UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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 (I.R.S. employer
incorporation or organization) identification no.)
130 Liberty Street
New York, New York 10006
(Address of principal executive offices) (Zip code)
(212) 250-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No _____
The registrant is a wholly-owned subsidiary of Deutsche Bank AG. As of the date
hereof, 1 share of the registrant's Common Stock par value $1 per share, was
issued and outstanding.
<PAGE>
1
BANKERS TRUST CORPORATION
MARCH 31, 2000 FORM 10-Q
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income
Three Months Ended March 31, 2000 and 1999 2
Consolidated Statement of Comprehensive Income
Three Months Ended March 31, 2000 and 1999 3
Consolidated Balance Sheet
At March 31, 2000 and December 31, 1999 4
Consolidated Statement of Changes in Stockholders'
Equity
Three Months Ended March 31, 2000 and 1999 5
Consolidated Statement of Cash Flows
Three Months Ended March 31, 2000 and 1999 6
Consolidated Schedule of Net Interest Revenue
Three Months Ended March 31, 2000 and 1999 7
In the opinion of management, all material adjustments
necessary for a fair presentation of the financial position
and results of operations for the interim periods presented
have been made. All such adjustments were of a normal
recurring nature. The results of operations for the three
months ended March 31, 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.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 31
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 32
SIGNATURE 33
<PAGE>
2
PART I. FINANCIAL INFORMATION
- - -----------------------------
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Increase
THREE MONTHS ENDED MARCH 31, 2000 1999 (Decrease)
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $816 $1,511 $(695)
Interest expense 700 1,250 (550)
- - --------------------------------------------------------------------------------------------------------
Net interest revenue 116 261 (145)
Provision for credit losses-loans (38) -- (38)
- - --------------------------------------------------------------------------------------------------------
Net interest revenue after provision for
credit losses-loans 154 261 (107)
- - --------------------------------------------------------------------------------------------------------
NONINTEREST REVENUE
Trading 63 340 (277)
Fiduciary and funds management 205 271 (66)
Corporate finance fees 37 197 (160)
Other fees and commissions 80 211 (131)
Securities available for sale gains (losses) -- (4) 4
Insurance premiums -- 48 (48)
Other 191 186 5
- - --------------------------------------------------------------------------------------------------------
Total noninterest revenue 576 1,249 (673)
- - --------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and commissions 123 373 (250)
Incentive compensation and employee benefits 118 432 (314)
Agency and other professional service fees 42 91 (49)
Communication and data services 26 66 (40)
Occupancy, net 25 58 (33)
Furniture and equipment 31 69 (38)
Travel and entertainment 10 30 (20)
Provision for policyholder benefits -- 63 (63)
Other 247 119 128
- - --------------------------------------------------------------------------------------------------------
Total noninterest expenses 622 1,301 (679)
- - --------------------------------------------------------------------------------------------------------
Income before income taxes 108 209 (101)
Income taxes 83 69 14
- - --------------------------------------------------------------------------------------------------------
NET INCOME $ 25 $ 140 $(115)
========================================================================================================
<FN>
Certain prior period amounts have been reclassified to conform to the current
presentation.
</FN>
</TABLE>
<PAGE>
3
<TABLE>
<CAPTION>
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
THREE MONTHS ENDED MARCH 31, 2000 1999
- - ---------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME $ 25 $ 140
- - ---------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Unrealized foreign currency translation
gains (losses) arising during period,
net of tax (a) (36) (30)
Reclassification adjustment for realized
foreign currency translation (gains)
losses, net of tax (b) 4 --
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period, net of tax (c) 16 --
Reclassification adjustment for realized (gains)
losses, net of tax (d) -- --
- - ---------------------------------------------------------------------------------------
Total other comprehensive income (loss) (16) (30)
- - ---------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 9 $ 110
=======================================================================================
<FN>
(a) Amounts are net of an income tax benefit of $19 million and $23 million
for the three months ended March 31, 2000 and March 31, 1999,
respectively.
(b) Amount is net of income tax expense of $2 million for the three months
ended March 31, 2000.
(c) Amounts are net of income tax expense of $10 million and $16 million for
the three months ended March 31, 2000 and March 31, 1999, respectively.
(d) Amount is net of an income tax benefit of $4 million for the three months
ended March 31, 1999.
</FN>
</TABLE>
<PAGE>
4
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in millions, except par value)
<TABLE>
<CAPTION>
March 31, December 31,
2000* 1999
-------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,416 $ 3,212
Interest-bearing deposits with banks 5,064 4,693
Federal funds sold 111 2,472
Securities purchased under resale agreements 5,976 6,764
Trading assets:
Government securities 2,333 2,296
Corporate debt securities 1,231 1,367
Equity securities 9,480 7,144
Swaps, options and other derivatives 4,138 4,807
Other trading assets 4,447 3,403
- - ------------------------------------------------------------------------------------
Total trading assets 21,629 19,017
Securities available for sale 1,210 3,252
Loans, net of allowance for credit losses
of $422 at March 31, 2000 and $491
at December 31, 1999 19,871 19,471
Customer receivables 266 306
Accounts receivable and accrued interest 2,396 2,307
Other assets 6,889 6,663
- - ------------------------------------------------------------------------------------
Total $ 65,828 $ 68,157
====================================================================================
LIABILITIES
Noninterest-bearing deposits
Domestic offices $ 2,733 $ 2,690
Foreign offices 1,968 2,299
Interest-bearing deposits
Domestic offices 10,470 12,118
Foreign offices 6,080 6,362
- - ------------------------------------------------------------------------------------
Total deposits 21,251 23,469
Trading liabilities:
Securities sold, not yet purchased
Government securities 53 53
Equity securities 367 21
Other trading liabilities 9 9
Swaps, options and other derivatives 4,711 5,183
- - ------------------------------------------------------------------------------------
Total trading liabilities 5,140 5,266
Securities loaned and securities sold under
repurchase agreements 67 56
Other short-term borrowings 11,478 11,540
Accounts payable and accrued expenses 3,358 3,314
Other liabilities, including allowance for
credit losses of $18 at March 31, 2000
and $24 at December 31, 1999 3,319 3,728
Long-term debt not included in risk-based capital 13,122 12,582
Long-term debt included in risk-based capital 2,319 2,424
Mandatorily redeemable capital securities of
subsidiary trusts holding solely junior
subordinated deferrable interest debentures
included in risk-based capital 1,431 1,428
- - ------------------------------------------------------------------------------------
Total liabilities 61,485 63,807
- - ------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock 365 376
Common stock, $1 par value
Authorized, 200 shares
Issued, 1 share -- --
Capital surplus 2,319 2,318
Retained earnings 1,705 1,686
Accumulated other comprehensive income:
Net unrealized gains (losses) on securities available
for sale, net of taxes 32 16
Foreign currency translation, net of taxes (78) (46)
- - ------------------------------------------------------------------------------------
Total stockholders' equity 4,343 4,350
- - ------------------------------------------------------------------------------------
Total $ 65,828 $ 68,157
====================================================================================
<FN>
* Unaudited
Certain prior period amounts have been reclassified to conform to the current
presentation.
</FN>
</TABLE>
<PAGE>
5
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in millions, except par value)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 1999
- - --------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK
Balance, January 1 $ 376 $ 394
Preferred stock repurchased (11) --
- - --------------------------------------------------------------------------------
Balance, March 31 365 394
- - --------------------------------------------------------------------------------
COMMON STOCK
Balance, January 1 and March 31 -* 105
- - --------------------------------------------------------------------------------
CAPITAL SURPLUS
Balance, January 1 2,318 1,613
Preferred stock repurchased 1 --
Common stock distributed under employee
benefit plans -- 4
- - --------------------------------------------------------------------------------
Balance, March 31 2,319 1,617
- - --------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, January 1 1,686 3,504
Net income (loss) 25 140
Cash dividends declared
Preferred stock (6) (5)
Common stock -- (98)
Treasury stock distributed under employee benefit plans -- (89)
- - --------------------------------------------------------------------------------
Balance, March 31 1,705 3,452
- - --------------------------------------------------------------------------------
COMMON STOCK IN TREASURY, AT COST
Balance, January 1 -- (1,056)
Purchases of stock -- (66)
Treasury stock distributed under employee benefit plans -- 294
- - --------------------------------------------------------------------------------
Balance, March 31 -- (828)
- - --------------------------------------------------------------------------------
OTHER STOCKHOLDERS' EQUITY
Balance, January 1 -- 599
Deferred stock awards granted, net -- 1
Deferred stock distributed -- (207)
Amortization of deferred compensation, net -- 97
- - --------------------------------------------------------------------------------
Balance, March 31 -- 490
- - --------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, January 1 (46) (398)
Translation adjustments/entity transfers and sales (53) (53)
Income taxes 21 23
- - --------------------------------------------------------------------------------
Balance, March 31 (78) (428)
- - --------------------------------------------------------------------------------
SECURITIES VALUATION ALLOWANCE
Balance, January 1 16 (65)
Change in unrealized net gains (losses), after applicable
income taxes and minority interest 16 --
- - --------------------------------------------------------------------------------
Balance, March 31 32 (65)
- - --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY, MARCH 31 $ 4,343 $ 4,737
================================================================================
<FN>
* 1 share, $1 par value
</FN>
</TABLE>
<PAGE>
6
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 1999
- - --------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 25 $ 140
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Provision for credit losses - loans (38) --
Provision for credit losses-other (6) --
Provision for policyholder benefits -- 63
Deferred income taxes, net 86 51
Depreciation and other amortization and
accretion 12 183
Other, net (11) 6
- - --------------------------------------------------------------------------------
Earnings adjusted for noncash charges and credits 68 443
Net change in:
Trading assets (2,959) 9,804
Trading liabilities (121) (4,519)
Receivables and payables from securities
transactions -- 355
Customer receivables 40 (330)
Other operating assets and liabilities, net (455) (1,455)
Securities available for sale losses -- 4
- - --------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (3,427) 4,302
- - --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits with banks (407) 1,204
Federal funds sold 2,361 9
Securities purchased under resale agreements 788 (4,200)
Securities borrowed -- (3,778)
Loans (410) 2,892
Securities available for sale:
Purchases (260) (3,354)
Maturities and other redemptions 2,237 476
Sales 9 2,770
Acquisitions of premises and equipment (12) (40)
Other, net 32 (290)
- - --------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 4,338 (4,311)
- - --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in:
Deposits (2,222) (965)
Securities loaned and securities sold under
repurchase agreements 11 (1,576)
Other short-term borrowings (62) 2,148
Issuances of long-term debt 1,350 411
Repayments of long-term debt (726) (935)
Redemptions and repurchases of preferred stock (11) --
Purchases of treasury stock -- (66)
Cash dividends paid (6) (101)
Other, net (30) 12
- - --------------------------------------------------------------------------------
Net cash used in financing activities (1,696) (1,072)
- - --------------------------------------------------------------------------------
Net effect of exchange rate changes on cash (11) (3)
- - --------------------------------------------------------------------------------
Net Decrease in Cash and Due from Banks (796) (1,084)
Cash and due from banks, beginning of period 3,212 2,837
- - --------------------------------------------------------------------------------
Cash and due from banks, end of period $ 2,416 $ 1,753
================================================================================
Interest paid $ 1,039 $ 1,167
================================================================================
Income taxes paid, net $2 $14
================================================================================
Noncash investing activities $2 $16
================================================================================
<FN>
Certain prior period amounts have been reclassified to conform to the current
presentation.
</FN>
</TABLE>
<PAGE>
7
BANKERS TRUST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------- Increase
2000 1999 (Decrease)
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST REVENUE
Interest-bearing deposits with banks $ 55 $ 60 $ (5)
Federal funds sold 33 26 7
Securities purchased under resale agreements 43 294 (251)
Securities borrowed -- 223 (223)
Trading assets 192 329 (137)
Securities available for sale
Taxable 33 142 (109)
Exempt from federal income taxes 2 12 (10)
Loans 449 394 55
Customer receivables 9 31 (22)
- - --------------------------------------------------------------------------------------
Total interest revenue 816 1,511 (695)
- - --------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits
Domestic offices 147 193 (46)
Foreign offices 137 229 (92)
Trading liabilities -- 68 (68)
Securities loaned and securities sold under
repurchase agreements 1 343 (342)
Other short-term borrowings 184 228 (44)
Long-term debt 202 161 41
Trust preferred capital securities 29 28 1
- - --------------------------------------------------------------------------------------
Total interest expense 700 1,250 (550)
- - --------------------------------------------------------------------------------------
NET INTEREST REVENUE $ 116 $ 261 $ (145)
======================================================================================
</TABLE>
<PAGE>
8
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.
In connection with the Acquisition, and in addition to the foregoing
transactions, the Corporation has and will continue to transfer certain entities
and financial assets and liabilities to Deutsche Bank related entities. The
consideration received and to be received for such transactions was and will be
fair market value of the financial assets and liabilities at and on the date of
transfer.
For further discussion of these transactions, see pages 3 and 29 of Bankers
Trust's 1999 Annual Report on Form 10-K.
RESULTS OF OPERATIONS
The Corporation earned $25 million for the three months ended March 31,
2000 as compared to $140 million for the first three months of 1999.
Because of the significant business changes as discussed above, the
Corporation's historical financial statements are not fully comparable for all
periods presented.
<PAGE>
9
BUSINESS SEGMENT RESULTS
Business segments results, which are presented in accordance with U.S.
generally accepted accounting principles, are derived from internal management
reports.
In conjunction with the Acquisition, the Corporation realigned its business
activities to conform to Deutsche Bank's management structure. In this regard,
Retail and Private Banking focuses on the Corporation's private banking
activities. The Asset Management division 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>
Total Non- Pretax
Three Months Ended March 31, 2000 Total Net interest Income/
(in millions) Revenue Expenses (Loss)
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail and Private Banking $ 36 $ 39 $ (3)
Asset Management 81 62 19
Global Corporates and Institutions 365 264 101
Global Technology and Services 231 274 (43)
- - ---------------------------------------------------------------------------------------
Total Business Segments 713 639 74
- - ---------------------------------------------------------------------------------------
Corporate Items 17 (17) 34
- - ---------------------------------------------------------------------------------------
Total $ 730 $ 622 $ 108
=======================================================================================
<FN>
* There were no material intersegment revenues among the business segments.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Total Non- Pretax
Three Months Ended March 31, 1999 Total Net interest Income/
(in millions) Revenue* Expenses (Loss)
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retail and Private Banking $ 47 $ 45 $ 2
Asset Management 59 36 23
Global Corporates and Institutions 841 790 51
Global Technology and Services 231 204 27
- - ----------------------------------------------------------------------------------------
Total Business Segments 1,178 1,075 103
- - ----------------------------------------------------------------------------------------
Corporate Items** 332 226 106
- - ----------------------------------------------------------------------------------------
Total $1,510 $1,301 $ 209
========================================================================================
<FN>
* There were no material intersegment revenues among the business segments.
** Due to the sale of BTAL in the third quarter of 1999, its results are
included in Corporate Items.
</FN>
</TABLE>
<PAGE>
10
BUSINESS SEGMENT RESULTS (continued)
The Retail and Private Banking business recorded a pre-tax loss of $3
million in the first quarter of 2000, compared to pre-tax income of $2 million
in the prior year quarter. The current quarter reflected lower revenue from
fiduciary and funds management activities resulting from certain foreign
activities transferred to a Deutsche Bank related entity in July 1999.
Asset Management recorded pre-tax income of $19 million in the first
quarter of 2000, compared to pre-tax income of $23 million in the 1999 first
quarter. The decline in pre-tax income from the prior year period was mainly
attributable to an increase in personnel-related costs, partially offset by
higher fiduciary and funds management revenue.
The Global Corporates and Institutions business recorded pre-tax income of
$101 million in the first quarter of 2000, compared to pre-tax income of $51
million in the 1999 first quarter. Higher revenue from private equity
investments contributed to the current quarter's improvement. Total revenue and
total expense declined from the prior year quarter primarily due to the transfer
of BTAB and BTI to Deutsche Bank related entities in the second quarter of 1999.
The Corporation's Global Technology and Services business recorded a
pre-tax loss of $43 million for the current quarter compared to pre-tax income
of $27 million in the prior year quarter. The current quarter included severance
expenses related to certain senior management changes in the Global
Institutional Services business.
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 ended
March 31, 1999.
The following table reconciles total pre-tax income for business segments
to consolidated pre-tax income (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 1999
- - --------------------------------------------------------------------------------
<S> <C> <C>
Total pre-tax income reported for business segments $ 74 $ 103
Earnings associated with unassigned capital 69 64
Credit quality adjustment -- 47
Other unallocated amounts (35) (5)
- - --------------------------------------------------------------------------------
Consolidated pre-tax income $ 108 $ 209
================================================================================
</TABLE>
<PAGE>
11
REVENUE
Net Interest Revenue
The table below presents net interest revenue, average balances and average
rates. The tax equivalent adjustment is made to present the revenue and yields
on certain assets, primarily tax-exempt securities and loans, as if such revenue
were taxable.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------ Increase
2000 1999 (Decrease)
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INTEREST REVENUE (in millions)
Book basis $ 116 $ 261 $ (145)
Tax equivalent adjustment 1 9 (8)
- - --------------------------------------------------------------------------------------
Fully taxable basis $ 117 $ 270 $ (153)
======================================================================================
AVERAGE BALANCES (in millions)
Interest-earning assets $ 48,197 $100,160 $(51,963)
Interest-bearing liabilities 43,914 97,016 (53,102)
- - --------------------------------------------------------------------------------------
Earning assets financed by
noninterest-bearing funds $ 4,283 $ 3,144 $ 1,139
======================================================================================
AVERAGE RATES (fully taxable basis)
Yield on interest-earning assets 6.82% 6.15% 0.67%
Cost of interest-bearing liabilities 6.41 5.23 1.18
- - --------------------------------------------------------------------------------------
Interest rate spread 0.41 0.92 (0.51)
Contribution of noninterest-bearing
funds 0.57 .17 0.40
- - --------------------------------------------------------------------------------------
Net interest margin 0.98% 1.09% (0.11)%
======================================================================================
</TABLE>
The significant transfers of entities and other financial assets and
liabilities to Deutsche Bank following the Acquisition in June 1999 negatively
impacted net interest revenue and levels of average interest-bearing assets and
average interest-bearing liabilities for the three months ended March 31, 2000
as compared to the prior year period.
Net interest revenue for the first quarter of 2000 totaled $116 million,
down $145 million, or 56 percent, from the first quarter of 1999. The $145
million decrease in net interest revenue was primarily due to a $93 million
decrease in trading-related net interest revenue, which was nil for the first
quarter of 2000. Nontrading-related net interest revenue totaled $116 million
for the first quarter of 2000 versus $168 million for the comparable period in
1999.
In the first quarter of 2000, the interest rate spread was 0.41 percent
compared to 0.92 percent in the prior year period. Net interest margin decreased
to 0.98 percent from 1.09 percent. The yield on interest-earning assets
increased by 67 basis points and the cost of interest-bearing liabilities
increased by 118 basis points. Average interest-earning assets totaled $48.2
billion for the first quarter of 2000, down $52.0 billion from the same period
in 1999. The decrease was primarily attributable to declines in trading assets
and securities borrowed and other money-market related activities. Average
interest-bearing liabilities totaled $43.9 billion for the first quarter of
2000, down $53.1 billion from the same period in 1999. The decrease was
primarily attributable to a decline in securities sold under repurchase
agreements, interest-bearing deposits and other money-market related activities.
<PAGE>
12
REVENUE (continued)
Trading Revenue
Combined trading revenue and trading-related net interest revenue for the
first quarter of 2000 was a gain of $63 million, down $370 million from the
first quarter of 1999. The Corporation's trading activities were significantly
reduced in the second half 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 the Acquisition. 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.
<TABLE>
<CAPTION>
(in millions) Three months ended March 31, 2000 1999
- - --------------------------------------------------------------------------------
<S> <C> <C>
Interest rate risk $ 16 $135
Foreign exchange risk 11 106
Equity and commodity risk 36 99
- - --------------------------------------------------------------------------------
Total trading revenue $ 63 $340
Trading-related net interest revenue -- 93
- - --------------------------------------------------------------------------------
Combined total $ 63 $433
================================================================================
</TABLE>
Interest Rate Risk - Trading revenue related to interest rate risk
decreased from the prior year quarter. The decrease is attributable to
significant reductions in the Corporation's trading activities and reassessment
of risk reflective of the integration of the Corporation into Deutsche Bank.
Foreign Exchange Risk - The decrease is primarily attributed to the overall
reduction of the trading portfolio in addition to the sale of BTAL in the third
quarter of 1999, which in the prior year quarter was responsible for a
significant portion of the foreign exchange trading revenue.
Equity and Commodity Risk - Trading revenue related to equity and commodity
risk decreased from the prior year quarter. The decrease is reflective of
reductions in trading activity consistent with the Corporation's overall
curtailment of trading related activities.
<PAGE>
13
REVENUE (continued)
Noninterest Revenue (Excluding Trading)
Fiduciary and funds management revenue was down $66 million, or 24%, from
the first quarter of 1999. The decrease is due primarily to the sale of BTAL in
the third quarter of 1999.
Corporate finance fees of $37 million decreased $160 million from the $197
million earned in the first quarter 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 $80 million decreased $131 million from the
prior year quarter primarily due to lower fees for brokerage services resulting
from the transfer of BTAB to DBSI in June 1999.
Insurance premium revenue decreased $48 million from the prior year
quarter. The Corporation exited the insurance business with the sale of its
remaining stake in Consorcio in the second quarter of 1999.
Other noninterest revenue totaled $191 million compared to $186 million in
the prior year period. The current quarter reflected higher revenue from
mark-to-market adjustments on venture capital equity securities.
<PAGE>
14
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.
The provisions for credit losses and the other changes in the allowances
for credit losses are shown below (in millions).
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
Total allowance for credit losses 2000 1999
- - --------------------------------------------------------------------------------
<S> <C> <C>
Loans
Balance, beginning of period $ 491 $ 652
Provision for credit losses (38) --
Net charge-offs
Charge-offs 40 60
Recoveries 9 11
- - --------------------------------------------------------------------------------
Total net charge-offs 31 49
- - --------------------------------------------------------------------------------
Balance, end of period $ 422* $ 603
================================================================================
<FN>
* Comprised of a specific allowance component of $235 million, a country risk
component of $30 million and an expected loss component of $157 million.
Not comparable to the prior year period due to revised policies and
procedures for determining the allowance for credit losses implemented in
the third quarter of 1999. The allowance for credit losses-loans at
December 31, 1999 was $491 million and was comprised of a specific
allowance of $268 million, a country risk component of $56 million and an
expected loss component of $167 million
</FN>
Other liabilities
Balance, beginning of period $ 24 $ 18
Provision for credit losses (6) --
- - --------------------------------------------------------------------------------
Balance, end of period $ 18 $ 18
================================================================================
</TABLE>
<PAGE>
15
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 $633
million. For a further discussion of these charges, refer to page 43 of the
Corporation's Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Plan 1 Plan 2
------------------------ -----------------------
(in millions) Severance Other Severance Other Total
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve Balance as of
December 31, 1999 $112 $ 11 $ 57 $ 58 $238
Charges Against Reserve
for the three months
ended March 31, 2000 13 6 15 -- 34
- - --------------------------------------------------------------------------------------------------------
Ending Reserve Balance at
March 31, 2000 $ 99 $ 5 $ 42 $ 58 $204
- - --------------------------------------------------------------------------------------------------------
</TABLE>
At March 31, 2000, $141 million of the remaining reserve balance related to
severance and other termination-related costs for further staff reductions of
approximately 700 positions. These severance actions, as well as the actions
related to other exit activities, are expected to be substantially completed
during the remainder of 2000.
<PAGE>
16
EXPENSES
As compared to the first quarter of 1999, salaries and commissions expense
decreased $250 million, or 67 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 $314 million, or 73
percent from the prior year quarter, resulting from the previously mentioned
decrease in the average number of employees. In addition, the prior year quarter
included amortization expense for deferred compensation plans.
The provision for policyholder benefits decreased $63 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.
Other noninterest expenses increased $128 million from the prior year
period primarily due to charges payable to a Deutsche Bank affiliated company
relating to compensation arrangements.
INCOME TAXES
Income tax expense for the first quarter of 2000 amounted to $83 million,
compared to $69 million in the first quarter of 1999. The effective tax rate was
77 percent for the current quarter and 33 percent for the prior year quarter.
The increase in the effective tax rate is primarily due to an increase in state
and local income taxes and an increase in the deferred tax valuation allowance.
<PAGE>
17
BALANCE SHEET ANALYSIS
The following table highlights the changes in the balance sheet. Since
quarter-end balances can be distorted by one-day fluctuations, an analysis of
changes in the quarterly averages is provided to give a better indication of
balance sheet trends.
<TABLE>
<CAPTION>
CONDENSED AVERAGE BALANCE SHEETS
----------------------------------
(in millions)
1st Qtr 4th Qtr Increase
2000 1999 (Decrease)
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-earning
Interest-bearing deposits with banks $ 5,147 $ 3,867 $ 1,280
Federal funds sold 2,263 3,608 (1,345)
Securities purchased under resale
agreements 2,940 5,478 (2,538)
Trading assets 13,885 6,221 7,664
Securities available for sale
Taxable 2,528 3,412 (884)
Exempt from federal income taxes 16 16 --
- - --------------------------------------------------------------------------------
Total securities available for sale 2,544 3,428 (884)
Loans
Domestic offices 17,143 16,132 1,011
Foreign offices 3,642 4,613 (971)
- - --------------------------------------------------------------------------------
Total loans 20,785 20,745 40
Customer receivables 633 569 64
- - --------------------------------------------------------------------------------
Total interest-earning assets 48,197 43,916 4,281
Noninterest-earning
Cash and due from banks 2,354 1,745 609
Noninterest-earning trading assets 3,915 8,541 (4,626)
All other assets 9,279 8,774 505
Less: Allowance for credit losses-loans (424) (508) 84
- - --------------------------------------------------------------------------------
Total $ 63,321 $ 62,468 $ 853
================================================================================
LIABILITIES
Interest-bearing
Interest-bearing deposits
Domestic offices $ 10,879 $ 12,200 $ (1,321)
Foreign offices 6,955 7,659 (704)
- - --------------------------------------------------------------------------------
Total interest-bearing deposits 17,834 19,859 (2,025)
Trading liabilities 53 39 14
Securities loaned and securities sold
under repurchase agreements 61 210 (149)
Other short-term borrowings 9,340 7,691 1,649
Long-term debt 15,197 13,915 1,282
Trust preferred capital securities 1,429 1,427 2
- - --------------------------------------------------------------------------------
Total interest-bearing liabilities 43,914 43,141 773
Noninterest-bearing
Noninterest-bearing deposits 4,503 4,724 (221)
Noninterest-bearing trading liabilities 4,153 4,516 (363)
All other liabilities 6,421 5,542 879
- - --------------------------------------------------------------------------------
Total liabilities 58,991 57,923 1,068
- - --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock 368 392 (24)
Common stockholders' equity 3,962 4,153 (191)
- - --------------------------------------------------------------------------------
Total stockholders' equity 4,330 4,545 (215)
- - --------------------------------------------------------------------------------
Total $ 63,321 $ 62,468 $ 853
================================================================================
</TABLE>
<PAGE>
18
BALANCE SHEET ANALYSIS (continued)
Securities Available for Sale
The fair value, amortized cost and gross unrealized holding gains and
losses for the Corporation's securities available for sale are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
(in millions) 2000 1999
- - --------------------------------------------------------------------------------
<S> <C> <C>
Fair value $ 1,210 $ 3,252
Amortized cost 1,156 3,227
------- -------
Excess of fair value
over amortized cost* $ 54 $ 25
======= =======
* Components:
Unrealized gains $ 67 $ 45
Unrealized losses (13) (20)
------- -------
$ 54 $ 25
======= =======
</TABLE>
<PAGE>
19
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 March 31, Average During
2000 1st Qtr. 2000
-------------------- --------------------
(Liabi- (Liabi-
(in millions) Assets lities) Assets lities)
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OTC Financial Instruments
Interest Rate and Currency
Swap Contracts $ 4,872 $(5,270) $ 5,413 $(5,571)
Interest Rate Contracts
Forwards -- -- 1 (1)
Options purchased 90 241
Options written (124) (395)
Foreign Exchange Rate Contracts
Spot and Forwards 24 (3) 53 (3)
Options purchased 321 318
Options written (323) (318)
Equity-related contracts 1,448 (1,652) 1,023 (1,177)
Commodity-related and other contracts 1,695 (1,695) 1,004 (1,085)
Exchange-Traded Options
Interest Rate -- -- -- --
Foreign exchange -- -- -- --
Commodity -- -- 1 --
Equity 90 (46) 1 (4)
- - --------------------------------------------------------------------------------------
Total Gross Fair Values 8,540 (9,113) 8,055 (8,554)
Impact of Netting Agreements (4,402) 4,402 (4,502) 4,502
- - --------------------------------------------------------------------------------------
$ 4,138(1) $(4,711)(1) $ 3,553 $(4,052)
======= ======== ======= =======
<FN>
(1) As reflected on the balance sheet in "Trading Assets" and "Trading Liabilities."
</FN>
</TABLE>
<PAGE>
20
TRADING DERIVATIVES (continued)
<TABLE>
<CAPTION>
At December 31, Average During
1999 4th Qtr. 1999
-------------------------- --------------------
(Liabi- (Liabi-
(in millions) Assets lities) Assets lities)
- - ------------------------------------------------------------------------------------------
<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(1) $ (5,183)(1) $ 4,122 $ (4,467)
======== ========= ======== ========
<FN>
(1) As reflected on the balance sheet in "Trading Assets" and "Trading Liabilities."
</FN>
</TABLE>
END-USER DERIVATIVES
The Corporation, as an end user, utilizes various types of derivative
products (principally interest rate and currency swaps) to manage the interest
rate, currency and other market risks associated with certain liabilities and
assets such as interest-bearing deposits, short-term borrowings and long-term
debt, as well as securities available for sale, loans, investments in
non-marketable equity instruments and net investments in foreign entities.
Revenue or expense pertaining to management of interest rate exposure is
predominantly recognized over the life of the contract as an adjustment to
interest revenue or expense.
Total net end-user derivative unrealized losses were $343 million at March
31, 2000 compared with unrealized losses of $145 million at December 31, 1999.
The $198 million decrease was primarily due to the realization of $136 million
in gains relating to the sell off of securities available for sale positions and
changes in interest rates.
<PAGE>
21
END-USER DERIVATIVES (continued)
The following tables provide the gross unrealized gains and losses for
end-user derivatives. Gross unrealized gains and losses for hedges of securities
available for sale are recognized in the financial statements with the offset as
an adjustment to securities valuation allowance in stockholder's equity. Gross
unrealized gains and losses for hedges of loans, other assets, interest-bearing
deposits, other short-term borrowings, long-term debt, and net investments in
foreign subsidiaries are not yet recognized in the financial statements.
<TABLE>
<CAPTION>
Other Net invest-
short- ments in
Securities Interest- term Long- foreign
(in millions) available Other bearing borrow- term subsi-
December 31, 1999 for sale Loans assets deposits ings debt(1) diaries Total
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps(2)
Pay Variable
Unrealized Gain $ -- $ -- $-- $ 4 $ 3 $ 18 $-- $ 25
Unrealized (Loss) -- (1) -- (261) (7) (168) -- (437)
- - ---------------------------------------------------------------------------------------------------------------------
Pay Variable Net -- (1) -- (257) (4) (150) -- (412)
- - ---------------------------------------------------------------------------------------------------------------------
Pay Fixed
Unrealized Gain 1 -- -- 59 -- 4 -- 64
Unrealized (Loss) -- -- -- (15) -- -- -- (15)
- - ---------------------------------------------------------------------------------------------------------------------
Pay Fixed Net 1 -- -- 44 -- 4 -- 49
- - ---------------------------------------------------------------------------------------------------------------------
Total Unrealized
Gain 1 -- -- 63 3 22 -- 89
- - ---------------------------------------------------------------------------------------------------------------------
Total Unrealized
(Loss) -- (1) -- (276) (7) (168) -- (452)
- - ---------------------------------------------------------------------------------------------------------------------
Total Net $ 1 $ (1) $-- $(213) $ (4) $(146) $-- $(363)
=====================================================================================================================
Currency Swaps and Forwards
Unrealized Gain $ -- $ -- $-- $ -- $ -- $ 39 $-- $ 39
Unrealized (Loss) -- (1) -- -- -- (18) -- (19)
- - ---------------------------------------------------------------------------------------------------------------------
Net $ -- $ (1) $-- $ -- $ -- $ 21 $-- $ 20
=====================================================================================================================
Other Contracts
Unrealized Gain $ -- $ -- $-- $ -- $ -- $ -- $-- $ --
Unrealized (Loss) -- -- -- -- -- -- -- --
- - ---------------------------------------------------------------------------------------------------------------------
Net $ -- $ -- $-- $ -- $ -- $ -- $-- $ --
=====================================================================================================================
Total Unrealized
Gain $ 1 $ -- $-- $ 63 $ 3 $ 61 $-- $ 128
Total Unrealized
(Loss) -- (2) -- (276) (7) (186) -- (471)
- - ---------------------------------------------------------------------------------------------------------------------
Total Net $ 1 $ (2) $-- $(213) $ (4) $(125) $-- $(343)
=====================================================================================================================
<FN>
(1) Includes trust preferred capital securities.
(2) Includes swaps with embedded options to cancel.
</FN>
</TABLE>
<PAGE>
22
END-USER DERIVATIVES (continued)
<TABLE>
<CAPTION>
Other Net invest-
short- ments in
Securities Interest- term Long- foreign
(in millions) available Other bearing borrow- term subsi-
December 31, 1999 for sale Loans assets deposits ings debt(1) diaries Total
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps(2)
Pay Variable
Unrealized Gain $ -- $ -- $-- $ 44 $ 3 $ 25 $-- $ 72
Unrealized (Loss) -- (2) -- (256) (3) (171) -- (432)
- - --------------------------------------------------------------------------------------------------------------------
Pay Variable Net -- (2) -- (212) -- (146) -- (360)
- - --------------------------------------------------------------------------------------------------------------------
Pay Fixed
Unrealized Gain 1 -- -- 58 -- 7 -- 66
Unrealized (Loss) -- -- -- (17) -- -- -- (17)
- - --------------------------------------------------------------------------------------------------------------------
Pay Fixed Net 1 -- -- 41 -- 7 -- 49
- - --------------------------------------------------------------------------------------------------------------------
Total Unrealized
Gain 1 -- -- 102 3 32 -- 138
- - --------------------------------------------------------------------------------------------------------------------
Total Unrealized
(Loss) -- (2) -- (273) (3) (171) -- (449)
- - --------------------------------------------------------------------------------------------------------------------
Total Net $ 1 $ (2) $-- $(171) $ -- $(139) $-- $(311)
====================================================================================================================
Forward Rate Agreements
Unrealized Gain $ 1 $ -- $-- $ -- $ -- $ -- $-- $ 1
Unrealized (Loss) -- -- -- -- -- -- -- --
- - --------------------------------------------------------------------------------------------------------------------
Net $ 1 $ -- $-- $ -- $ -- $ -- $-- $ 1
====================================================================================================================
Currency Swaps and Forwards
Unrealized Gain $ 136 $ -- $-- $ -- $ -- $ 54 $-- $ 190
Unrealized (Loss) -- (1) -- -- -- (24) -- (25)
- - --------------------------------------------------------------------------------------------------------------------
Net $ 136 $ (1) $-- $ -- $ -- $ 30 $-- $ 165
====================================================================================================================
Other Contracts
Unrealized Gain $ -- $ -- $-- $ -- $ -- $ -- $-- $ --
Unrealized (Loss) -- -- -- -- -- -- -- --
- - --------------------------------------------------------------------------------------------------------------------
Net $ -- $ -- $-- $ -- $ -- $ -- $-- $ --
====================================================================================================================
Total Unrealized
Gain $ 138 $ -- $-- $ 102 $ 3 $ 86 $-- $ 329
Total Unrealized
(Loss) -- (3) -- (273) (3) (195) -- (474)
- - --------------------------------------------------------------------------------------------------------------------
Total Net $ 138 $ (3) $-- $(171) $ -- $(109) $-- $(145)
====================================================================================================================
<FN>
(1) Includes trust preferred capital securities.
(2) Includes swaps with embedded options to cancel.
</FN>
</TABLE>
<PAGE>
23
END-USER DERIVATIVES (continued)
For pay variable and pay fixed interest rate swaps entered into as an end
user, the weighted average receive rate and pay rate (interest rates were based
on the weighted averages of both U.S. and non-U.S. currencies) by maturity and
corresponding notional amounts were as follows ($ in millions):
<TABLE>
<CAPTION>
At March 31, 2000
Notional Paying Variable Paying Fixed
Amount ------------------------------------ ------------------------------------
Maturing Notional Receive Pay Notional Receive Pay Total
In: Amount Rate Rate Amount Rate Rate Notional
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2000 $24,396 6.01% 6.10% $ 816 6.10% 6.31% $25,212
2001-2002 3,068 6.75 6.11 316 6.10 6.77 3,384
2003-2004 1,305 6.26 6.10 167 5.80 6.72 1,472
2005 and thereafter 6,412 6.74 6.04 590 6.03 6.53 7,002
- - ---------------------------------------------------------------------------------------------------------
Total $35,181 $1,889 $37,070
=========================================================================================================
</TABLE>
All rates were those in effect at March 31, 2000. Variable rates are
primarily based on LIBOR or Federal funds rate and may change significantly,
affecting future cash flows.
<TABLE>
<CAPTION>
At December 31, 1999
Notional Paying Variable Paying Fixed
Amount ------------------------------------ ------------------------------------
Maturing Notional Receive Pay Notional Receive Pay Total
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>
24
REGULATORY CAPITAL
The Corporation and its banking subsidiaries are subject to various
regulatory capital requirements administered by the federal banking agencies.
The Federal Reserve Board's ("FRB") risk-based capital guidelines address the
capital adequacy of bank holding companies and banks (collectively, "banking
organizations"). These guidelines include a definition of capital, a framework
for calculating risk-weighted assets, and minimum risk-based capital ratios to
be maintained by banking organizations. A banking organization's risk-based
capital ratios are calculated by dividing its 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 March 31, 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
Minimum To Be Well
Actual Actual for Capitalized
as of as of Capital Under
March 31, December 31, Adequacy Regulatory
2000 1999 Purposes Guidelines
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporation
Risk-Based Capital Ratios
Tier 1 Capital 10.9% 10.4% 4.0% 6.0%
Total Capital 18.7% 18.4% 8.0% 10.0%
Leverage Ratio 7.2% 7.3% 3.0% N/A
BTCo
Risk-Based Capital Ratios
Tier 1 Capital 18.6% 16.5% 4.0% 6.0%
Total Capital 21.2% 18.9% 8.0% 10.0%
Leverage Ratio 13.1% 12.3% 3.0% 5.0%
<FN>
N/A Not Applicable
</FN>
</TABLE>
<PAGE>
25
REGULATORY CAPITAL (continued)
The following are the essential components used in calculating the
Corporation's and BTCo's risk-based capital ratios:
<TABLE>
<CAPTION>
Actual as of Actual as of
March 31, December 31,
(in millions) 2000 1999
- - --------------------------------------------------------------------------------
<S> <C> <C>
Corporation
Tier 1 Capital $ 4,477 $ 4,462
Tier 2 Capital 3,226 3,399
------- -------
Total Capital $ 7,703 $ 7,861
======= =======
Total risk-weighted assets $41,251 $42,823
======= =======
BTCo
Tier 1 Capital $ 5,832 $ 5,710
Tier 2 Capital 806 851
------- -------
Total Capital $ 6,638 $ 6,561
======= =======
Total risk-weighted assets $31,298 $34,657
======= =======
</TABLE>
Comparing March 31, 2000 to December 31, 1999, the Corporation's Tier 1
Capital ratio increased 50 basis points due primarily to the decrease in
risk-weighted assets of $1.57 billion. Risk-weighted assets decreased
principally because positions were liquidated or transferred to other Deutsche
Bank affiliates. The Total Capital ratio increased 30 basis points as the
decrease in risk-weighted assets more than offset the decline of $158 million in
Total Capital.
BTCo's Tier 1 Capital ratio increased 210 basis points due to a reduction
in risk-weighted assets of $3.4 billion and an increase in Tier 1 Capital of
$122 million. Total Capital ratio increased 230 basis points due to the
reduction in risk-weighted assets and increase in Total Capital. The Leverage
ratio increased 80 basis points primarily due to the significant reduction of
$2.0 billion in quarterly average assets.
<PAGE>
26
RISK MANAGEMENT
Market risk is the risk of losses in the value of the Corporation's
portfolio due to movements in market prices and rates. Market risk arises from
the Corporation's investment, trading, and client activities. This section
discusses changes in the Corporation's market-risk profile as characterized by
the quantitative information presented on pages 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 three 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>
Three Months
1999 2000 December 31, March 31,
Risk Class Average Average 1999 2000
- - -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate $ 18.0 $ 3.8 $ 5.1 $ 3.3
Currency 2.5 2.0 0.6 1.6
Equity 22.6 16.6 11.7 14.1
Commodity 0.6 -- -- --
Diversification (12.4) (5.2) (4.6) (4.4)
- - -------------------------------------------------------------------------
Overall Portfolio $ 31.3 $ 17.2 $ 12.8 $ 14.6
- - -------------------------------------------------------------------------
</TABLE>
Table 1 shows that the Corporation's overall market-risk exposure increased
on a spot basis by 14 percent from year-end, which was mainly driven by an
increase in equity risk. The primary risks at March 31, 2000 are equity risk and
interest rate risk. The interest rate risk stems mainly from the loan trading,
loan syndication and loan securitization businesses. The equity risk is
primarily from private equity investments held by the Corporation. This equity
risk increased sharply in February and early March mainly due to market
movements in the Corporation's private equity investments.
<PAGE>
27
RISK MANAGEMENT (continued)
Table 2
BT Corporation Trading Value at Risk
(in millions)
<TABLE>
<CAPTION>
Three Months
1999 2000 December 31, March 31,
Risk Class Average Average 1999 2000
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate $ 11.1 $ 3.8 $ 5.0 $ 3.2
Currency 2.3 2.0 0.6 1.6
Equity 8.7 11.7 5.8 2.6
Commodity 0.6 -- -- --
Diversification (7.0) (4.8) (3.7) (3.0)
---------------------------------------------------
Overall Portfolio $ 15.7 $ 12.7 $ 7.7 $ 4.4
---------------------------------------------------
</TABLE>
Table 2 shows that the Corporation's March 31st risk levels from Trading
Assets decreased by 43 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,
Deutsche Bank's planning and management process also encompasses contingency
planning to address even the most severe liquidity events.
Short-term unsecured financing for the Corporation is available under an
uncommitted credit line with its parent, Deutsche Bank. At March 31, 2000, this
credit line totaled over $5 billion. Of this amount, approximately $3 billion
was drawn.
<PAGE>
28
NONPERFORMING ASSETS
The components of cash basis loans, renegotiated loans, other real estate
and other nonperforming assets are shown below ($ in millions).
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
- - --------------------------------------------------------------------------------
<S> <C> <C>
CASH BASIS LOANS
Domestic
Commercial and industrial $522 $495
Secured by real estate 60 67
Financial institutions 10 11
---- ----
Total domestic 592 573
---- ----
International
Commercial and industrial 57 132
Secured by real estate 10 10
Lease financings 1 1
Other 21 21
---- ----
Total international 89 164
---- ----
Total cash basis loans $681 $737
==== ====
Ratio of cash basis loans to total gross loans 3.4% 3.7%
==== ====
Ratio of allowance for credit losses-loans to
cash basis loans 62% 67%
==== ====
RENEGOTIATED LOANS $ -- $ 11
==== ====
OTHER REAL ESTATE $ 83 $ 88
==== ====
OTHER NONPERFORMING ASSETS $ 8 $ 8
==== ====
</TABLE>
There were no loans 90 days or more past due and still accruing interest at
March 31, 2000 and December 31, 1999.
<PAGE>
29
NONPERFORMING ASSETS (continued)
An analysis of the changes in the Corporation's total cash basis loans
during the first three months of 2000 follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1999 $ 737
Net transfers to cash basis loans 63
Net transfers to other real estate (2)
Net paydowns (69)
Charge-offs (40)
Other (8)
-----
Balance, March 31, 2000 $ 681
=====
</TABLE>
The Corporation's total cash basis loans amounted to $681 million at March
31, 2000, down $56 million, or 8 percent, from December 31, 1999.
Impaired loans under SFAS 114, were $785 million and $889 million at March
31, 2000 and December 31, 1999, respectively. Included in these amounts were
$675 million and $718 million of loans that required a specific allowance of
$235 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 March 31 of each year. The rates used in
determining the gross amount of interest which would have been recorded at the
original rate were not necessarily representative of current market rates.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
(in millions) 2000 1999
- - --------------------------------------------------------------------------------
<S> <C> <C>
Domestic Loans
Gross amount of interest that would have
been recorded at original rate $13 $ 4
Less, interest, net of reversals, recognized
in interest revenue 8 2
--- ---
Reduction of interest revenue 5 2
--- ---
International Loans
Gross amount of interest that would have
been recorded at original rate 1 5
Less, interest, net of reversals, recognized
in interest revenue 1 4
--- ---
Reduction of interest revenue -- 1
--- ---
Total reduction of interest revenue $ 5 $ 3
=== ===
</TABLE>
<PAGE>
30
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.
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) March 31, 2000 December 31, 1999
- - --------------------------------------------------------------------------------
<S> <C> <C>
Interest-earning assets $10,689 $10,843
Noninterest-earning assets 1,738 1,147
Interest-bearing liabilities 8,956 6,568
Noninterest-bearing liabilities 2,766 139
</TABLE>
ACCOUNTING DEVELOPMENTS
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
companies to recognize all derivatives on the balance sheet as assets or
liabilities measured at fair value. SFAS 137 deferred the effective date of SFAS
133 until January 1, 2001 for calendar year companies. Depending on the
underlying risk management strategy, the accounting for these products under the
new standard could affect reported earnings and balance sheet accounts. The
Corporation continues to evaluate the potential impact of the new standard as
plans for implementation proceed.
SUPERVISION AND REGULATION
In November 1999 federal financial modernization legislation was enacted
which allows qualifying banks and bank holding companies to elect to be treated
as financial holding companies ("FHCs"). FHCs may engage in a broader range of
activity than non-FHCs, which will be limited to the activities traditionally
permissible for bank holding companies. Although bank regulatory authorities
have issued interim and proposed regulations, the full scope of the new powers
available to FHCs will only become clear after the bank regulatory authorities
adopt final implementing regulations. Although Deutsche Bank has received FHC
status, the Corporation at this time is unable to predict the impact the
modernization legislation may have on it and its affiliates. See "Supervision
and Regulation" on pages 68 and 69 of Bankers Trust's 1999 Annual Report on Form
10-K for more information on the modernization legislation.
<PAGE>
31
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Risk Management" on page 26 for Quantitative and
Qualitative Disclosures About Market Risk.
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>
32
PART II. OTHER INFORMATION
- - --------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(3) Articles of Incorporation and By-laws, as amended
(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 did not file any reports on
Form 8-K during the quarter ended March 31, 2000.
<PAGE>
33
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned; thereunto duly authorized, on May 15, 2000.
BANKERS TRUST CORPORATION
BY: /S/ RONALD HASSEN
-------------------------------------
RONALD HASSEN
Senior Vice President, Controller
and Principal Accounting Officer
<PAGE>
BANKERS TRUST CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
EXHIBIT INDEX
(3) Articles of Incorporation and By-laws, as amended
(ii) - By-laws as in effect April 27, 2000
(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 Statement for the three
months ended March 31,1999.
[FN]
(a) The Corporation hereby agrees to furnish to the Commission, upon request, a
copy of any instruments defining the rights of holders of long-term debt
issued by Bankers Trust Corporation or its subsidiaries.
</FN>
EXHIBIT 3(ii)
BY-LAWS
APRIL 27, 2000
Bankers Trust Corporation
(Incorporated under the New York Business Corporation Law)
<PAGE>
BANKERS TRUST CORPORATION
-----------------------------------------------
BY-LAWS
-----------------------------------------------
ARTICLE I
SHAREHOLDERS
SECTION 1.01 Annual Meetings. The annual meetings of shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held in January of each year.
SECTION 1.02 Special Meetings. Special meetings of the shareholders, except
those regulated otherwise by statute, may be called at any time by the Board of
Directors, or by any person or committee expressly so authorized by the Board of
Directors and by no other person or persons.
SECTION 1.03 Place of Meetings. Meetings of shareholders shall be held at such
place within or without the State of New York as shall be determined from time
to time by the Board of Directors or, in the case of special meetings, by such
person or persons as may be authorized to call a meeting. The place in which
each meeting is to be held shall be specified in the notice of such meeting.
SECTION 1.04 Notice of Meetings. A copy of the written notice of the place, date
and hour of each meeting of shareholders shall be given personally or by mail,
not less than ten nor more than fifty days before the date of the meeting, to
each shareholder entitled to vote at such meeting. Notice of a special meeting
shall indicate that it is being issued by or at the direction of the person or
persons calling the meeting and shall also state the purpose or purposes for
which the meeting is called.
SECTION 1.05 Record Date. For the purpose of determining the shareholders
entitled to notice of or to vote any meeting of shareholders or any adjournment
thereof, or to express consent to or dissent from any proposal without a
meeting, or for the purpose of determining shareholders entitled to receive
payment of any dividend or the allotment of any rights, or for the purpose of
any other action, the Board of Directors may fix, in advance, a date as the
record date for any such determination of shareholders. Such date shall not be
more than fifty nor less than ten days before the date of such meeting, nor more
than fifty days prior to any other action.
<PAGE>
SECTION 1.06 Quorum. The presence, in person or by proxy, of the holders of a
majority of the shares entitled to vote thereat shall constitute a quorum at a
meeting of shareholders for the transaction of business, except as otherwise
provided by statute, by the Certificate of Incorporation or by the By-Laws. The
shareholders present in person or by proxy and entitled to vote at any meeting,
despite the absence of a quorum, shall have power to adjourn the meeting from
time to time, to a designated time and place, without notice other than by
announcement at the meeting, and at any adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
SECTION 1.07 Business at Annual Meeting. At an annual meeting of shareholders,
only such business shall be conducted as shall have been brought before the
meeting by or at the direction of the Board of Directors or by any shareholder
of the corporation.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01 Number and Qualifications. The business of the corporation shall be
managed by its Board of Directors. The number of directors constituting the
entire Board of Directors shall be not less than seven nor more than fifteen, as
shall be fixed from time to time by vote of a majority of the entire Board of
Directors. Each director shall be at least 21 years of age. Directors need not
be shareholders. No Officer-Director who shall have attained age 65, or earlier
relinquishes his responsibilities and title, shall be eligible to serve as a
director.
SECTION 2.02 Election. At each annual meeting of shareholders, directors shall
be elected by a plurality of the votes to hold office until the next annual
meeting. Subject to the provisions of the statute, of the Certificate of
Incorporation and of the By-Laws, each director shall hold office until the
expiration of the term for which elected, and until his successor has been
elected and qualified.
SECTION 2.03 Nomination and Notification of Nomination. Subject to the rights of
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board of Directors or to any committee appointed by
the Board of Directors or by any shareholder entitled to vote in the election of
directors generally.
SECTION 2.04 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such places and times as may be fixed from time to time
by resolution of the Board and a regular meeting for the purpose of organization
and transaction of other business shall be held each year after the adjournment
of the annual meeting of shareholders.
2
<PAGE>
SECTION 2.05 Special Meetings. The Chairman of the Board, the Chief Executive
Officer, the President or any Vice Chairman may, and at the request of three
directors shall, call a special meeting of the Board of Directors, two days'
notice of which shall be given in person or by mail, electronic mail, telephone
or via facsimile transmission. Notice of a special meeting need not be given to
any director who submits a signed waiver of notice whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him.
SECTION 2.06 Place of Meeting. The directors may hold their meetings, have one
or more offices, and keep the books of the corporation (except as may be
provided by law) at any place, either within or without the State of New York,
as they may from time to time determine.
SECTION 2.07 Quorum and Vote. At all meetings of the Board of Directors the
presence of one-third of the entire Board, but not less than two directors,
shall constitute a quorum for the transaction of business. Any one or more
members of the Board of Directors or of any committee thereof may participate in
a meeting of the Board of Directors or a committee thereof by means of a
conference telephone, video conference or similar communications equipment which
allows all persons participating in the meeting to hear each other at the same
time. Participation by such means shall constitute presence in person at such a
meeting. The vote of a majority of the directors present at the time of the
vote, if a quorum is present at such time, shall be the act of the Board of
Directors, except as may be otherwise provided by statute or the By-Laws.
SECTION 2.08 Vacancies. Newly created directorships resulting from increase in
the number of directors and vacancies in the Board of Directors, whether caused
by resignation, death, removal or otherwise, may be filled by vote of a majority
of the directors then in office, although less than a quorum exists.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
SECTION 3.01 Designation and Authority. The Board of Directors, by resolution
adopted by a majority of the entire Board, may designate from among its members
an Executive Committee and other committees, each consisting of three or more
directors, except for the Transaction Authorization Committee which shall
consist of at least two directors. Each such committee, to the extent provided
in the resolution or the By-Laws, shall have all the authority of the Board,
except that no such committee shall have authority as to:
(i) the submission to shareholders of any action as to which shareholders'
authorization is required by law.
3
<PAGE>
(ii) the filling of vacancies in the Board of Directors or any committee.
(iii) the fixing of compensation of directors for serving on the Board or
on any committee.
(iv) the amendment or appeal of the By-Laws, or the adoption of new
By-Laws.
(v) the amendment or repeal of any resolution of the Board which by its
terms shall not be so amendable or repealable.
The Board may designate one or more directors as alternate members of any such
committee, who may replace any absent member or members at any meeting of such
committee. Each such committee shall serve at the pleasure of the Board of
Directors.
SECTION 3.02 Procedure. Except as may be otherwise provided by statute, by the
By-Laws or by resolution of the Board of Directors, each committee may make
rules for the call and conduct of its meetings. Each committee shall keep a
record of its acts and proceedings and shall report the same from time to time
to the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 4.01 Titles and General. The Board of Directors shall elect from among
their number a Chairman of the Board and a Chief Executive Officer, and may also
elect a President, one or more Vice Chairmen, one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Directors, one or
more Vice Presidents, a Secretary, a Controller, a Treasurer, a General Counsel,
a General Auditor, and a General Credit Auditor, who need not be directors. The
officers of the corporation may also include such other officers or assistant
officers as shall from time to time be elected or appointed by the Board. The
Chairman of the Board or the Chief Executive Officer or, in their absence, the
President or any Vice Chairman, may from time to time appoint assistant
officers. All officers elected or appointed by the Board of Directors shall hold
their respective offices during the pleasure of the Board of Directors, and all
assistant officers shall hold office at the pleasure of the Board or the
Chairman of the Board or the Chief Executive Officer or, in their absence, the
President or any Vice Chairman. The Board of Directors may require any and all
officers and employees to give security for the faithful performance of their
duties.
SECTION 4.02 Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the shareholders and of the Board of Directors. Subject to the
Board of Directors, he shall exercise all the powers and perform all the duties
usual to such office and shall have such other powers as may be prescribed by
the Board of Directors or the Executive Committee or vested in him by the
By-Laws.
4
<PAGE>
SECTION 4.03 Chief Executive Officer. The Board of Directors shall designate the
Chief Executive Officer of the corporation, which person may also hold the
additional title of Chairman of the Board, or President Subject to the Board of
Directors, he shall exercise all the powers and perform all the duties usual to
such office and shall have such other powers as may be prescribed by the Board
of Directors or the Executive Committee or vested in him by the By-Laws.
SECTION 4.04 Chairman of the Board, President, Vice Chairmen, Executive Vice
Presidents, Senior Vice Presidents, Directors and Vice Presidents. The Chairman
of the Board or, in his absence or incapacity the President or, in his absence
or incapacity, the Vice Chairmen, the Executive Vice Presidents, or in their
absence, the Senior Vice Presidents, in the order established by the Board of
Directors shall, in the absence or incapacity of the Chief Executive Officer
perform the duties of the Chief Executive Officer. The President, the Vice
Chairmen, the Executive Vice Presidents, the Senior Vice Presidents, the
Directors, and the Vice Presidents shall also perform such other duties and have
such other powers as may be prescribed or assigned to them, respectively, from
time to time by the Board of Directors, the Executive Committee, the Chief
Executive Officer, or the By-Laws.
SECTION 4.05 Controller. The Controller shall perform all the duties customary
to that office and except as may be otherwise provided by the Board of Directors
shall have the general supervision of the books of account of the corporation
and shall also perform such other duties and have such powers as may be
prescribed or assigned to him from time to time by the Board of Directors, the
Executive Committee, the Chief Executive Officer, or the By-Laws.
SECTION 4.06 Secretary. The Secretary shall keep the minutes of the meetings of
the Board of Directors and of the shareholders and shall have the custody of the
seal of the corporation. He shall perform all other duties usual to that office,
and shall also perform such other duties and have such powers as may be
prescribed or assigned to him from time to time by the Board of Directors, the
Executive Committee, the Chairman of the Board, the Chief Executive Officer, or
the By-Laws.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 5.01 The corporation shall, to the fullest extent permitted by Section
721 of the New York Business Corporation Law, indemnify any person who is or was
made, or threatened to be made, a party to an action or proceeding, whether
civil or criminal, whether involving any actual or alleged breach of duty,
neglect or error, any accountability, or any actual or alleged misstatement,
misleading statement or other act or omission and whether brought or threatened
in any court or administrative or legislative body or agency, including an
action by or in the right of the corporation to procure a judgment in its favor
and an action by or in the right of any other corporation of any type or kind,
domestic or
5
<PAGE>
foreign, or any partnership, joint venture, trust, employee benefit plan or
other enterprise, which any director or officer of the corporation is serving or
served in any capacity at the request of the corporation by reason of the fact
that he, his testator or intestate, is or was a director or officer of the
corporation, or is serving or served such other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, amounts paid in settlement, and costs, charges and
expenses, including attorneys' fees, or any appeal therein; provided, however,
that no indemnification shall be provided to any such person if a judgment or
other final adjudication adverse to the director or officer establishes that (i)
his acts were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 5.02 The corporation may indemnify any other person to whom the
corporation is permitted to provide indemnification or the advancement of
expenses by applicable law, whether pursuant to rights granted pursuant to, or
provided by, the New York Business Corporation Law or other rights created by
(i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an
agreement providing for such indemnification, it being expressly intended that
these By-Laws authorize the creation of other rights in any such manner.
SECTION 5.03 The corporation shall, from time to time, reimburse or advance to
any person referred to in Section 5.01 the funds necessary for payment of
expenses, including attorneys' fees, incurred in connection with any action or
proceeding referred to in Section 5.01, upon receipt of a written undertaking by
or on behalf of such person to repay such amount(s) if a judgment or other final
adjudication adverse to the director or officer establishes that (i) his acts
were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 5.04 Any director or officer of the corporation serving (i) another
corporation, of which a majority of the shares entitled to vote in the election
of its directors is held by the corporation, or (ii) any employee benefit plan
of the corporation or any corporation referred to in clause (i), in any capacity
shall be deemed to be doing so at the request of the corporation. In all other
cases, the provisions of this Article V will apply (i) only if the person
serving another corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise so served at the specific request of the
corporation, evidenced by a written communication signed by the Chairman of the
Board, the Chief Executive Officer, the President or any Vice Chairman, and (ii)
only if and to the extent that, after making such efforts as the Chairman of the
Board, the Chief Executive Officer, or the President shall deem adequate in the
circumstances, such person shall be unable to obtain indemnification from such
other enterprise or its insurer.
SECTION 5.05 Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article V may
elect to have the right to indemnification (or advancement of expenses)
interpreted on the basis of the
6
<PAGE>
applicable law in effect at the time of the occurrence of the event or events
giving rise to the action or proceeding, to the extent permitted by law, or on
the basis of the applicable law in effect at the time indemnification is sought.
SECTION 5.06 The right to be indemnified or to the reimbursement or advancement
of expenses pursuant to this Article V (i) is a contract right pursuant to which
the person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the corporation and the director or
officer, (ii) is intended to be retroactive and shall be available with respect
to events occurring prior to the adoption hereof, and (iii) shall continue to
exist after the rescission or restrictive modification hereof with respect to
events occurring prior thereto.
SECTION 5.07 If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the corporation
within thirty days after a written claim has been received by the corporation,
the claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled also to be paid the expenses of prosecuting such
claim. Neither the failure of the corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the claimant is proper in the
circumstances, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel, or its shareholders) that the
claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses, shall be a defense to the action or create a
presumption that the claimant is not so entitled.
SECTION 5.08 A person who has been successful, on the merits or otherwise, in
the defense of a civil or criminal action or proceeding of the character
described in Section 5.01 shall be entitled to indemnification only as provided
in Sections 5.01 and 5.03, notwithstanding any provision of the New York
Business Corporation Law to the contrary.
ARTICLE VI
SEAL
SECTION 6.01 Corporate Seal. The corporate seal shall contain the name of the
corporation and the year and state of its incorporation. The seal may be altered
from time to time at the discretion of the Board of Directors.
7
<PAGE>
ARTICLE VII
SHARE CERTIFICATES
SECTION 7.01 Form. The certificates for shares of the corporation shall be in
such form as shall be approved by the Board of Directors and shall be signed by
the Chairman of the Board, the Chief Executive Officer, the President or any
Vice Chairman and the Secretary or an Assistant Secretary, and shall be sealed
with the seal of the corporation or a facsimile thereof. The signatures of the
officers upon the certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
corporation itself or its employees.
ARTICLE VIII
CHECKS
SECTION 8.01 Signatures. All checks, drafts and other orders for the payment of
money shall be signed by such officer or officers or agent or agents as the
Board of Directors may designate from time to time.
ARTICLE IX
AMENDMENT
SECTION 9.01 Amendment of By-Laws. The By-Laws may be amended, repealed or added
to by vote of the holders of the shares at the time entitled to vote in the
election of any directors. The Board of Directors may also amend, repeal or add
to the By-Laws, but any By-Laws adopted by the Board of Directors may be amended
or repealed by the shareholders entitled to vote thereon as provided herein. If
any By-Law regulating an impending election of directors is adopted, amended or
repealed by the Board, there shall be set forth in the notice of the next
meeting of shareholders for the election of directors the By-Laws so adopted,
amended or repealed, together with concise statement of the changes made.
ARTICLE X
SECTION 10.01 Construction. The masculine gender, when appearing in these
By-Laws, shall be deemed to include the feminine gender.
8
<PAGE>
I, Sonja K. Olsen, [Assistant] Secretary of Bankers Trust Corporation, New York,
New York, hereby certify that the foregoing is a complete, true and correct copy
of the By-Laws of Bankers Trust Corporation, and that the same are in full force
and effect at this date.
/s/ Sonja K. Olsen
[Assistant] Secretary
Dated: May 8, 2000
EXHIBIT 12(a)
BANKERS TRUST CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
(dollars in millions)
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
------------------------------------------------------------------
1995 1996 1997 1998 1999 2000
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
1. Income (loss) before
income taxes $ 469 $1,131 $1,239 $ (77) $(1,415) $ 108
2. Add: Fixed charges
excluding
capitalized
interest
(Line 10) 5,138 5,483 5,959 6,954 3,654 709
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 28 30 (117) 15 75 18
----------------------------------------------------------------------------------
4. Earnings including
interest on deposits 5,579 6,584 7,315 6,862 2,164 799
5. Less: Interest on
deposits 1,360 1,355 2,076 2,195 1,424 284
----------------------------------------------------------------------------------
6. Earnings excluding
interest on deposits $4,219 $5,229 $5,239 $4,667 $ 740 $ 515
==================================================================================
Fixed Charges:
7. Interest Expense $5,105 $5,451 $5,926 $6,919 $ 3,612 $ 700
8. Estimated interest
component of net
rental expense 33 32 33 35 42 9
9. Amortization of debt
issuance expense -- -- -- -- -- --
----------------------------------------------------------------------------------
10. Total fixed charges
including interest on
deposits and excluding
capitalized interest 5,138 5,483 5,959 6,954 3,654 709
11. Add: Capitalized
interest -- -- -- -- -- --
----------------------------------------------------------------------------------
12. Total fixed charges 5,138 5,483 5,959 6,954 3,654 709
13. Less: Interest on
deposits
(Line 5) 1,360 1,355 2,076 2,195 1,424 284
----------------------------------------------------------------------------------
14. Fixed charges excluding
interest on deposits $3,778 $4,128 $3,883 $4,759 $ 2,230 $ 425
==================================================================================
Consolidated Ratios of Earnings
to Fixed Charges:
Including interest on
deposits
(Line 4/Line 12) 1.09 1.20 1.23 .99 N/A 1.13
==================================================================================
Excluding interest on
deposits
(Line 6/Line 14) 1.12 1.27 1.35 .98 N/A 1.21
==================================================================================
</TABLE>
For the years ended December 31, 1999 and 1998, earnings, as defined, did not
cover fixed charges, including and excluding interest on deposits by $1,490
million and $92 million, respectively, as a result of a net loss recorded during
the period.
N/A - Not Applicable.
EXHIBIT 12(b)
BANKERS TRUST CORPORATION AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(dollars in millions)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended
------------------------------------------------------------------ March 31,
1995 1996 1997 1998 1999 2000
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
1. Income (loss) before
income taxes $ 469 $1,131 $1,239 $(77) $(1,415) $ 108
2. Add: Fixed charges
excluding
capitalized
interest
(Line 13) 5,138 5,483 5,959 6,954 3,654 709
3. Less: Equity in undistri-
buted income of
unconsolidated
subsidiaries and
affiliates 28 30 (117) 15 75 18
----------------------------------------------------------------------------------
4. Earnings including
interest on deposits 5,579 6,584 7,315 6,862 2,164 799
5. Less: Interest on
deposits 1,360 1,355 2,076 2,195 1,424 284
----------------------------------------------------------------------------------
6. Earnings excluding
interest on deposits $4,219 $5,229 $5,239 $4,667 $ 740 $ 515
==================================================================================
Preferred Stock Dividend Requirements:
7. Preferred stock dividend
requirements $ 51 $ 51 $ 49 $ 32 $ 23 $ 5
8. Ratio of income (loss) from
continuing operations
before income taxes to
income (loss) from
continuing operations
after income taxes 151% 148% 143% 105% 88% 432%
----------------------------------------------------------------------------------
9. Preferred stock dividend
requirements on a pretax
basis $ 77 $ 75 $ 70 $ 34 $ 20 $ 22
==================================================================================
Fixed Charges:
10. Interest Expense $5,105 $5,451 $5,926 $6,919 $ 3,612 $ 700
11. Estimated interest
component of net
rental expense 33 32 33 35 42 9
12. Amortization of debt
issuance expense -- -- -- -- -- --
----------------------------------------------------------------------------------
13. Total fixed charges
including interest on
deposits and excluding
capitalized interest 5,138 5,483 5,959 6,954 3,654 709
14. Add: Capitalized
interest -- -- -- -- -- --
----------------------------------------------------------------------------------
15. Total fixed charges 5,138 5,483 5,959 6,954 3,654 709
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
----------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
16. Add: Preferred stock
dividend require-
ments - pretax
(Line 9) 77 75 70 34 20 22
----------------------------------------------------------------------------------
17. Total combined fixed
charges and preferred
stock dividend require-
ments on a pretax
basis 5,215 5,558 6,029 6,988 3,674 731
18. Less: Interest on
deposits
(Line 5) 1,360 1,355 2,076 2,195 1,424 284
----------------------------------------------------------------------------------
19. Combined fixed charges
and preferred stock
dividend requirements
on a pretax basis
excluding interest on
deposits $3,855 $4,203 $3,953 $4,793 $ 2,250 $ 447
==================================================================================
Consolidated Ratios of Earnings
to Combined Fixed Charges
and Preferred Stock
Dividend Requirements:
Including interest on
deposits
(Line 4/Line 17) 1.07 1.18 1.21 .98 N/A 1.09
==================================================================================
Excluding interest on
deposits
(Line 6/Line 19) 1.09 1.24 1.32 .97 N/A 1.15
==================================================================================
</TABLE>
For the years ended December 31, 1999 and 1998, earnings, as defined, did not
cover fixed charges, and preferred stock dividend requirements, including and
excluding interest on deposits, by $1,510 million and by $126 million,
respectively, as a result of a net loss recorded during the period.
N/A - Not Applicable.
EXHIBIT 99.1
BANKERS TRUST CORPORATION
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(IN MILLIONS)
The following Unaudited Pro Forma Condensed Statement of Income for the
three months ended March 31, 1999 gives effect to Bankers Trust Corporation's
("BT" or the "Corporation") sale of its wholly-owned subsidiary Bankers Trust
Australia Limited ("BTAL") to the Principal Financial Group for a price of
approximately $1.4 billion. In addition, the following Unaudited Pro Forma
Condensed Statement of Income for the three months ended March 31, 1999 gives
effect to the Corporation's transfer on June 5, 1999 of its wholly-owned
subsidiary BT Alex. Brown Incorporated ("BTAB") and substantially all of its
interest in Bankers Trust International PLC ("BTI") to Deutsche Bank Securities
Inc. and Deutsche Holdings (BTI) Ltd., respectively, which are wholly-owned
subsidiaries of Deutsche Bank AG.
The pro forma information is based on the historical consolidated financial
statements of BT after giving effect to the pro forma adjustments described in
the Notes to the Unaudited Pro Forma Condensed Financial Statements. The gain on
the sale of BTAL has not been considered in the unaudited pro forma condensed
income statement due to its nonrecurring nature. The pro forma financial data
are not necessarily indicative of the results that actually would have occurred
had the sale of BTAL and transfer of BTAB and BTI been consummated on the dates
indicated or that may be obtained in the future.
<PAGE>
BANKERS TRUST CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1999
---------------------------------------------------------------------
BT BTAB, BTI Pro Forma
Consolidated and BTAL Adjustments Pro Forma
------------ -------- ----------- ----------
(a) (b)
<S> <C> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $ 1,511 $ (737) $ 259 $ 1,033
Interest expense 1,250 (455) 68 863
- - --------------------------------------------------------------------------------------------------------------------
NET INTEREST REVENUE 261 (282) 191 170
Provision for credit losses-loans -- -- -- --
- - --------------------------------------------------------------------------------------------------------------------
NET INTEREST REVENUE AFTER
PROVISION FOR CREDIT LOSSES-LOANS 261 (282) 191 170
- - --------------------------------------------------------------------------------------------------------------------
NONINTEREST REVENUE
Trading 340 (120) (1) 219
Fiduciary and funds management 271 (69) -- 202
Corporate finance fees 197 (141) -- 56
Other fees and commissions 211 (119) -- 92
Net revenue from equity investments 99 -- -- 99
Securities available for sale gains
(losses) (4) (6) -- (10)
Insurance premiums 48 -- -- 48
Other 87 (15) 157 229
- - --------------------------------------------------------------------------------------------------------------------
Total noninterest revenue 1,249 (470) 156 935
- - --------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and commissions 373 (164) -- 209
Incentive compensation and employee
benefits 432 (223) -- 209
Agency and other professional
service fees 91 (23) 9 77
Communication and data services 66 (28) -- 38
Occupancy, net 58 (16) -- 42
Furniture and equipment 69 (16) -- 53
Travel and entertainment 30 (18) -- 12
Provision for policyholder benefits 63 -- -- 63
Other 119 (69) 121 171
- - --------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 1,301 (557) 130 874
- - --------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 209 (195) 217 231
Income taxes (benefit) 69 84
- - -------------------------------------------------------------- ----------
NET INCOME (LOSS) $ 140 $ 147
============================================================== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Financial Statements.
<PAGE>
BANKERS TRUST CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) Amounts represent the elimination of BTAB's, BTI's and BTAL's third-party
amounts from BT's historical consolidated financial statements
(b) Adjustments to record BTAB, BTI and BTAL intercompany amounts as
third-party revenue or expense, as applicable. Intercompany amounts were
eliminated in BT's historical consolidated financial statements.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BANKERS
TRUST CORPORATION AND SUBSIDIARIES CONSOLDIATED STATEMENT OF CONDITION AT MARCH
31, 2000 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,416
<INT-BEARING-DEPOSITS> 5,064
<FED-FUNDS-SOLD> 6,087
<TRADING-ASSETS> 21,629
<INVESTMENTS-HELD-FOR-SALE> 1,210
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 20,293
<ALLOWANCE> 422
<TOTAL-ASSETS> 65,828
<DEPOSITS> 21,251
<SHORT-TERM> 11,545<F1>
<LIABILITIES-OTHER> 6,677<F2>
<LONG-TERM> 16,872
0
365
<COMMON> 0
<OTHER-SE> 3,978
<TOTAL-LIABILITIES-AND-EQUITY> 65,828
<INTEREST-LOAN> 449
<INTEREST-INVEST> 35
<INTEREST-OTHER> 332
<INTEREST-TOTAL> 816
<INTEREST-DEPOSIT> 284
<INTEREST-EXPENSE> 700
<INTEREST-INCOME-NET> 116
<LOAN-LOSSES> (38)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 622
<INCOME-PRETAX> 108
<INCOME-PRE-EXTRAORDINARY> 108
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0.98
<LOANS-NON> 681
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 491
<CHARGE-OFFS> 40
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 422<F3>
<ALLOWANCE-DOMESTIC> 340<F3>
<ALLOWANCE-FOREIGN> 82<F3>
<ALLOWANCE-UNALLOCATED> 0<F3>
<FN>
<F1> Short-term borrowings include the following:
Securities loaned and securities sold under
Repurchase Agreements 67
Other Short-term borrowings 11,478
Total 11,545
<F2> Other liabilities include the following:
Accounts payable and accrued expenses 3,358
Other liabilities 3,319
Total 6,677
<F3> Amount pertains to the allowance related to loans
</FN>
</TABLE>
