-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LSgVjSZ79/6sinucrxdBqG3OQqXodzwjtjPllv9fx+YF/aZ9YTuNjPNbLLmPvJtj qFbNN6y0plKkQUWbzRNlhw== 0000009749-98-000105.txt : 19981026 0000009749-98-000105.hdr.sgml : 19981026 ACCESSION NUMBER: 0000009749-98-000105 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981022 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981023 SROS: AMEX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANKERS TRUST CORP CENTRAL INDEX KEY: 0000009749 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 136180473 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-05920 FILM NUMBER: 98729510 BUSINESS ADDRESS: STREET 1: 130 LIBERTY ST CITY: NEW YORK STATE: NY ZIP: 10006 BUSINESS PHONE: 2122502500 MAIL ADDRESS: STREET 1: 130 LIBERTY STREET CITY: NEW YORK STATE: NY ZIP: 10006 FORMER COMPANY: FORMER CONFORMED NAME: BANKERS TRUST NEW YORK CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BT NEW YORK CORP DATE OF NAME CHANGE: 19671107 8-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) October 22, 1998 BANKERS TRUST CORPORATION (Exact name of registrant as specified in its charter) NEW YORK (State or other jurisdiction of incorporation) 1-5920 13-6180473 (Commission file number) (IRS employer identification no.) 130 LIBERTY STREET, NEW YORK, NEW YORK 10006 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (212) 250-2500 Item 5. Other Events A) On October 22, 1998, Bankers Trust Corporation (the "Registrant") released financial information with respect to the quarter ended September 30, 1998. This Current Report on Form 8- K files the Press Release which contains certain financial information to be incorporated into currently effective registration statements filed by the Registrant with the Securities and Exchange Commission under the Securities Act of 1933, as amended. Such financial information contained in the Registrant's Press Release dated October 22, 1998, is described below and is incorporated herein by reference. 1. Review of certain financial information. 2. The unaudited consolidated financial position of Bankers Trust Corporation and its subsidiaries at September 30, 1998, June 30, 1998 and September 30, 1997, the audited consolidated financial position at December 31, 1997 and its unaudited condensed consolidated results of operations for each of the three-month and nine-month periods ended September 30, 1998, and September 30, 1997 and the three-month period ended June 30, 1998. In the opinion of the Registrant's management, all material adjustments necessary for a fair presentation of the Corporation's consolidated financial position at September 30, 1998, June 30, 1998, December 31, 1997 and September 30, 1997 and its condensed consolidated results of operations for the three- month and nine-month periods ended September 30, 1998 and September 30, 1997 and the three-month period ended June 30, 1998 have been made. All such adjustments were of a normal recurring nature. The results of operations for the three-month and nine- month periods ended September 30, 1998 and for the three-month period ended June 30, 1998 are not necessarily indicative of operations for the full year or any other interim period. B) In a meeting with investors and analysts on October 22, 1998, management noted that daily financial reports produced for management information purposes reflect that the Corporation has operated profitably thus far in October. Based on these reports management noted that Investment Banking, Trading & Sales, Global Institutional Services, Private Client Services, and Australia/New Zealand/International Funds Management have been operating profitably. The daily management reports which are the source of this management information are not audited, and the normal financial statement closing processes, accruals, and reconciliations have not been completed on these results. The Corporation does not intend to update this information or provide financial results on a monthly, or partial period basis in the future. In addition, the following schedules were distributed at the meeting: - Preliminary Emerging Markets Cross Border Exposures at September 30, 1998 is contained in Exhibit 99.2 - Adjusted ROCE by Organizational Unit is contained in Exhibit 99.2 C) 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. Item 7. Financial Statements and Exhibits (c) Exhibits (99.1) Earnings Press Release of the Registrant dated October 22, 1998. (99.2) Preliminary Emerging Markets Cross Border Exposures at September 30, 1998 (99.2) Adjusted ROCE by Organizational Unit (99.3) Certificate of Amendment of the Certificate of Incorporation of Bankers Trust Corporation SIGNATURES 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, hereunto duly authorized. BANKERS TRUST CORPORATION By /s/ DAVID C. FISHER DAVID C. FISHER Controller and Principal Accounting Officer October 23, 1998 BANKERS TRUST CORPORATION FORM 8-K DATED OCTOBER 22, 1998 EXHIBIT INDEX Exhibit Number Description of Exhibit (99.1) Earnings Press Release of the Registrant dated October 22, 1998. (99.2) Preliminary Emerging Markets Cross Border Exposures at September 30, 1998 (99.2) Adjusted ROCE by Organizational Unit (99.3) Certificate of Amendment of the Certificate of Incorporation of Bankers Trust Corporation EX-99.1 2 THURSDAY, OCTOBER 22, 1998 BANKERS TRUST REPORTS THIRD QUARTER RESULTS New York, October 22, 1998 -- Bankers Trust Corporation (BT) today reported a loss of $488 million, or $4.98 loss per share, in the third quarter of 1998. In the third quarter of 1997, the Corporation earned $246 million, or $2.19 net income per share. Frank Newman, chairman of the board and chief executive officer, said: "This quarter's disappointing net loss occurred during one of the most severe global market dislocations in the post-World War II period. Equity markets declined, risk premiums in debt markets widened, and investment banking activity slowed markedly. Bankers Trust sustained significant losses in emerging market debt, high-yield debt and in our equity holdings. These losses were only partially offset by positive results in our more stable businesses -- Australia/New Zealand/International Funds Management, Global Institutional Services, and the Private Client Services Group. "To succeed in this challenging environment, Bankers Trust has accelerated actions to reduce the Firm's risk profile and launched an aggressive cost-reduction program. In Emerging Markets, we have reduced cross-border exposures to approximately 4% of total assets from 8% at the beginning of the year. Our emerging market activities will be folded into our core businesses and will no longer operate as a separate business unit. "Our expense-reduction goal is to lower annual base operating costs by $300 million or 8% annually. This program will emphasize lowering costs in businesses where we foresee reduced capital flows and on generally improving the efficiency of the Firm. It will have only a minimal impact on our more stable businesses, where we see continued opportunity for growth. "Despite this quarter's loss, Bankers Trust remains well capitalized, with a strong balance sheet. I am confident that we have the necessary resources and have taken the right action to weather current market conditions. We will continue to ensure that we are strongly positioned to provide our clients with the highest quality service across the full range of our capabilities. Trading and securities losses for the quarter, including trading- related net interest income and losses on securities available for sale, were $409 million. These losses are primarily attributable to charges to reduce Bankers Trust's exposure to Russian Federation securities to 10% of face value, mark-to- market losses on high-yield securities reflecting widening credit spreads, and losses in global equity activities caused by increased market volatility. In addition, due to uncertainties in Emerging Markets, primarily Asia, the Corporation recorded a $110 million provision for credit losses. Finally, the third quarter results were reduced by mark-to-market losses on investments in the Firm's private equity portfolio. At September 30, 1998, total cash basis loans were $257 million, unchanged from June 30, 1998 and down from $298 million at September 30, 1997. Other nonperforming assets (primarily trading) at September 30, 1998 were $375 million, down from $447 million at June 30, 1998 and up from $5 million at September 30, 1997. The decrease in the current quarter was primarily due to charge-offs. At September 30, 1998, the Corporation's Emerging Markets cross- border exposures to Asia, Latin America and Russia were $6.6 billion, down 44% from $11.8 billion at December 31, 1997. In light of recent public attention surrounding hedge funds, the Corporation is providing the following information about its hedge fund activities. The amount owed to the Firm by hedge funds under foreign exchange and derivative contracts was $834 million at September 30, 1998. This entire amount is under daily mark-to-market agreements that require cash or U.S. Treasury securities as collateral. All collateral calls under these agreements have been met. In addition, outstanding loans and commitments to hedge funds not covered by 2 collateral agreements were approximately $40 million. The Corporation made a $300 million equity investment in Long-Term Capital Management, L.P. in connection with the recent recapitalization of that entity. In addition, the Corporation has approximately $225 million of proprietary equity investments in approximately 50 other hedge funds with no single investment larger than $20 million. The Corporation also finances trading positions for hedge funds through reverse repurchase agreements, all of which are fully collateralized. Also the Corporation structures for other clients, principally large pension funds, certain transactions that facilitate their investments in hedge funds. The Corporation's credit risk in these structures lies with the client investor and not with the hedge fund. Management is implementing a cost-reduction program across the Firm, with the goal of achieving a $300 million reduction in annual base operating expenses. Base operating expenses exclude performance-based incentives and provisions for policyholder benefits. The program will target all costs, but will focus primarily on personnel and agency and professional service costs. The program should be fully phased in within 12 months with most actions taken by the 1999 first quarter. In order to accomplish these expense reductions, it is expected that a restructuring charge will be incurred in the 1998 fourth quarter. As of September 30, 1998, the Corporation estimates that its ratios of Tier 1 Capital and Total Capital to risk-weighted assets were 7.06% and 13.28%, respectively. These ratios continue to exceed the regulatory standard for well-capitalized banking organizations of 6% and 10%, respectively. The Tier 1 Capital ratio declined 108 basis points and the Total Capital ratio declined 95 basis points from June 30, 1998. The primary cause for these declines was the impact on Tier 1 Capital and on Total Capital of the net loss for the third quarter. This impact was partially offset by a significant reduction in risk-weighted assets. 3 The Corporation's third quarter 1998 Leverage ratio is estimated to be 2.94%, a decrease of 73 basis points from the 1998 second quarter. This decrease was caused by the aforementioned decline in Tier 1 Capital combined with a quarterly average assets figure that includes higher balances in place early in the third quarter. The Leverage ratio calculated using period-end assets was 3.30%. Separately, the Corporation's primary banking subsidiary, Bankers Trust Company, estimates that its ratios for Tier 1 Capital and Total Capital to risk-weighted assets were 10.53% and 14.68%, respectively, at September 30, 1998. These ratios are well above the regulatory standards for well-capitalized depository institutions of 6% and 10%, respectively. Additionally, Bankers Trust Company estimates that its Leverage ratio for the 1998 third quarter is 5.32%. 4 ORGANIZATIONAL HIGHLIGHTS* Total Non- Pretax Net Third Quarter 1998 Total Interest Income/ Income/ (in millions) Revenue Expenses (Loss) (Loss) Investment Banking $ 153 $ 358 $(205) $(142) Trading & Sales 7 147 (140) (97) Global Institutional Services 256 216 40 28 Private Client Services Group 165 136 29 20 Australia/New Zealand/Int'l Funds Mgmt 163 108 55 38 Emerging Markets Group: Latin America 49 131 (82) (56) Emerging Europe, Mid East & Africa (198) 16 (214) (148) Asia (122) 30 (152) (105) Corporate/Other (2) 36 (38) (26) Total $ 471 $1,178 $(707) $(488) Total Non- Pretax Net Second Quarter 1998 Total Interest Income/ Income/ (in millions) Revenue Expenses (Loss) (Loss) Investment Banking $ 560 $ 433 $ 127 $ 91 Trading & Sales 244 144 100 72 Global Institutional Services 262 233 29 21 Private Client Services Group 193 157 36 26 Australia/New Zealand/Int'l Funds Mgmt 162 115 47 34 Emerging Markets Group: Latin America 84 127 (43) (30) Emerging Europe, Mid East & Africa 29 26 3 2 Asia 8 42 (34) (25) Corporate/Other 6 43 (37) (27) Total $1,548 $1,320 $ 228 $164 Total Non- Pretax Net Third Quarter 1997 Total Interest Income/ Income/ (in millions) Revenue Expenses (Loss) (Loss) Investment Banking $ 650 $ 428 $ 222 $157 Trading & Sales 132 119 13 9 Global Institutional Services 243 229 14 10 Private Client Services Group 177 158 19 13 Australia/New Zealand/Int'l Funds Mgmt 140 116 24 17 Emerging Markets Group: Latin America 204 141 63 44 Emerging Europe, Mid East & Africa 42 32 10 7 Asia 39 50 (11) (8) Corporate/Other 143 146 (3) (3) Total $1,770 $1,419 $351 $246 * Organizational Unit business results are determined based on the Corporation's internal management accounting process, which allocates revenue and expenses among the organizational units. Because the Corporation's business is diverse in nature and its operations are integrated, it is impractical to segregate respective contributions of the organizational units with precision. As a result, estimates and judgments have been made to apportion revenue and expense items. In addition, certain revenue and expenses have been segregated and reported in Corporate/Other because, in the opinion of management, they could not be reasonably allocated or because their contributions to a particular organizational unit would be distortive. In order to provide comparability from one period to the next, the Corporation will generally restate this analysis to conform with material changes in the allocation process and/or significant changes in organizational structure. 5 Organizational Unit Results The Investment Banking business recorded a net loss of $142 million in the third quarter of 1998 compared to net income of $157 million in the prior year quarter and net income of $91 million in the second quarter of 1998. The current quarter included losses related to widening credit spreads on high-yield debt securities and mark-to-market losses on investments in the unit's private equity portfolio. In addition, corporate finance activity declined from the previous quarters due to the poor market environment. The second quarter of 1998 included charges related to repositioning of European equity businesses, consisting of valuation adjustments to Bankers Trust's trading assets and integration costs associated with the acquisition of NatWest Markets' European equities business. Trading & Sales recorded a net loss of $97 million in the third quarter of 1998, compared to net income of $9 million in the 1997 third quarter and net income of $72 million in the previous quarter. Despite the difficult market environment, this unit produced positive revenue during the third quarter of 1998 primarily due to strong client-related activities. The current quarter also reflected losses attributable to widening credit spreads and increased market volatility in global equity markets during the quarter. Global Institutional Services contributed $28 million of net income in the third quarter of 1998, up $18 million from the 1997 third quarter and up $7 million from the previous quarter. As compared to the prior year period, the third quarter of 1998 included improved revenue from corporate trust and agency services and cash management services. The Corporation's Private Client Services Group business recorded net income of $20 million for the current quarter, up $7 million from the prior year period and down $6 million from the previous quarter. Lower U.S. private client commissions were a major contributor to the decline from the second quarter of 1998. Net income of the Australia/New Zealand/International Funds Management business was $38 million in the third quarter of 1998, up $21 million from the third quarter of 1997 and up $4 million from the previous quarter despite a decline in Australian dollar/US dollar exchange rates. If the effects of Australian dollar depreciation are excluded, performance would be better by an additional $3 million when compared to the third quarter of 1997 and $2 million when compared to the previous quarter. The current quarter's improvement was largely due to a strong performance by the Australian and New Zealand Sales and Trading group. As compared to the previous quarter, trading results were offset in part by lower corporate finance fees. Emerging Markets Group net loss was $309 million in the current quarter, compared to net income of $43 million in the prior year period and a net loss of $53 million in the second quarter of 1998. The net loss was primarily attributable to Russia and deteriorating credit conditions in Asia. Latin America - Trading losses and losses on securities available for sale negatively impacted the current quarter and the second quarter of 1998. The prior year's quarter included an after-tax gain of $20 million resulting from the completion of the final stage on the sale of 50% of the Corporation's stake in Consorcio, a Chilean insurance company. 6 Emerging Europe, Middle East & Africa - The current quarter included charges to reduce the carrying amount of exposure to Russian Federation securities to 10% of face value. This unit also recorded a $20 million provision for credit losses in the third quarter of 1998. Asia - The current quarter included a $90 million provision for credit losses, losses on securities available for sale and lower trading revenue. The second quarter of 1998 reflected both the impact of a $60 million provision for trading-related credit losses as well as valuation adjustments to trading assets. Corporate/Other includes the income and expenses of smaller businesses that are not included in the main organizational units as well as some activities not associated with specific business lines. It also includes the funding benefit attributed to the Corporation's capital related to these areas. Corporate/Other net loss was $26 million in the third quarter of 1998, compared with a net loss of $3 million in the third quarter of 1997 and a net loss of $27 million in the second quarter of 1998. QUARTERLY FINANCIAL COMPARISONS Third Quarter 1998 Versus Third Quarter 1997 Net loss for the third quarter of 1998 was $488 million as compared to $246 million of net income earned in the third quarter of 1997. The results for the third quarter of 1998, which were significantly affected by turmoil in global and equity markets, include trading losses, losses on securities available for sale, and a $110 million provision for credit losses. Third quarter 1998 combined trading revenue and trading-related net interest revenue before the provision for trading-related credit losses was a loss of $284 million, a decrease of $776 million from the third quarter of 1997. The decline is primarily attributable to mark-to-market losses on high-yield securities, losses in global proprietary equity portfolios and Russian related trading losses. Page 12 shows combined trading results by organizational unit. Fiduciary and funds management revenue was $273 million in the third quarter of 1998, down $4 million from the prior year period. The current quarter reflected lower client processing fees and lower performance-based fees offset partly by higher global private banking commissions. At September 30, 1998, assets under management were $357 billion compared to $302 billion at September 30, 1997. Difficult market conditions affected corporate finance fees, which were down 21% from the third quarter of 1997. Lower underwriting and loan syndication fees were offset partly by higher merger and acquisition fees. Other fees and commissions of $218 million increased $60 million from the prior year quarter. Increased customer trading activity primarily due to the acquisition of NatWest Markets' European equities business resulted in higher fees for brokerage services. Net revenue from equity investments decreased $74 million from the prior year period resulting from the poor market environment. 7 Securities available for sale losses totaled $125 million compared to securities available for sale gains of $18 million in the prior year period. The current quarter included other-than- temporary impairment writedowns on Russian, Asian and Latin American debt securities. Other noninterest revenue was a negative $35 million compared to $171 million in the prior year period. The current quarter included losses from mark-to-market adjustments on venture capital equity securities. Included in the results of the third quarter of 1997 was a pre-tax gain of $76 million on the sale of 280 Park Avenue, a midtown Manhattan office building, as well as the remaining gain resulting from the completion of the final stage in the sale of 50% of the Corporation's stake in Consorcio. As compared to the third quarter of 1997, salaries and commissions expense increased $33 million, or 10%, primarily due to an increase in the average number of employees. Incentive compensation and employee benefits decreased $257 million, or 47%, from the prior year quarter due to the decline in financial performance. During the third quarter of 1997, the Corporation recognized $57 million in pre-tax restructuring charges associated with the merger with Alex. Brown, such as severance, lease terminations and direct costs of completing the merger. Third Quarter 1998 versus Second Quarter 1998 Net loss for the third quarter of 1998 was $488 million as compared to $164 million of net income earned in the second quarter of 1998. The results for the third quarter of 1998, which were significantly affected by turmoil in global and equity markets, include trading losses, losses on securities available for sale and a $110 million provision for credit losses. Third quarter 1998 combined trading revenue and trading-related net interest revenue before the provision for trading-related credit losses was a loss of $284 million. This was a decrease of $526 million from the second quarter of 1998. The decline is primarily attributable to mark-to-market losses on high-yield securities, losses in global proprietary equity portfolios and Russian related trading losses. Page 12 shows combined trading results by organizational unit. Fiduciary and funds management revenue was $273 million in the third quarter of 1998, down $12 million from the second quarter of 1998. The decrease was primarily due to lower global private banking commissions and lower performance-based fees. At September 30, 1998, assets under management were approximately $357 billion compared to $365 billion at June 30, 1998. Difficult market conditions affected corporate finance fees, which were down $150 million from the second quarter of 1998. Underwriting fees and loan syndication fees declined from the previous quarter. Other fees and commissions of $218 million increased $12 million from the second quarter of 1998. Increased customer trading activity primarily due to the acquisition of NatWest Markets' European equities business resulted in higher fees for brokerage services. 8 Net revenue from equity investments decreased $74 million from the previous quarter. The poor market environment affected the current quarter. Securities available for sale losses totaled $125 million as compared to securities available for sale gains of $50 million in the previous quarter. The current quarter reflected other-than- temporary impairment writedowns on Russian, Asian and Latin American debt securities. Insurance premiums revenue increased $15 million, or 25%, mainly due to higher revenue from new annuity sales. Other noninterest revenue was a negative $35 million in the current quarter, compared to $80 million in the prior quarter. The current quarter included losses from mark-to-market adjustments on venture capital equity securities. Incentive compensation and employee benefits decreased $131 million due to the decline in financial performance. Agency and other professional service fees decreased $25 million, or 17%, from the previous quarter. The second quarter of 1998 included integration costs associated with the acquisition of NatWest Markets' European equities business. The remainder of this release contains the following tables: Page 1. BTC Condensed Consolidated Quarterly Statement of Income 10 2. BTC Condensed Consolidated Year-To-Date Statement of Income 11 3. Combined Trading Revenue and Trading-Related Net Interest Revenue 12 4. Net Interest Revenue 12 5. BTC Consolidated Balance Sheet 13 6. Stock and Capital Data 14 7. Nonperforming Assets and Allowance for Credit Losses 15 8. Emerging Markets Cross-Border Exposures 16 For additional information, contact William McBride, 212-250-7961. Bankers Trust news releases, including quarterly results, are available on the Internet (http://www.bankerstrust.com/earnings). 9 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED QUARTERLY STATEMENT OF INCOME (in millions, except per share data) (unaudited) Third Second Third Quarter Quarter Quarter 1997 1998 1998 REVENUE Net interest revenue $ 315 $ 366 $ 336 Trading revenue* 387 97 (401) Credit loss provision-loans - - (20) Credit loss provision-trading (10) (60) (90) Fiduciary & funds management 277 285 273 Corporate finance fees 305 392 242 Other fees & commissions 158 206 218 Net revenue from equity investments 73 73 (1) Securities available for sale gains (losses) 18 50 (125) Insurance premiums 76 59 74 Other 171 80 (35) Total revenue 1,770 1,548 471 EXPENSES Salaries and commissions 333 361 366 Incentive compensation & employee benefits 543 417 286 Agency & other professional service fees 105 147 122 Communication & data services 58 61 65 Occupancy, net 45 54 56 Furniture & equipment 55 56 65 Travel & entertainment 36 42 44 Provision for policyholder benefits 90 74 92 Other 97 108 82 Restructuring charges 57 - - Total expenses 1,419 1,320 1,178 Income (loss) before income taxes 351 228 (707) Income taxes (benefit) 105 64 (219) NET INCOME (LOSS) $ 246 $ 164 $ (488) NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 235 $ 155 $ (494) Cash dividends declared per common share $1.00 $1.00 $1.00 EARNINGS (LOSS) PER COMMON SHARE: BASIC $2.33 $1.54 $(4.98) DILUTED $2.19 $1.46 $(4.98) * The Corporation accounts for revenue from a wide range of business activities as "trading". See table on page 12. Certain prior period amounts have been reclassified to conform to the current presentation. 10 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED YEAR-TO-DATE STATEMENT OF INCOME (in millions, except per share data) (unaudited) NINE MONTHS ENDED SEPTEMBER 30, 1997 1998 REVENUE Net interest revenue $ 986 $1,104 Trading revenue* 1,013 (53) Credit loss provision-loans - (20) Credit loss provision-trading (10) (210) Fiduciary & funds management 775 819 Corporate finance fees 789 965 Other fees & commissions 439 584 Net revenue from equity investments 129 203 Securities available for sale gains (losses) 100 (81) Insurance premiums 203 202 Other 277 139 Total revenue 4,701 3,652 EXPENSES Salaries and commissions 941 1,063 Incentive compensation & employee benefits 1,362 1,200 Agency & other professional service fees 296 374 Communication & data services 173 180 Occupancy, net 132 156 Furniture & equipment 163 175 Travel & entertainment 101 123 Provision for policyholder benefits 231 251 Other 292 301 Restructuring charges 57 - Total expenses 3,748 3,823 Income (loss) before income taxes 953 (171) Income taxes (benefit) 294 (69) NET INCOME (LOSS) $ 659 $ (102) NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 622 $ (128) Cash dividends declared per common share $3.00 $3.00 EARNINGS (LOSS) PER COMMON SHARE: BASIC $6.20 $(1.28) DILUTED $5.85 $(1.28) * The Corporation accounts for revenue from a wide range of business activities as "trading". See table on page 12. Certain prior period amounts have been reclassified to conform to the current presentation. 11 COMBINED TRADING REVENUE AND TRADING-RELATED NET INTEREST REVENUE The Corporation views trading revenue and trading-related net interest revenue (NIR) together, as presented in the table below. Third Second Third Quarter Quarter Quarter (in millions) 1997 1998 1998 Trading Revenue* $387 $97 $(401) Trading-Related Net Interest Revenue (Estimate) 105 145 117 Total Trading Revenue & Trading-Related NIR $492 $242 $(284) By Organizational Unit (in millions) Investment Banking $161 $(84) $(192) Trading & Sales 106 206 (46) Global Institutional Services 2 2 1 Private Client Services Group 4 4 15 Australia/New Zealand/Int'l Funds Mgmt 31 41 63 Emerging Markets Group: Latin America 24 (17) (45) Emerging Europe, Middle East & Africa 44 36 (73) Asia 95 52 (9) Corporate/Other 25 2 2 Total Trading Revenue & Trading-Related NIR $492 $242 $(284) * Before provision for trading-related credit losses. Note: The Corporation accounts for revenue from a wide range of business activities as "trading". Investment Banking produces trading revenue in secondary market activities with clients, primarily in sectors where the Firm also serves as underwriter. A small portion of trading revenue arises from private equity investments that are accounted for on a mark-to-market basis. Trading & Sales produces trading revenue through proprietary position-taking, including arbitrage, new derivative transactions with clients, as well as market making and other client activities. Australia/New Zealand/Int'l Funds Mgmt and Emerging Markets Group produce trading revenue from all the above business activities. Corporate/Other includes various transactions which, for management accounting purposes, are not recorded in Organizational Units. NET INTEREST REVENUE Third Second Third Quarter Quarter Quarter ($ in millions) 1997 1998 1998 Nontrading-related net interest revenue(Estimate) $210 $221 $219 Trading-related net interest revenue (Estimate) 105 145 117 Net interest revenue $315 $366 $336 Average rates (fully taxable basis) Yield on interest-earning assets 6.74% 6.95% 6.91% Cost of interest-bearing liabilities 5.72% 5.99% 5.99% Interest rate spread 1.02% .96% .92% Net interest margin 1.21% 1.12% 1.04% Average balances ($ in billions) Loans $19.0 $22.5 $23.2 Total interest-earning assets $105.7 $133.4 $131.3 Total assets $139.8 $173.9 $175.6 Total interest-bearing liabilities $102.2 $129.9 $128.9 12 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in millions) September 30 December 31 June 30 September 30 1997* 1997 1998* 1998* ASSETS Cash and due from banks $ 1,625 $ 2,188 $ 2,221 $ 2,405 Interest-bearing deposits in banks 2,522 4,272 1,645 2,208 Federal funds sold 2,241 1,382 3,445 4,662 Sec. purch. under resale agreements 24,902 19,163 27,327 21,752 Securities borrowed 16,138 16,751 25,634 19,692 Trading assets: Government securities 11,650 11,397 11,342 9,398 Corporate debt securities 9,362 8,128 10,375 7,626 Equity securities 8,010 7,914 11,190 7,408 Swaps, options & other derivatives*** 13,520 17,673 16,167 19,083 Other trading assets 9,833 11,460 14,375 14,867 Total trading assets 52,375 56,572 63,449 58,382 Securities available for sale 7,577 8,081 12,105 11,421 Loans*** 20,544 19,106 22,233 21,723 Customer receivables 1,711 1,547 1,701 1,709 Accounts receivable & accrued interest 3,977 4,785 6,351 5,542 Other assets 6,275 6,255 6,200 6,771 Total $139,887 $140,102 $172,311 $156,267 LIABILITIES Noninterest-bearing deposits Domestic offices $ 2,134 $ 2,776 $ 3,314 $ 2,885 Foreign offices 1,294 1,952 1,717 2,330 Interest-bearing deposits Domestic offices 20,490 22,353 24,180 20,022 Foreign offices 22,161 15,749 17,332 16,054 Total deposits 46,079 42,830 46,543 41,291 Trading liabilities: Securities sold, not yet purchased Government securities 6,724 4,389 10,265 8,640 Equity securities 5,445 5,273 8,650 8,814 Other trading liabilities 407 519 581 969 Swaps, options & other derivatives 13,517 17,065 15,271 16,731 Total trading liabilities 26,093 27,246 34,767 35,154 Securities loaned and securities sold under repurchase agreements 20,158 17,896 26,057 22,973 Other short-term borrowings 19,329 19,577 27,049 20,264 Accounts payable and accrued expenses 6,255 6,536 5,866 5,289 Other liabilities*** 3,798 4,250 6,250 6,011 Long-term debt not included in risk-based capital 7,655 11,275 15,091 15,631 Long-term debt included in risk-based capital 2,918 3,312 3,351 3,221 Trust preferred capital securities** 1,471 1,472 1,474 1,419 Total liabilities 133,756 134,394 166,448 151,253 PREFERRED STOCK OF SUBSIDIARY - - 304 304 STOCKHOLDERS' EQUITY Preferred stock 703 658 493 394 Common stock 105 105 105 105 Capital surplus 1,541 1,563 1,607 1,610 Retained earnings 4,176 4,202 4,240 3,614 Common stock in treasury, at cost (545) (889) (985) (1,118) Other stockholders' equity 422 463 545 573 Accumulated other comprehensive income: Net unrealized gains (losses) on securities available for sale, net of taxes 86 (32) (66) (87) Foreign currency translation, net of taxes (357) (362) (380) (381) Total stockholders' equity 6,131 5,708 5,559 4,710 Total $139,887 $140,102 $172,311 $156,267 * Unaudited ** Mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures included in risk-based capital *** See table on page 15 for allocation of the allowance for credit losses. Certain prior period amounts have been reclassified to conform to the current presentation. 13 STOCK AND CAPITAL DATA Third Second Third Quarter Quarter Quarter 1997 1998 1998 FOR THE QUARTER Return on Average Common Stockholders' Equity 17.4% 12.1% N/M Return on Average Total Assets .70% .38% N/M PER COMMON SHARE Earnings (Loss): Basic $2.33 $1.54 $(4.98) Diluted $2.19 $1.46 $(4.98) Cash Dividends Declared $1.00 $1.00 $1.00 Market Price, End of Period $122.38 $116.06 $59.00 Book Value, End of Period $51.65 $49.27 $43.51 COMMON SHARES (shares in thousands except par value) Common stock $1 par value: Authorized, at period end 300,000 300,000 300,000 Issued, at period end 105,362 105,380 105,380 Common stock in treasury, at period end 5,757 8,903 10,177 Average Common and Common Equivalent Shares Outstanding Basic 100,773 100,949 99,299 Diluted 107,449 106,645 99,299(2) CAPITAL RATIOS, END OF PERIOD Common Stockholders' Equity to Total Assets 3.9% 2.9% 2.8% Total Stockholders' Equity to Total Assets 4.4% 3.2% 3.0% Bankers Trust Corporation: Risk-Based Capital Ratios (1) Tier 1 Capital 8.44% 8.14% 7.06% Total Capital 13.55% 14.23% 13.28% Leverage Ratio (1) 4.90% 3.67% 2.94% Bankers Trust Company: Risk-Based Capital Ratios (1) Tier 1 Capital 8.71% 9.46% 10.53% Total Capital 12.15% 13.48% 14.68% Leverage Ratio (1) 5.32% 5.24% 5.32% N/M Not Meaningful. (1) Regulatory capital ratios at September 30, 1998 are preliminary. The risk-based capital ratios have been calculated under the new market risk amendment to the risk-based capital guidelines. (2) Due to a loss for the period, no incremental shares are included in the EPS calculation because the effect would be antidilutive. 14 NONPERFORMING ASSETS AND ALLOWANCE FOR CREDIT LOSSES (in millions) September 30 June 30 September 30 1997 1998 1998 Nonperforming assets Cash basis loans Secured by real estate $140 $104 $ 96 Real estate related 25 14 14 Highly leveraged 56 23 57 Other 77 116 90 Total cash basis loans $298 $257 $257 Renegotiated loans $37 $26 $26 Other real estate $190 $187 $122 Other nonperforming assets (primarily trading) $5 $447 $375 Total allowance for credit losses Balance, beginning of quarter $973 $1,006 $1,011 Net charge-offs Charge-offs Loans 17 23 37 Trading assets 13 38 115 Total charge-offs 30 61 152 Recoveries Loans 3 6 6 Trading assets 16 - - Total recoveries 19 6 6 Total net charge-offs 11 55 146 Credit loss provision-loans - - 20 Credit loss provision-trading 10 60 90 Total credit loss provision 10 60 110 Balance, end of quarter (a) $972 $1,011 $ 975 (a) Allocation of allowance for credit losses*: Loans $759 $ 678 $667 Trading assets 200 320 295 Other liabilities 13 13 13 Balance, end of quarter $972 $1,011 $975 * The Corporation believes that the total allowance for credit losses is available for credit losses in its entire portfolio, which is comprised of loans, credit-related commitments, derivatives and other financial instruments. Due to a multitude of complex and changing factors that are collectively weighed in determining the adequacy of the allowance for credit losses, management expects that the allocation of the total allowance for credit losses may be adjusted as risk factors change. 15 EMERGING MARKETS CROSS-BORDER EXPOSURES(1) ($ in billions) % Change from December 31, September 30, December 31, 1997 1998 1997 Korea, Republic of $1.6 $1.0 (38)% Indonesia 1.3 0.6 (54)% Hong Kong 1.0 0.3 (70)% Thailand 0.6 0.3 (50)% Malaysia 0.3 0.1 (67)% Other(2) 1.1 1.0 (9)% Total Emerging Asia $5.9 $3.3 (44)% Brazil $1.9 $0.9 (53)% Mexico 1.0 0.8 (20)% Argentina 0.8 0.6 (25)% Venezuela 0.3 0.1 (67)% Other(3) 0.8 0.6 (25)% Total Latin America $4.8 $3.0 (38)% Russian Federation $1.1 $0.3 (73)% Total $11.8 $6.6 (44)% As % of Total Assets 8.4% 4.2% (1) Based on FFIEC instructions. Shown by country of ultimate risk. Excludes local country claims on local residents. (2) Includes Peoples Republic of China, Republic of Taiwan, India, Philippines, Singapore and Sri Lanka. (3) Includes Chile, Colombia, Peru, Ecuador, Nicaragua, Panama and Uruguay. 16 BANKERS TRUST CORPORATION 130 LIBERTY STREET NEW YORK, NEW YORK 10006 David C. Fisher Controller and Principal Accounting Officer October 23, 1998 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Sirs: Accompanying this letter is Bankers Trust Corporation's Report on Form 8-K dated October 22, 1998 (the "Form 8-K"). The Form 8-K is being filed electronically through the EDGAR System. If there are any questions or comments in connection with the enclosed filing, please contact the undersigned at 212-250- 3681. Very truly yours, BANKERS TRUST CORPORATION By: DAVID C. FISHER DAVID C. FISHER Controller and Principal Accounting Officer EX-99.2 3 EXHIBIT 99.2 Emerging Markets Cross Border Exposures(1) September 30, 1998 ($ billions) PRELIMINARY
9/30/98 Total Deriva- Cross Trade Trading/ tives/ Commit- Border Finance Other(2) FX Loans ments Exposure Korea, Republic of $0.1 $0.3 $0.4 $0.1 $0.1 $1.0 Indonesia - 0.1 0.5 - - 0.6 Hong Kong - 0.1 0.2 0.1 - 0.3 Thailand - - 0.2 - - 0.3 Malaysia - - - - - 0.1 Other(3) 0.1 0.3 0.4 0.2 - 1.0 Total Emerging Asia $0.3 $0.8 $1.8 $0.4 $0.1 $3.3 Brazil $0.3 $0.4 $ - $0.1 $0.1 $0.9 Mexico 0.1 0.3 0.1 0.2 0.2 0.8 Argentina - 0.4 - 0.1 0.1 0.6 Venezuela - - - 0.1 - 0.1 Other(4) 0.2 0.2 - 0.2 - 0.6 Total Latin America $0.6 $1.4 $0.1 $0.6 $0.4 $3.0 Russian Federation $ - $ - $0.1 $0.2 $ - $0.3 Total $0.9 $2.2 $1.9 $1.2 $0.5 $6.6 (1) Based on FFIEC instructions, shown by country of ultimate risk. First five columns represent management's view of types of claims. Excludes local country claims on local residents. Numbers may not total due to rounding differences. (2) Includes securities, deposits and other exposures. (3) Includes Peoples Republic of China, Republic of Taiwan, India, Philippines, Singapore & Sri Lanka. (4) Includes Chile, Colombia Peru, Ecuador, Nicaragua, Panama and Uruguay.
EXHIBIT 99.2 Adjusted ROCE by Organizational Unit ($ millions) YTD 1998 Estimated Adj. Net Common Estimated Income Equity ROCE Investment Banking $ 190 $2,141 11% Trading & Sales 38 782 6 Global Institutional Services 68 260 34 Private Client Services 63 138 61 Australia/NZ/Int'l Funds Mgmt 99 243 54 Emerging Markets Group (411) 1,169 N/M Corporate/Other (85) 260 N/M Total $ (38) $4,993 N/M Excludes the following "special items" (after-tax):Investment Banking - Impact of European equity repositioning including NatWest acquisition $(64) EX-99.3 4 Exhibit 99.3 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF BANKERS TRUST CORPORATION _____________ Under Section 805 of the Business Corporation Law _____________ We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Senior Vice President and an Assistant Secretary of Bankers Trust Corporation, hereby certify that: FIRST: The name of the corporation is Bankers Trust Corporation and the name under which it was formed was BT New York Corporation. SECOND: The certificate of incorporation of the corporation was filed by the Department of State of New York on the 12th day of May, 1965. THIRD: The certificate of incorporation, as previously amended and supplemented by certificates filed pursuant to law, is hereby amended, pursuant to authority thereby vested in the Board of Directors, to decrease the number of preferred shares of each of the following series of Series Preferred Stock, no shares of which series are currently outstanding, to zero: (a) the Fixed/Adjustable Rate Cumulative Preferred Stock, Series D; (b) the Money Market Cumulative Preferred Stock, Series E, Series F, Series G and Series H; (c) the 8.55% Cumulative Preferred Stock. Series I; (d) the Fixed/Adjustable Rate Cumulative Preferred Stock, Series J; (e) the Auction Rate Cumulative Preferred Stock ($100,000 Liquidation Preference), Series K, Series L, Series M and Series N; (f) the 7 5/8% Cumulative Preferred Stock, Series O; (g) the 7.50% Cumulative Preferred Stock, Series P. FOURTH: None of the authorized shares of any such series of Series Preferred Stock are presently outstanding and none will be issued subject to the certificate of incorporation, and, when this certificate becomes accepted for filing, it shall have the effect of eliminating from the certificate of incorporation paragraphs (e), (f), (g), (h), (i), (j), and (j) of the Article FOURTH of the certificate of incorporation, which paragraphs contain all matters set forth in the certificate of incorporation with respect to such series of Series Preferred Stock. FIFTH: The manner in which the foregoing amendment of the certificate of incorporation was authorized was by the affirmative vote of at least a majority of the Board of Directors of the corporation at a meeting duly convened and held on July 21, 1998, at which a quorum was present throughout. IN WITNESS WHEREOF, we, the undersigned, have subscribed this Certificate on the 18th day of August, 1998 and affirm the statement, contained herein as true under penalties of perjury. /S/James T. Byrne, Jr. Senior Vice President James T. Byrne, Jr. /S/ Lea Lahtinen Assistant Secretary Lea Lahtinen CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF BANKERS TRUST CORPORATION _____________________ Under Section 805 of the Business Corporation Law _____________________ STATE OF NEW YORK DEPARTMENT OF STATE Filed August 25, 1998 _____________________ Bankers Trust Corporation 130 Liberty Street New York, New York 10006 -----END PRIVACY-ENHANCED MESSAGE-----