
Equity securities 10,359 7,144
Swaps, options and other derivatives 2,693 4,807
Other trading assets 1,634 3,403
---------------------------------------------------------------------------------------------------
Total trading assets 15,383 19,017
Securities available for sale 282 3,252
Loans, net of allowance for credit losses of $405 at September 30, 2000
and $491 at December 31, 1999 26,208 19,471
Customer receivables 288 306
Accounts receivable and accrued interest 2,590 2,307
Other assets 4,662 6,663
---------------------------------------------------------------------------------------------------
Total $ 57,338 $ 68,157
===================================================================================================
LIABILITIES
Noninterest-bearing deposits
Domestic offices $ 2,971 $ 2,690
Foreign offices 899 2,299
Interest-bearing deposits
Domestic offices 9,200 12,118
Foreign offices 3,903 6,362
---------------------------------------------------------------------------------------------------
Total deposits 16,973 23,469
Trading liabilities:
Securities sold, not yet purchased
Government securities 54 53
Equity securities -- 21
Other trading liabilities 1,132 9
Swaps, options and other derivatives 2,562 5,183
---------------------------------------------------------------------------------------------------
Total trading liabilities 3,748 5,266
Securities loaned and securities sold under repurchase agreements 88 56
Other short-term borrowings 13,864 11,540
Accounts payable and accrued expenses 2,160 3,314
Other liabilities, including allowance for credit losses of $12 at
September 30, 2000 and $24 at December 31, 1999 4,008 3,728
Long-term debt not included in risk-based capital 8,945 12,582
Long-term debt included in risk-based capital 2,077 2,424
Mandatorily redeemable capital securities of subsidiary trusts holding
solely junior subordinated deferrable interest debentures included
in risk-based capital 1,321 1,428
---------------------------------------------------------------------------------------------------
Total liabilities 53,184 63,807
===================================================================================================
STOCKHOLDER'S EQUITY
Preferred stock -- 376
Common stock, $1 par value
Authorized, 200 shares; Issued, 1 share -- --
Capital surplus 2,319 2,318
Retained earnings 1,966 1,686
Accumulated other comprehensive income:
Net unrealized gains (losses) on securities available for sale,
net of taxes (2) 16
Foreign currency translation, net of taxes (129) (46)
---------------------------------------------------------------------------------------------------
Total stockholder's equity 4,154 4,350
---------------------------------------------------------------------------------------------------
Total $ 57,338 $ 68,157
===================================================================================================
</TABLE>
* Unaudited.
Certain prior period amounts have been reclassified to conform to the current
presentation.
<PAGE>
6
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(in millions, except par value)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
----------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK
Balance, January 1 $ 376 $ 394
Preferred stock repurchased (12) --
Preferred stock redeemed (364) --
----------------------------------------------------------------------------------
Balance, September 30 -- 394
----------------------------------------------------------------------------------
COMMON STOCK
Balance, January 1 -* 105
Retirement of common stock -- (105)
Issuance of common stock -- -*
----------------------------------------------------------------------------------
Balance, September 30 -* -*
----------------------------------------------------------------------------------
CAPITAL SURPLUS
Balance, January 1 2,318 1,613
Preferred stock repurchased 1 --
Common stock distributed under employee benefit plans -- 4
Capital transactions related to change in control -- (699)
Capital contribution from parent -- 1,400
----------------------------------------------------------------------------------
Balance, September 30 2,319 2,318
----------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, January 1 1,686 3,504
Net income (loss) 299 (1,546)
Cash dividends declared
Preferred stock (19) (16)
Common stock -- (98)
Treasury stock distributed under employee benefit plans -- (95)
----------------------------------------------------------------------------------
Balance, September 30 1,966 1,749
----------------------------------------------------------------------------------
COMMON STOCK IN TREASURY, AT COST
Balance, January 1 -- (1,056)
Purchases of stock -- (71)
Treasury stock distributed under employee benefit plans -- 322
Capital transactions related to change in control -- 805
----------------------------------------------------------------------------------
Balance, September 30 -- --
----------------------------------------------------------------------------------
OTHER STOCKHOLDER'S EQUITY
Balance, January 1 -- 599
Deferred stock awards granted, net -- 1
Deferred stock distributed -- (216)
Amortization of deferred compensation, net -- 749
Capital transactions related to change in control -- (1,158)
Other -- 25
----------------------------------------------------------------------------------
Balance, September 30 -- --
----------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, January 1 (46) (398)
Translation adjustments/entity transfers and sales (134) 335
Income taxes 51 (24)
----------------------------------------------------------------------------------
Balance, September 30 (129) (87)
----------------------------------------------------------------------------------
SECURITIES VALUATION ALLOWANCE
Balance, January 1 16 (65)
Change in unrealized net gains, after applicable income taxes
and minority interest (18) 94
----------------------------------------------------------------------------------
Balance, September 30 (2) 29
----------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY, SEPTEMBER 30 $ 4,154 $ 4,403
==================================================================================
</TABLE>
* 1 share, $1 par value.
<PAGE>
7
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
---------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 299 $ (1,546)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating
activities:
Provision for credit losses - loans (44) (74)
Provision for credit losses - other (12) 12
Provision for policyholder benefits -- 114
Restructuring charge (release) (46) 459
Deferred income taxes, net 36 (70)
Depreciation and other amortization and accretion 28 881
Other, net (18) 128
Gain on transfer of BTH (567) --
Gain on sale of BTAL -- (779)
---------------------------------------------------------------------------------
Earnings adjusted for noncash charges and credits (324) (875)
Net change in:
Trading assets (4,491) (11,264)
Trading liabilities (457) 21,839
Receivables and payables from securities transactions (43) 861
Customer receivables 18 (1,276)
Other operating assets and liabilities, net (1,414) (2,592)
Securities available for sale (gains) losses (40) 150
---------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (6,751) 6,843
---------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits with banks 106 (2,351)
Federal funds sold 2,464 1,315
Securities purchased under resale agreements 5,149 (6,392)
Securities borrowed -- (8,955)
Loans 593 1,778
Securities available for sale:
Purchases (260) (6,103)
Maturities and other redemptions 2,241 1,015
Sales 576 8,351
Acquisitions of premises and equipment (130) (80)
Other, net 6 (474)
Proceeds from transfer of legal entities and sale of BTAL 71 4,323
---------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 10,816 (7,573)
---------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in:
Deposits (6,845) (5,459)
Securities loaned and securities sold under
repurchase agreements 32 12,565
Other short-term borrowings 1,267 (6,711)
Issuances of long-term debt 2,374 2,167
Repayments of long-term debt (2,069) (4,188)
Redemptions and repurchases of preferred stock (375) --
Purchases of treasury stock -- (71)
Cash dividends paid (19) (210)
Capital contribution from parent -- 1,400
Other, net (29) 25
---------------------------------------------------------------------------------
Net cash used in financing activities (5,664) (482)
---------------------------------------------------------------------------------
Net effect of exchange rate changes on cash (17) 17
---------------------------------------------------------------------------------
Net decrease in cash and due from banks (1,616) (1,195)
Cash and due from banks, beginning of period 3,212 2,837
---------------------------------------------------------------------------------
Cash and due from banks, end of period $ 1,596 $ 1,642
=================================================================================
Interest paid $ 3,387 $ 3,951
=================================================================================
Income taxes paid, net $ 6 $ 28
=================================================================================
Noncash investing activities:
Transfer of legal entity in exchange for
shares in affiliate $ 1,122 $ 852
Other 27 24
---------------------------------------------------------------------------------
Total noncash investing activities $ 1,149 $ 876
=================================================================================
</TABLE>
Certain prior period amounts have been reclassified to conform to the current
presentation.
<PAGE>
8
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST REVENUE
Interest-bearing deposits with banks $ 196 $ 100 $ 434 $ 232
Federal funds sold 18 34 70 111
Securities purchased under resale agreements 24 83 108 600
Securities borrowed -- 14 -- 383
Trading assets 260 158 705 770
Securities available for sale
Taxable 11 54 55 308
Exempt from federal income taxes 2 -- 6 18
Loans 437 368 1,260 1,135
Customer receivables 6 7 21 65
-------------------------------------------------------------------------------------
Total interest revenue 954 818 2,659 3,622
-------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits
Domestic offices 134 162 419 550
Foreign offices 108 156 374 583
Trading liabilities -- 9 -- 131
Securities loaned and securities sold
under repurchase agreements 13 10 15 536
Other short-term borrowings 263 157 657 642
Long-term debt 275 142 720 444
Trust preferred capital securities 29 28 86 85
-------------------------------------------------------------------------------------
Total interest expense 822 664 2,271 2,971
-------------------------------------------------------------------------------------
NET INTEREST REVENUE $ 132 $ 154 $ 388 $ 651
=====================================================================================
</TABLE>
<PAGE>
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS CHANGES
On June 4 1999, Deutsche Bank AG ("Deutsche Bank"), through its U.S. holding
corporation, Taunus Corporation, acquired all of the outstanding shares of
common stock of Bankers Trust Corporation ("Bankers Trust") from its
shareholders (the "Acquisition"). Prior to the Acquisition, Bankers Trust
Corporation together with its subsidiaries (the "Corporation" or the "Firm") 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.
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. 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 further discussion of the Acquisition and the BTAB, BTI and BTAL
transactions, see pages 3 and 29 of Bankers Trust's 1999 Annual Report on Form
10-K.
On September 29, 2000, Bankers Trust transferred its wholly-owned subsidiary BT
Holdings (New York), Inc. ("BTH") to DB U.S. Financial Markets Holding
Corporation ("DBUSH"), a subsidiary of Deutsche Bank Americas Holding Corp.
("DBAH") and Taunus Corporation ("Taunus"), which are an indirect and direct
subsidiary, respectively, of Deutsche Bank. The transfer of BTH to DBUSH took
the form of an exchange of stock pursuant to which BTH became a wholly-owned
subsidiary of DBUSH. The Corporation received shares of DBUSH equal to the fair
market value of BTH's net assets on the date of transfer. The Corporation
recognized an after-tax gain of approximately $301 million in the third quarter
of 2000. Refer to the Corporation's report on Form 8-K dated September 29, 2000.
In contemplation of the transfer of BTH, a valuation of certain underlying
positions owned by BTH was prepared. The results of this valuation contributed
to the overall after-tax gain of $301 million which was realized upon such
transfer.
In connection with the Acquisition, and in addition to the foregoing
transactions, the Corporation has and will continue to transfer certain
entities/businesses 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.
The Corporation anticipates further curtailment of certain of its activities as
a result of its ongoing reorganization and integration into Deutsche Bank.
<PAGE>
10
RESULTS OF OPERATIONS
The Corporation reported income of $291 million for the three months ended
September 30, 2000, and income of $299 million for the first nine months of
2000. The third quarter of 2000 included the aforementioned gain on the transfer
of BTH.
The Corporation reported income of $262 million for the three months ended
September 30, 1999, and a loss of $1,546 million for the first nine months of
1999. The third quarter of 1999 included a pre-tax gain of approximately $779
million on the sale of BTAL. In conjunction with the Acquisition, in the second
quarter of 1999 the Corporation incurred pre-tax charges of approximately $1.1
billion in change of control-related costs and a pre-tax restructuring charge of
$459. 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.
Because of the significant business changes previously mentioned, the
Corporation's historical financial statements are not fully comparable for all
periods presented.
BUSINESS SEGMENT RESULTS
Business segment 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.
Prior period results have been restated for changes in management structure.
The following tables present results by Business Segment:
<TABLE>
<CAPTION>
Three months ended September 30, 2000
----------------------------------------------------
Total Net Total Noninterest Pretax
(in millions) Revenue* Expenses Income/(Loss)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail and Private Banking $ 40 $ 33 $ 7
Asset Management 69 87 (18)
Global Corporates and Institutions 107 158 (51)
Global Technology and Services 224 183 41
---------------------------------------------------------------------------------------------
Total Business Segments 440 461 (21)
---------------------------------------------------------------------------------------------
Corporate Items 564 (39) 603
---------------------------------------------------------------------------------------------
Total $1,004 $ 422 $ 582
=============================================================================================
</TABLE>
* There were no material intersegment revenues among the business segments.
<PAGE>
11
BUSINESS SEGMENT RESULTS (continued)
<TABLE>
<CAPTION>
Three months ended September 30, 1999
----------------------------------------------------
Total Net Total Noninterest Pretax
(in millions) Revenue* Expenses Income/(Loss)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail and Private Banking $ 36 $ 42 $ (6)
Asset Management 60 47 13
Global Corporates and Institutions 343 255 88
Global Technology and Services 227 226 1
---------------------------------------------------------------------------------------------
Total Business Segments 666 570 96
---------------------------------------------------------------------------------------------
Corporate Items** 965 240 725
---------------------------------------------------------------------------------------------
Total $1,631 $ 810 $ 821
=============================================================================================
</TABLE>
* There were no material intersegment revenues among the business segments.
** Due to the sale of BTAL in the third quarter of 1999, its results are
included in Corporate Items. Corporate Items also includes the pre-tax gain
on the sale of BTAL of $779 million.
<TABLE>
<CAPTION>
Nine months ended September 30, 2000
----------------------------------------------------
Total Net Total Noninterest Pretax
(in millions) Revenue* Expenses Income/(Loss)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail and Private Banking $ 114 $ 111 $ 3
Asset Management 222 216 6
Global Corporates and Institutions 682 615 67
Global Technology and Services 696 699 (3)
---------------------------------------------------------------------------------------------
Total Business Segments 1,714 1,641 73
---------------------------------------------------------------------------------------------
Corporate Items 519 (117) 636
---------------------------------------------------------------------------------------------
Total $ 2,233 $ 1,524 $ 709
=============================================================================================
</TABLE>
* There were no material intersegment revenues among the business segments.
<TABLE>
<CAPTION>
Nine months ended September 30, 1999
----------------------------------------------------
Total Net Total Noninterest Pretax
(in millions) Revenue* Expenses Income/(Loss)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail and Private Banking $ 129 $ 152 $ (23)
Asset Management 156 119 37
Global Corporates and Institutions 831 2,466 (1,635)
Global Technology and Services 715 771 (56)
---------------------------------------------------------------------------------------------
Total Business Segments 1,831 3,508 (1,677)
---------------------------------------------------------------------------------------------
Corporate Items** 1,579 1,405 174
---------------------------------------------------------------------------------------------
Total $ 3,410 $ 4,913 $(1,503)
=============================================================================================
</TABLE>
* There were no material intersegment revenues among the business segments.
** Due to the sale of BTAL in the third quarter of 1999, its results are
included in Corporate Items. Corporate Items also includes restructuring
charges of $459 million and the pre-tax gain on sale of BTAL of $779
million.
<PAGE>
12
BUSINESS SEGMENT RESULTS (continued)
The Retail and Private Banking business recorded pre-tax income of $7 million in
the third quarter of 2000, compared to a pre-tax loss of $6 million in the prior
year quarter. The increase in pre-tax income from the prior year period was
mainly attributable to a decline in personnel related expenses. For the first
nine months of 2000, this business recorded pre-tax income of $3 million as
compared to a pre-tax loss of $23 million in the prior year period. The
year-to-date results reflect lower revenue from fiduciary and funds management
activities resulting from certain foreign activities transferred to a Deutsche
Bank related entity in July 1999, largely offset by lower personnel related
expenses. The prior year-to-date results contain pre-tax COC related costs of
approximately $21 million.
Asset Management recorded a pre-tax loss of $18 million in the third quarter of
2000, compared to pre-tax income of $13 million in the 1999 third quarter.
Pre-tax income was $6 million for the first nine months of 2000 versus $37
million for the first nine months of 1999. The decrease in pre-tax income from
the prior year periods is primarily attributable to increased personnel related
expenses and revisions to internal allocations of certain expenses. The prior
year-to-date results contain pre-tax COC related costs of approximately $18
million.
The Global Corporates and Institutions business recorded a pre-tax loss of $51
million in the third quarter of 2000, compared to pre-tax income of $88 million
in the 1999 third quarter. The decrease in pre-tax income from the prior year
period was mainly attributable to lower revenue from private equity investments,
partially offset by the positive effects of revisions to internal allocations of
certain expenses. For the first nine months of 2000, pre-tax income was $67
million versus a pre-tax loss of $1,635 million for the first nine months of
1999. Total revenue and total expense declined from the prior year-to-date
results primarily due to the transfer of BTAB and BTI to Deutsche Bank related
entities in the second quarter of 1999. In addition, trading losses in the first
half of 1999 negatively impacted the year-to-date results. Total prior
year-to-date net revenue also includes the impact of a change in management's
intention regarding certain assets as a result of integrating the Corporation
into Deutsche Bank, as well as the transfer of certain securities available for
sale to Deutsche Bank related entities. The prior year-to-date results contain
pre-tax COC related costs of approximately $848 million.
The Corporation's Global Technology and Services business recorded pre-tax
income of $41 million for the current quarter compared to income of $1 million
in the prior year quarter. The current quarter results included credits related
to revisions to internal expense allocation processes. Pre-tax loss was $3
million for the first nine months of 2000 and $56 million for the first nine
months of 1999. The current year-to-date results included severance expenses
related to certain senior management changes in the Global Institutional
Services business. The prior year-to-date results reflected pre-tax COC related
costs of approximately $86 million.
Corporate Items generally include revenue and expenses that have not been
allocated to business segments and the results of smaller businesses that are
not included in the main business segments. Due to the sale of BTAL and
Consorcio in the third quarter of 1999 and second quarter of 1999, respectively,
their results are included within Corporate Items for the three months and nine
months ended September 30, 1999. The
<PAGE>
13
current period includes the gain on transfer of BTH to a Deutsche Bank entity.
The current year-to-date results include a $46 million release of restructuring
reserves as more fully discussed on page 19. The prior year-to-date period
includes restructuring charges of approximately $459 million.
<PAGE>
14
BUSINESS SEGMENT RESULTS (continued)
The following table reconciles total pre-tax income (loss) for business segments
to consolidated pre-tax income (loss) (in millions):
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
--------------------------------------------------------------------------------
Total pre-tax income (loss) reported for business segments $ 73 $(1,677)
Pre-tax income (loss) of entities sold -- (72)
Gain on transfer of BTH* 567 --
Gain on sale of BTAL* -- 779
Restructuring releases (charges) 46 (459)
Realized foreign currency translation losses** -- (191)
Earnings associated with unassigned capital 215 181
Credit quality adjustment -- 139
Other unallocated amounts (192) (203)
--------------------------------------------------------------------------------
Consolidated pre-tax income(loss) $ 709 $(1,503)
================================================================================
* Gain is net of foreign currency translation losses realized.
** Excluding realized foreign currency translation losses related to BTAL and
BTH.
REVENUE
Net Interest Revenue
The table below presents net interest revenue, average balances and average
rates. The tax equivalent adjustment is made to present the revenue and yields
on certain assets, primarily tax-exempt securities and loans, as if such revenue
were taxable.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INTEREST REVENUE (in millions)
Book basis $ 132 $ 154 $ 388 $ 651
Tax equivalent adjustment 1 -- 3 13
--------------------------------------------------------------------------------------------------
Fully taxable basis $ 133 $ 154 $ 391 $ 664
==================================================================================================
Average balances (in millions)
Interest-earning assets $55,638 $ 48,759 $50,198 $78,003
Interest-bearing liabilities 52,660 49,725 47,143 76,114
--------------------------------------------------------------------------------------------------
Earning assets financed by noninterest-bearing funds $ 2,978 $ (966) $ 3,055 $ 1,889
==================================================================================================
AVERAGE RATES (fully taxable basis)
Yield on interest-earning assets 6.83% 6.65% 7.08% 6.21%
Cost of interest-bearing liabilities 6.21 5.30 6.43 5.22
--------------------------------------------------------------------------------------------------
Interest rate spread .62 1.35 .65 0.99
Contribution of noninterest-bearing funds .33 (.10) .39 .13
--------------------------------------------------------------------------------------------------
Net interest margin 0.95% 1.25% 1.04% 1.12%
==================================================================================================
</TABLE>
Net interest revenue for the third quarter of 2000 totaled $132 million, down
$22 million, or 14 percent, from the third quarter of 1999. The $22 million
decrease in net interest revenue was primarily due to a $24 million decrease in
trading-related net interest revenue, which was $17 million for the third
quarter of 2000. Non-trading-related net interest revenue totaled $115 million
for the third quarter of 2000 versus $113 million for the comparable period in
1999.
<PAGE>
15
REVENUE (continued)
Net interest revenue for the first nine months of 2000 totaled $388 million,
down $263 million, or 40 percent, from the first nine months of 1999. The $263
million decrease in net interest revenue was primarily due to a $194 million
decrease in trading-related net interest revenue which was $32 million for the
first nine months of 2000. Non-trading-related net interest revenue totaled $356
million for the first nine months of 2000 versus $425 million for the comparable
period in 1999.
In the third quarter of 2000, the interest rate spread was 0.62 percent compared
to 1.35 percent in the prior year period. Net interest margin decreased to 0.95
percent from 1.25 percent. The yield on interest-earning assets increased by 18
basis points and the cost of interest-bearing liabilities increased by 91 basis
points. Average interest-earning assets totaled $55.6 billion for the third
quarter of 2000, up $6.9 billion from the same period in 1999. The increase was
primarily attributable to increases in interest earning deposits with banks.
Average interest-bearing liabilities totaled $52.7 billion for the third quarter
of 2000, up $2.9 billion from the same period in 1999. The increase was
primarily attributable to an increase in long-term debt.
In the first nine months of 2000, the interest rate spread was 0.65 percent
compared to 0.99 percent in the prior period. Net interest margin decreased from
1.12 percent to 1.04 percent. The yield on interest-earning assets increased by
87 basis points and the cost of interest bearing liabilities increased by 121
basis points.
Trading Revenue
Combined trading revenue and trading-related net interest revenue for the third
quarter of 2000 totaled $50 million, down $3 million from the third quarter of
1999. Combined trading revenue and trading-related net interest revenue for the
first nine months of 2000 totaled $159 million, down $12 million from the first
nine months of 1999. Trading losses for the first nine months of 1999 reflect
the impact of a change in management's intention regarding certain assets as a
result of integrating the Corporation into Deutsche Bank and other risk
reduction efforts.
The Corporation's trading activities were significantly reduced in the third
quarter of 1999, reflecting the effect of integrating the Corporation into
Deutsche Bank. The Corporation anticipates further curtailment of
trading-related activities as a result of its ongoing reorganization and
integration into Deutsche Bank.
<PAGE>
16
REVENUE (continued)
The table below presents the Corporation's trading 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.
Three months ended September 30,
--------------------------------
(in millions) 2000 1999
--------------------------------------------------------------------------------
Interest rate risk $ 15 $ 6
Foreign exchange risk 5 (10)
Equity and commodity risk 13 16
--------------------------------------------------------------------------------
Total trading revenue 33 12
Trading-related net interest revenue 17 41
--------------------------------------------------------------------------------
Combined total $ 50 $ 53
================================================================================
Nine months ended September 30,
--------------------------------
(in millions) 2000 1999
--------------------------------------------------------------------------------
Interest rate risk $ 53 $(237)
Foreign exchange risk 7 144
Equity and commodity risk 67 38
--------------------------------------------------------------------------------
Total trading revenue 127 (55)
Trading-related net interest revenue 32 226
--------------------------------------------------------------------------------
Combined total $ 159 $ 171
================================================================================
Interest rate risk - Trading revenue related to interest rate risk for the third
quarter of 2000 increased from the third quarter of 1999 as a result of multiple
trading related gains and losses. Trading revenue related to interest rate risk
for the first nine months of 2000 increased from the first nine months of 1999.
The prior year period reflected the integration of Bankers Trust trading assets
into Deutsche Bank. The prior period also included post-merger risk reduction
initiatives and the impact of a change in management's intention regarding
certain trading and trading related assets.
Foreign exchange risk - The increase in trading revenue related to foreign
exchange risk for the third quarter of 2000 as compared to the prior year period
is attributable to the marking to market of cross currency swaps related to
certain structured transactions. The decrease in trading revenue related to
foreign exchange risk for the first nine months of 2000 as compared to the prior
year period is primarily attributed to the overall reduction of the trading
portfolio in addition to the sale of BTAL in the third quarter of 1999, which in
the prior year was responsible for a significant portion of foreign exchange
trading revenue.
Equity and commodity risk - Trading revenue related to equity and commodity risk
for the third quarter of 2000 decreased from the third quarter of 1999. This
decrease is reflective of gains recorded in the prior year quarter on the
marking to market of secondary LBO funds purchased at a discount. The increase
in trading revenue related to equity and commodity risk for the first nine
months of 2000 as compared to the first nine months of 1999 is reflective of
prior year risk reduction initiatives consistent with the Corporation's overall
curtailment of trading related activities.
<PAGE>
17
REVENUE (continued)
Noninterest Revenue (Excluding Trading)
Third Quarter 2000 vs. Third Quarter 1999
Fiduciary and funds management revenue was down $68 million, or 27 percent, from
the third quarter of 1999. The decrease is due primarily to the sale of BTAL in
the third quarter of 1999.
Corporate finance fees of $25 million decreased $21 million from the $46 million
earned in the third quarter of 1999. The decline is primarily attributable to
lower revenue from financial advisory activities.
Other fees and commissions of $73 million decreased $19 million from the prior
year quarter primarily due to lower revenue for fees in lieu of compensating
balances, guarantee fees and deposit account service charges.
Other noninterest revenue totaled $546 million compared to $1,035 million in the
prior year period. The prior year period included the gain on the sale of BTAL.
The current period includes the gain on the transfer of BTH to a Deutsche Bank
entity offset by mark-to-market losses on venture capital equity securities.
Nine Months 2000 vs. Nine Months 1999
Fiduciary and funds management revenue was down $210 million, or 26 percent,
from the first nine months of 1999. The decrease is due primarily to the sale of
BTAL in the third quarter of 1999.
Corporate Finance fees of $107 million decreased $381 million from the $488
million earned in the first nine months of 1999. The decline is primarily
attributable to lower revenue from underwriting, merger and acquisition and
financial advisory activities resulting from the transfer of BTAB to DBSI in
June 1999.
Other fees and commissions of $235 million decreased $221 million from the prior
year period primarily due to lower fees for brokerage services resulting from
the transfer of BTAB to DBSI in June 1999.
Securities available for sale gains totaled $40 million for the first nine
months of 2000 compared to securities available for sale losses of $150 million
in the prior year period. The prior period reflected third-party sale activity
and the transfer of Latin American debt securities to related Deutsche Bank
entities based on changes in management responsibility related to such
securities.
Insurance premium revenue decreased $86 million from the prior year period. The
Corporation exited the insurance business with the sale of its remaining stake
in Consorcio in the second quarter of 1999.
<PAGE>
18
REVENUE (continued)
Other noninterest revenue totaled $697 million compared to $1,055 million in the
prior year period. The current year-to-date period reflects the gain on the
transfer of BTH to a Deutsche Bank entity while the prior year-to-date period
reflects the sale of BTAL.
PROVISION AND ALLOWANCES FOR CREDIT LOSSES
The allowance for credit losses represents management's estimate of probable
losses that have occurred as of the date of the financial statements. The
allowance for credit losses-loans is reported as a reduction of loans and the
allowance for credit losses for other credit-related items is reported in other
liabilities.
The allowance for credit losses-loans is comprised of a specific allowance
component, a country risk component and an expected loss component. The specific
allowance component is the amount required for impaired loans as calculated
under SFAS 114, "Accounting by Creditors for Impairment of a Loan". The country
risk component is the amount provided for exposures in countries experiencing
financial stress, excluding those exposures already identified and evaluated as
impaired loans. The expected loss component is an estimate of the remaining
probable losses inherent in the loan portfolio. This component is determined by
using a statistical model that utilizes a loan-type, risk-rated stratified
approach. Loss factors are derived by analyzing historical charge-offs and
recent economic events and applied to categories of loans by type and risk
rating.
<PAGE>
19
The provisions for credit losses and the other changes in the allowances for
credit losses are shown below (in millions).
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------
Total allowance for credit losses 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOANS
Balance, beginning of period $ 419 $ 532 $ 491 $ 652
Provision for credit losses (4) (49) (44) (74)
Allowance related to BTAL and transferred entities* (6) (10) (6) (39)
Net charge-offs
Charge-offs 5 2 48 86
Recoveries 1 5 12 23
--------------------------------------------------------------------------------------------------------------------
Total net charge-offs (recoveries) 4 (3) 36 63
--------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 405 $ 476 $ 405** $ 476**
====================================================================================================================
OTHER LIABILITIES
Balance, beginning of period $ 4 $ 14 $ 24 $ 18
Provision for credit losses 8 16 (12) 12
--------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 12 $ 30 $ 12 $ 30
====================================================================================================================
</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.
** Comprised of the following components:
<TABLE>
<S> <C> <C>
Specific allowance $ 315 $ 171
Country risk 6 122
Expected loss 84 183
-----------------------
$ 405 $ 476
=======================
</TABLE>
RESTRUCTURING AND OTHER RELATED ACTIVITIES
During the second and fourth quarters of 1999, the Corporation recorded pre-tax
charges for restructuring and other related activities totaling $459 million
("Plan 1") and $174 million ("Plan 2"), respectively. For a further discussion
of these charges, refer to page 43 of the Corporation's Annual Report on Form
10-K.
As of September 30, 2000, all significant restructuring initiatives contemplated
in Plan 1 have been completed. The remaining reserve balance of $21 million was
reversed in the second quarter of 2000 and was reflected in the Consolidated
Statement of Income for the three months and six months ended June 30, 2000.
In addition, management believes the cost to complete Plan 2 will be reduced by
$25 million resulting from certain management changes in the Global
Institutional Services business and a higher than anticipated level of employee
attrition. Such amount has been reversed in the second quarter of 2000 and was
reflected in the Consolidated Statement of Income for the three months and six
months ended June 30, 2000. At September 30, 2000, the remaining Plan 2 reserve
balance was $56 million. Plan 2 severance and other restructuring-related
activities are expected to be substantially completed during the remainder of
2000.
<PAGE>
20
EXPENSES
Third Quarter 2000 vs. Third Quarter 1999
As compared to the third quarter of 1999, salaries and commissions expense
decreased $76 million, or 39 percent, primarily due to a decrease in the average
number of employees resulting from the transfer of BTAB and BTI in the second
quarter of 1999, the sale of BTAL in the third quarter of 1999 and staff
reductions resulting from the Acquisition.
Incentive compensation and employee benefits decreased $127 million, or 55
percent from the prior year quarter, resulting from the previously mentioned
decrease in the average number of employees.
Other noninterest expense decreased $85 million from the prior year quarter due
primarily to lower corporate technology cost allocations. Deutsche Bank's policy
is to allocate corporate technology cost to subsidiaries based on a methodology
of usage. In the normal course of business, management reevaluates its
methodology of this allocation. During the third quarter there was an $85
million benefit to Bankers Trust on a year-to-date basis, resulting from the
continuing realignment of businesses within Bankers Trust to various Deutsche
Bank legal vehicles. This adjustment has no impact to the Deutsche Bank group
level since it is strictly a reallocation of cost between its legal vehicles.
Nine Months 2000 vs. Nine Months 1999
As compared to the first nine months of 1999, salaries and commissions expense
decreased $542 million, or 60 percent, primarily due to a decrease in the
average number of employees resulting from the transfer of BTAB and BTI in the
second quarter of 1999, the sale of BTAL in the third quarter of 1999 and staff
reductions resulting from the Acquisition.
Incentive compensation and employee benefits decreased $624 million, or 66
percent from the prior year-to-date period, resulting from the previously
mentioned decrease in the average number of employees. In addition, the prior
year-to-date period included amortization expense for deferred compensation
plans.
The prior year-to-date period included $1.1 billion of change in control related
incentive compensation and employee benefits, primarily as a result of
accelerated amortization of deferred compensation amounts as of the COC date.
The provision for policyholder benefits decreased $114 million from the prior
year period. The Corporation exited the insurance business with the sale of its
remaining stake in Consorcio in the second quarter of 1999.
<PAGE>
21
INCOME TAXES
Income tax expense for the third quarter of 2000 amounted to $291 million,
compared to income tax expense of $559 million in the third quarter of 1999. For
the first nine months of 2000, income tax expense was $410 million, compared to
income tax expense of $43 million in the first nine months of 1999. The
effective tax rate was 50 percent for the current quarter and 58 percent for the
nine months ended September 30, 2000, respectively, and 68 percent for the prior
year quarter and 3 percent for the nine months ended September 30, 1999,
respectively. The tax expense and the effective tax rate for the nine months
ended September 30, 2000 are not comparable to the prior year period. The
Corporation recorded a pre-tax loss of $1,503 million in the prior year period
primarily due to significant charges incurred in conjunction with the
Acquisition. In addition, tax expense for the nine months ended September 30,
1999 included a $200 million increase in the valuation allowance related to
deferred tax assets.
<PAGE>
22
BALANCE SHEET ANALYSIS
The following table highlights the changes in the balance sheet. Since
quarter-end balances can be distorted by one-day fluctuations, an analysis of
changes in the quarterly averages is provided to give a better indication of
balance sheet trends.
<TABLE>
<CAPTION>
CONDENSED AVERAGE BALANCE SHEETS
-----------------------------------------------
(in millions) 3rd Qtr. 2000 2nd Qtr. 2000 4th Qtr. 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-earning
Interest-bearing deposits with banks $ 12,200 $ 6,915 $ 3,867
Federal funds sold 1,090 1,222 3,608
Securities purchased under resale agreements 1,293 2,160 5,478
Trading assets 16,225 15,714 6,221
Securities available for sale
Taxable 522 699 3,412
Exempt from federal income taxes 16 16 16
------------------------------------------------------------------------------------------------------------
Total securities available for sale 538 715 3,428
Loans
Domestic offices 22,796 17,867 16,132
Foreign offices 1,143 2,858 4,613
------------------------------------------------------------------------------------------------------------
Total loans 23,939 20,725 20,745
Customer receivables 353 326 569
------------------------------------------------------------------------------------------------------------
Total interest-earning assets 55,638 47,777 43,916
Noninterest-earning
Cash and due from banks 1,934 1,606 1,745
Noninterest-earning trading assets 3,911 5,748 8,541
All other assets 9,130 9,857 8,774
Less: Allowance for credit losses-loans (418) (421) (508)
------------------------------------------------------------------------------------------------------------
Total $ 70,195 $ 64,567 $ 62,468
============================================================================================================
LIABILITIES
Interest-bearing
Interest-bearing deposits
Domestic offices $ 9,437 $ 9,670 $ 12,200
Foreign offices 5,376 6,178 7,659
------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 14,813 15,848 19,859
Trading liabilities 55 53 39
Securities loaned and securities sold under repurchase
agreements 55 66 210
Other short-term borrowings 13,600 10,996 7,691
Long-term debt 22,787 16,416 13,915
Trust preferred capital securities 1,350 1,417 1,427
------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 52,660 44,796 43,141
Noninterest-bearing
Noninterest-bearing deposits 3,557 3,539 4,724
Noninterest-bearing trading liabilities 3,763 5,126 4,516
All other liabilities 5,803 6,784 5,542
------------------------------------------------------------------------------------------------------------
Total liabilities 65,783 60,245 57,923
------------------------------------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY
Preferred stock 353 364 392
Common stockholder's equity 4,059 3,958 4,153
------------------------------------------------------------------------------------------------------------
Total stockholder's equity 4,412 4,322 4,545
------------------------------------------------------------------------------------------------------------
Total $ 70,195 $ 64,567 $ 62,468
============================================================================================================
</TABLE>
<PAGE>
23
BALANCE SHEET ANALYSIS (continued)
Securities Available for Sale
The fair value, amortized cost and gross unrealized holding gains and losses for
the Corporation's securities available for sale are as follows:
<TABLE>
<CAPTION>
($ in millions) September 30, 2000 June 30, 2000 December 31, 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value $ 282 $ 597 $ 3,252
Amortized cost 281 498 3,227
-------------------------------------------------------------------------------------------------
Excess of fair value over amortized cost* $ 1 $ 99 $ 25
=================================================================================================
* Components:
Unrealized gains 3 $ 107 $ 45
Unrealized losses (2) (8) (20)
-------------------------------------------------------------------------------------------------
$ 1 $ 99 $ 25
=================================================================================================
</TABLE>
Other Liabilities
As a result of the transfer of BTH to DBUSH, certain equity positions of
subsidiaries of the Corporation that were issued to subsidiaries of BTH
amounting to approximately $1.5 billion, previously eliminated in the
consolidation process, are now classified in other liabilities as minority
interest, including $500 million of preferred stock of subsidiary. These amounts
are included in the related party balances as further discussed on page 35.
Preferred Stock
On September 28, 2000, the Corporation redeemed all 55,739 shares, 40,022 shares
and 50,000 shares of its Adjustable Rate Cumulative Preferred Stock, Series Q,
Adjustable Rate Cumulative Preferred Stock, Series R, and 7.75% Cumulative
Preferred Stock, Series S, respectively. All shares were redeemed at a
redemption price of $2,500 per share plus accrued and unpaid dividends to the
redemption date.
<PAGE>
24
TRADING DERIVATIVES
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.
The following tables reflect the gross fair values and balance sheet amounts of
trading derivative financial instruments:
<TABLE>
<CAPTION>
At September 30, 2000 Average During 3rd Qtr. 2000
----------------------------------------------------------------------
(in millions) Assets (Liabilities) Assets (Liabilities)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OTC FINANCIAL INSTRUMENTS
Interest Rate and Currency
Swap contracts $ 1,363 $(1,325) $ 2,999 $(3,379)
Interest Rate Contracts
Forwards -- -- -- --
Options purchased 107 108
Options written (80) (86)
Foreign Exchange Rate Contracts
Spot and forwards -- (2) 18 (1)
Options purchased 5 5
Options written (5) (5)
Equity-related contracts 1,345 (1,277) 1,257 (1,267)
Commodity-related and other contracts 924 (924) 924 (924)
---------------------------------------------------------------------------------------------------------------------
Total Gross Fair Values 3,744 (3,613) 5,311 (5,662)
Impact of Netting Agreements (1,051) 1,051 (1,235) 1,235
---------------------------------------------------------------------------------------------------------------------
$ 2,693(a) $(2,562)(a) $ 4,076 $(4,427)
======= ======== ======= =======
</TABLE>
(a) As reflected on the balance sheet in "Trading Assets" and "Trading
Liabilities."
<PAGE>
25
TRADING DERIVATIVES (continued)
<TABLE>
<CAPTION>
At December 31, 1999 Average During 4th Qtr. 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) $ 6,927 $ (6,813)
Interest Rate Contracts
Forwards -- -- 3 (4)
Options purchased 519 414
Options written (614) (628)
Foreign Exchange Rate Contracts
Spot and forwards 11 (3) 193 (134)
Options purchased 351 388
Options written (350) (388)
Equity-related contracts 1,760 (1,865) 1,620 (1,893)
Commodity-related and other contracts 853 (852) 677 (707)
EXCHANGE-TRADED OPTIONS
Interest rate -- -- -- --
Foreign exchange -- -- -- --
Commodity -- -- -- --
Equity -- (16) -- --
---------------------------------------------------------------------------------------------------------------------
Total Gross Fair Values 9,894 (10,270) 10,222 (10,567)
---------------------------------------------------------------------------------------------------------------------
Impact of Netting Agreements (5,087) 5,087 (6,100) 6,100
---------------------------------------------------------------------------------------------------------------------
$ 4,807(a) $ (5,183)(a) $ 4,122 $ (4,467)
======== ======== ======== ========
</TABLE>
(a) As reflected on the balance sheet in "Trading Assets" and "Trading
Liabilities."
END-USER DERIVATIVES
The Corporation, as an end-user, utilizes various types of derivative products
(principally interest rate and currency swaps) to manage the interest rate,
currency and other market risks associated with certain liabilities and assets
such as interest-bearing deposits, short-term borrowings and long-term debt, as
well as securities available for sale, loans, and investments in non-marketable
equity instruments. Revenue or expense pertaining to management of interest rate
exposure is predominantly recognized over the life of the contract as an
adjustment to interest revenue or expense.
Total net end-user derivative unrealized losses were $25 million at September
30, 2000 compared with unrealized losses of $145 million at December 31, 1999.
The $120 million decrease was primarily due to an increase in interest rates.
<PAGE>
26
END-USER DERIVATIVES (continued)
The following tables provide the gross unrealized gains and losses for end-user
derivatives. Gross unrealized gains and losses for hedges of securities
available for sale are recognized in the financial statements with the offset as
an adjustment to securities valuation allowance in stockholder's equity. Gross
unrealized gains and losses for hedges of loans, other assets, interest-bearing
deposits, other short-term borrowings, and long-term debt are not yet recognized
in the financial statements.
<TABLE>
<CAPTION>
(in millions) Securities Interest- Other
available bearing short-term Long-term
September 30, 2000 for sale deposits borrowings debt(a) Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Rate Swaps(b)
Pay Variable
Unrealized Gain $ -- $ 116 $ 1 $ 155 $ 272
Unrealized (Loss) (1) (91) (1) (237) (330)
-------------------------------------------------------------------------------------------
Pay Variable Net (1) 25 -- (82) (58)
-------------------------------------------------------------------------------------------
Pay Fixed
Unrealized Gain 1 29 -- 6 36
Unrealized (Loss) -- (2) -- (1) (3)
-------------------------------------------------------------------------------------------
Pay Fixed Net 1 27 -- 5 33
-------------------------------------------------------------------------------------------
Total Unrealized
Gain 1 145 1 161 308
Total Unrealized
(Loss) (1) (93) (1) (238) (333)
-------------------------------------------------------------------------------------------
Total Net $ -- $ 52 $ -- $ (77) $ (25)
===========================================================================================
Currency Swaps and Forwards
Unrealized Gain $ -- $ -- $ -- 15 15
Unrealized (Loss) -- -- -- (15) (15)
-------------------------------------------------------------------------------------------
Net $ -- $ -- $ -- $ -- $ --
===========================================================================================
Total Unrealized
Gain $ 1 $ 145 $ 1 $ 176 $ 323
Total Unrealized
(Loss) (1) (93) (1) (253) $(348)
-------------------------------------------------------------------------------------------
Total Net $ -- $ 52 $ -- $ (77) $ (25)
===========================================================================================
</TABLE>
(a) Includes trust preferred capital securities.
(b) Includes swaps with embedded options to cancel.
<PAGE>
27
END-USER DERIVATIVES (continued)
<TABLE>
<CAPTION>
(in millions) Securities Interest- Other Long-
available Other bearing short-term term
December 31, 1999 for sale Loans assets deposits borrowings debt(a) Total
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps(b)
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
===========================================================================================================
Total Unrealized
Gain $ 138 $ -- $ -- $ 102 $ 3 $ 86 $ 329
Total Unrealized
(Loss) -- (3) -- (273) (3) (195) (474)
-----------------------------------------------------------------------------------------------------------
Total Net $ 138 $ (3) $ -- $(171) $ -- $(109) $(145)
===========================================================================================================
</TABLE>
(a) Includes trust preferred capital securities.
(b) Includes swaps with embedded options to cancel.
<PAGE>
28
END-USER DERIVATIVES (continued)
For pay variable and pay fixed interest rate swaps entered into as an end-user,
the weighted average receive rate and pay rate (interest rates were based on the
weighted averages of both U.S. and non-U.S. currencies) by maturity and
corresponding notional amounts were as follows ($ in millions):
<TABLE>
<CAPTION>
Paying variable Paying fixed
-------------------------- ------------------------
At September 30, 2000 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 $ 4,134 6.55% 6.58% $ 67 6.68% 6.18% $ 4,201
2001-2002 3,302 6.81 6.75 762 6.72 6.85 4,064
2003-2004 1,186 6.51 6.70 131 5.49 6.28 1,317
2005 and thereafter 6,168 6.85 6.69 474 6.46 6.52 6,642
----------------------------------------------------------------------------------------------------
Total $14,790 $ 1,434 $16,224
====================================================================================================
</TABLE>
All rates were those in effect at September 30, 2000. 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
-------------------------- ------------------------
At December 31, 1999 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.
<PAGE>
29
REGULATORY CAPITAL
The Corporation and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. The Federal
Reserve Board's ("FRB") risk-based capital guidelines address the capital
adequacy of bank holding companies and banks (collectively, "banking
organizations"). These guidelines include a definition of capital, a framework
for calculating risk-weighted assets, and minimum risk-based capital ratios to
be maintained by banking organizations. A banking organization's risk-based
capital ratios are calculated by dividing its qualifying capital by its
risk-weighted assets. The FRB 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's
1999 Annual Report on Form 10-K, on pages 11 and 40, provides a detailed
discussion of these guidelines and regulations.
Based on their respective regulatory capital ratios at September 30, 2000, both
the Corporation and Bankers Trust Company ("BTCo") are well capitalized, as
defined in the applicable regulations.
The Corporation's and BTCo's ratios are presented in the table below.
<TABLE>
<CAPTION>
FRB To Be Well
Actual as of Actual as of Minimum for Capitalized Under
September 30, December 31, Capital Adequacy Regulatory
2000 1999 Purposes Guidelines
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporation
Risk-based capital ratios
Tier 1 capital 10.5% 10.4% 4.0% 6.0%
Total capital 15.9% 18.4% 8.0% 10.0%
Leverage ratio 7.0% 7.3% 3.0% N/A
BTCo
Risk-based capital ratios
Tier 1 capital 22.4% 16.5% 4.0% 6.0%
Total capital 24.9% 18.9% 8.0% 10.0%
Leverage ratio 15.8% 12.3% 3.0% 5.0%
N/A Not applicable
</TABLE>
<PAGE>
30
REGULATORY CAPITAL (continued)
The following are the essential components used in calculating the Corporation's
and BTCo's risk-based capital ratios:
Actual as of Actual as of
(in millions) September 30, 2000 December 31, 1999
--------------------------------------------------------------------------------
Corporation
Tier 1 Capital $ 4,878 $ 4,462
Tier 2 Capital 2,482 3,399
--------------------------------------------------------------------------------
Total Capital $ 7,360 $ 7,861
================================================================================
Total risk-weighted assets $46,286 $42,823
================================================================================
BTCo
Tier 1 Capital $ 5,982 $ 5,710
Tier 2 Capital 664 851
--------------------------------------------------------------------------------
Total Capital $ 6,646 $ 6,561
================================================================================
Total risk-weighted assets $26,698 $34,657
================================================================================
Comparing September 30, 2000 to December 31, 1999, the Corporation's Tier 1
Capital ratio increased 10 basis points due primarily to the increase to Tier 1
capital arising from the sale of BTH to DBUSH during the third quarter of 2000,
partially offset by an increase in risk-weighted assets. The Total Capital ratio
decreased by 250 basis points, due to the redemption of Tier 2 qualifying
securities and an increase in risk-weighted assets. The increase in
risk-weighted assets was due to the increase in balances with affiliates
resulting from the sale of BTH. The Leverage ratio decreased by 30 basis points
due to the increase in quarterly average assets. The sale of BTH did not impact
quarterly average assets since the sale occurred on September 29, 2000.
BTCo's Tier 1 Capital ratio increased 590 basis points due to a reduction in
risk-weighted assets of $8 billion and an increase in Tier 1 capital of $272
million. The decrease in risk-weighted assets is due principally to the
liquidation or transfer of positions to other Deutsche Bank affiliates. Total
Capital ratio increased 600 basis points which was also due to the reduction in
risk-weighted assets. The Leverage ratio increased 350 basis points primarily
due to the significant reduction of $8.7 billion in quarterly average assets.
<PAGE>
31
RISK MANAGEMENT
Market risk is the risk of losses in the value of the Corporation's portfolio
due to movements in market prices and rates. Market risk arises from the
Corporation's investment, trading, and client activities. This section discusses
changes in the Corporation's market-risk profile as characterized by the
quantitative information presented on pages 13 to 14 of the Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.
Table 1 below shows the results of statistical measures of loss for the first
nine months of 2000 and all of 1999 for the set of financial assets and
liabilities whose values are functions of market traded variables irrespective
of accounting intention. This measure shows the 99th percentile loss potential
of the Firm assuming the Firm's positions are held unchanged for 1 day. Table 2
shows the same information for the subset of these positions that appear as
Trading Assets on the Corporation's balance sheet.
Table 1
BT Corporation Total Value at Risk
(in millions)
<TABLE>
<CAPTION>
1999 Nine Months December 31, September 30,
Risk class Average 2000 Average 1999 2000
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate $18.0 $ 4.1 $ 5.1 $ 2.0
Currency 2.5 1.4 0.6 0.2
Equity 22.6 46.9 11.7 0.8
Commodity 0.6 -- -- --
Diversification (12.4) (5.8) (4.6) (0.8)
--------------------------------------------------------------------------------
Overall Portfolio $31.3 $46.6 $12.8 $ 2.2
================================================================================
</TABLE>
Table 1 shows that the Corporation's Total Risk levels decreased by 83 percent
from $12.8 million on December 31, 1999 to $2.2 million on September 30, 2000.
This decrease is mainly due to the transfer of BTH to Deutsche Bank. The primary
risk remaining at September 30, 2000 is interest rate risk largely from the
loan trading, syndication and loan securitization businesses.
<PAGE>
32
RISK MANAGEMENT (continued)
Table 2
BT Corporation Total Value at Risk
(in millions)
<TABLE>
<CAPTION>
1999 Nine Months December 31, September 30,
Risk class Average 2000 Average 1999 2000
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate $11.1 $ 4.1 $ 5.0 $ 1.9
Currency 2.3 1.4 0.6 0.2
Equity 8.7 5.7 5.8 0.8
Commodity 0.6 -- -- --
Diversification (7.0) (3.5) (3.7) (0.8)
--------------------------------------------------------------------------------
Overall Portfolio $15.7 $ 7.7 $ 7.7 $ 2.1
================================================================================
</TABLE>
Table 2 shows that the Corporation's September 30th risk levels from Trading
Assets decreased by 73 percent on a spot basis from December 31, 1999.
LIQUIDITY
Liquidity is the ability to have funds available at all times to meet the
commitments of the Corporation. 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,
the 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 September 30, 2000,
this credit line totaled approximately $4 billion. Of this amount, approximately
$3 billion was drawn. In addition, the Corporation has received unsecured
financing from Deutsche Bank via its indirect subsidiaries in the amount of
approximately $2 billion.
<PAGE>
33
NONPERFORMING ASSETS
The components of cash basis loans, renegotiated loans, other real estate and
other nonperforming assets are shown below ($ in millions).
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
CASH BASIS LOANS
Domestic
Commercial and industrial $667 $495
Secured by real estate 28 67
Financial institutions 9 11
--------------------------------------------------------------------------------
Total domestic 704 573
--------------------------------------------------------------------------------
International
Commercial and industrial 38 132
Secured by real estate 10 10
Other 16 22
--------------------------------------------------------------------------------
Total international 64 164
--------------------------------------------------------------------------------
Total cash basis loans $768 $737
================================================================================
Ratio of cash basis loans to total gross loans 2.9% 3.7%
================================================================================
Ratio of allowance for credit losses-loans to
cash basis loans 53% 67%
================================================================================
RENEGOTIATED LOANS $ -- $ 11
================================================================================
OTHER REAL ESTATE $109 $ 88
================================================================================
OTHER NONPERFORMING ASSETS $ -- $ 8
================================================================================
</TABLE>
There were no loans 90 days or more past due and still accruing interest at
September 30, 2000 and December 31, 1999.
<PAGE>
34
NONPERFORMING ASSETS (continued)
An analysis of the changes in the Corporation's total cash basis loans during
the first nine months of 2000 follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1999 $ 737
Net transfers to cash basis loans 293
Net transfers to other real estate (27)
Net paydowns (126)
Charge-offs (48)
Other (15)
Loan sales (4)
Transfer to Deutsche Bank* (42)
--------------------------------------------------------------------------------
Balance, September 30, 2000 $ 768
================================================================================
</TABLE>
* Reflects the cash basis loans of certain legal entities transferred to
Deutsche Bank and loans novated to Deutsche Bank entities.
The Corporation's total cash basis loans amounted to $768 million at September
30, 2000, up $31 million, or 4 percent, from December 31, 1999.
Impaired loans under SFAS 114, were $750 million and $889 million at September
30, 2000 and December 31, 1999, respectively. Included in these amounts were
$713 million and $718 million of loans that required a specific allowance of
$315 million and $268 million at those same dates, respectively.
The following table sets forth the approximate effect on interest revenue of
cash basis loans and renegotiated loans. This disclosure reflects the interest
on loans that were carried on the balance sheet and classified as either cash
basis or renegotiated at September 30 of each year. The rates used in
determining the gross amount of interest which would have been recorded at the
original rate were not necessarily representative of current market rates.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
(in millions) 2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Domestic Loans
Gross amount of interest that would have
been recorded at original rate $51 $10
Less, interest, net of reversals, recognized
in interest revenue 34 5
--------------------------------------------------------------------------------
Reduction of interest revenue 17 5
--------------------------------------------------------------------------------
International Loans
Gross amount of interest that would have
been recorded at original rate 3 3
Less, interest, net of reversals, recognized
in interest revenue -- 1
--------------------------------------------------------------------------------
Reduction of interest revenue 3 2
--------------------------------------------------------------------------------
Total reduction of interest revenue $20 $ 7
================================================================================
</TABLE>
<PAGE>
35
RELATED PARTY TRANSACTIONS
The Corporation has entered into various related party transactions with
Deutsche Bank and its affiliated entities. For further discussion, see page 58
of the Corporation's 1999 Annual Report on Form 10-K. At September 30, 2000, the
related party balances reflect the transfer of BTH to Deutsche Bank.
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.
<TABLE>
<CAPTION>
(in millions) September 30, 2000 December 31, 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Interest-earning assets $14,872 $10,843
Noninterest-earning assets 2,696 1,147
Interest-bearing liabilities 12,625 6,568
Noninterest-bearing liabilities 3,889 139
</TABLE>
ACCOUNTING DEVELOPMENTS
In September 2000, the FASB issued SFAS 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, a replacement
of FASB Statement No. 125." SFAS 140 is effective for transfers occurring after
March 31, 2001 and for disclosures relating to securitization transactions,
retained interests in securitizations, and collateral received in reverse
repurchase agreements and collateral pledged for fiscal years ending after
December 15, 2000. SFAS 140 carries forward most of the provisions of SFAS 125
without change. New criteria for qualifying special purpose entities will be
effective in 2001 and therefore do not impact previously reported transactions.
The primary impact at December 31, 2000 relates to the collateral provisions.
The new Statement eliminates the prior requirement to record collateral received
under certain securities financing transactions and requires reclassification in
the balance sheet of assets pledged under certain conditions. The adoption of
SFAS 140 will not have a material impact on the Corporation's net income,
stockholder's equity or total assets.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133, as further amended by SFAS 138 in June 2000,
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.
The Corporation engages in derivative activities both for trading purposes and
for hedging purposes. The adoption of SFAS 133, as amended by SFAS 138, will not
impact
<PAGE>
36
those derivatives used for trading purposes, as these derivatives are already
reported at fair value with changes in fair value recognized in the income
statement. The adoption of SFAS 133 will require that derivatives used for
hedging purposes (i.e., end-user derivatives) be accounted for at fair value
effective January 1, 2001. SFAS 133 also requires that certain embedded
derivatives, which had previously not been recognized separately from their host
instruments, be separated and reported on the balance sheet at fair value.
The Corporation does not expect that the adoption of SFAS 133 on January 1, 2001
will have a material impact on its results of operations or financial position.
LITIGATION
On September 25, 2000, litigation was commenced in the District Court in Geneva,
Switzerland (Torras Hostench London Limited and Grupo Torras S.A. v. Bonsai
Investment S.A. (formerly Bankers Trust AG) and Bankers Trust Corporation),
against the Corporation and one of its subsidiaries. The litigation alleges the
Corporation and its subsidiary are liable to the plaintiffs for breach of
contract, breach of fiduciary duty and fraud in connection with a number of
financial transactions occurring during 1990 and 1991. The plaintiffs seek
damages of approximately $1 billion. The Corporation believes it and its
subsidiary have meritorious defenses and intends to vigorously defend this
matter.
<PAGE>
37
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Management" on page 31 for Quantitative and Qualitative
Disclosures About Market Risk.
FORWARD-LOOKING STATEMENTS
Certain sections of this report contain forward-looking statements and can be
identified by the use of such words as "anticipates," "expects," and
"estimates," and similar expressions. These statements are subject to certain
risks and uncertainties. These risks and uncertainties could cause actual
results to differ materially from the current statements. See also "Important
Factors Relating to Forward-Looking Statements" contained in the Corporation's
Annual Report.
<PAGE>
38
Part II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(4) Instruments Defining the Rights of Security Holders, Including
Indentures
(v) - The Corporation hereby agrees to furnish to the
Commission, upon request, a copy of any instruments
defining the rights of security holders issued by Bankers
Trust Corporation or its subsidiaries.
(12) Statement re Computation of Ratios
(27) Financial Data Schedule
(99) Additional Exhibits
(b) Reports on Form 8-K - Bankers Trust Corporation filed one report on
Form 8-K for the quarter ended September 30, 2000.
The report dated September 29, 2000 and filed October 16, 2000
reported: under Item 2 thereof that the Corporation transferred BT
Holdings (New York), Inc., a wholly-owned subsidiary, to DB U.S.
Financial Markets Holding Corporation and Taunus Corporation, which
are an indirect and direct subsidiary, respectively, of Deutsche Bank
AG.; under Item 7 thereof unaudited pro forma financial information.
<PAGE>
39
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned; thereunto duly authorized, on November 14, 2000.
Bankers Trust Corporation
By:/s/ RONALD HASSEN
-------------
RONALD HASSEN
Senior Vice President, Controller
and Principal Accounting Officer
<PAGE>
40
BANKERS TRUST CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
EXHIBIT INDEX
(4) Instruments Defining the Rights of Security Holders, Including
Indentures
(v) - Long-term Debt Indentures (a)
(12) Statement re computation of ratios
(a) - Computation of Consolidated Ratios of Earnings to Fixed Charges
(b) - Computation of Consolidated Ratios of Earnings to Combined
Fixed Charges and Preferred Stock Dividend Requirements
(27) Financial Data Schedule
(99) (i) Additional Exhibits
(1) Unaudited Pro Forma Condensed Financial Statements for the
nine months ended September 30, 2000 and September 30, 1999.
(a) The Corporation hereby agrees to furnish to the Commission, upon request, a
copy of any instruments defining the rights of holders of long-term debt
issued by Bankers Trust Corporation or its subsidiaries.
