-----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, VQPukIa2W3wUqsrEUNhPYnmcMLcu941iT+YriBDQqMVEpaLJD5vFaTUc48frJ2Pm /y4BpBEEylaHef0vL//iIg== 0000009749-99-000051.txt : 19990817 0000009749-99-000051.hdr.sgml : 19990817 ACCESSION NUMBER: 0000009749-99-000051 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 10-Q SEC ACT: SEC FILE NUMBER: 001-05920 FILM NUMBER: 99693820 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 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-5920 BANKERS TRUST CORPORATION (Exact name of registrant as specified in its charter) New York 13-6180473 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 130 Liberty Street New York, New York 10006 (Address of principal executive offices) (Zip code) (212) 250-2500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _______ Indicate the number of shares outstanding of each of the registrant's classes of common stock as of July 31, 1999: Common Stock, $1 par value, 1 share. 1 BANKERS TRUST CORPORATION JUNE 30, 1999 FORM 10-Q TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Income Three Months Ended June 30, 1999 and 1998 2 Six Months Ended June 30, 1999 and 1998 3 Consolidated Statement of Comprehensive Income Three Months Ended June 30, 1999 and 1998 and Six Months Ended June 30, 1999 and 1998 4 Consolidated Balance Sheet At June 30, 1999 and December 31, 1998 5 Consolidated Statement of Changes in Stockholders' Equity Six Months Ended June 30, 1999 and 1998 6 Consolidated Statement of Cash Flows Six Months Ended June 30, 1999 and 1998 7 Consolidated Schedule of Net Interest Revenue Three Months and Six Months Ended June 30, 1999 and 1998 8 In the opinion of management, all material adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods presented have been made. The results of operations for the three months and six months ended June 30, 1999 are not necessarily indicative of the results of operations for the full year or any other interim period. The financial statements included in this Form 10-Q should be read with reference to the Bankers Trust Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 as supplemented by the first quarter 1999 Form 10-Q. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk 38 PART II. OTHER INFORMATION Item 5. Other Information 39 Item 6. Exhibits and Reports on Form 8-K 39 SIGNATURE 41 2 PART I. FINANCIAL INFORMATION BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (in millions) (unaudited)
Increase THREE MONTHS ENDED JUNE 30, 1999 1998 (Decrease) NET INTEREST REVENUE Interest revenue $1,293 $2,305 $(1,012) Interest expense 1,057 1,939 (882) Net interest revenue 236 366 (130) Provision for credit losses-loans (25) - (25) Net interest revenue after provision for credit losses-loans 261 366 (105) NONINTEREST REVENUE Trading (407) 37 (444) Fiduciary and funds management 284 285 (1) Corporate finance fees 245 392 (147) Other fees and commissions 153 206 (53) Net revenue from equity investments 9 73 (64) Securities available for sale gains (losses) (139) 50 (189) Insurance premiums 38 59 (21) Other (175) 80 (255) Total noninterest revenue 8 1,182 (1,174) NONINTEREST EXPENSES Salaries and commissions 337 361 (24) Incentive compensation and employee benefits 283 417 (134) Change in control related incentive compensation and employee benefits 1,101 - 1,101 Agency and other professional service fees 159 147 12 Communication and data services 66 61 5 Occupancy, net 62 54 8 Furniture and equipment 69 56 13 Travel and entertainment 54 42 12 Provision for policyholder benefits 51 74 (23) Other 161 108 53 Restructuring charge 459 - 459 Total noninterest expenses 2,802 1,320 1,482 Income (loss) before income taxes (2,533) 228 (2,761) Income taxes (benefit) (585) 64 (649) NET INCOME (LOSS) $(1,948) $ 164 $(2,112) Certain prior period amounts have been reclassified to conform to the current presentation.
3 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (in millions) (unaudited)
Increase SIX MONTHS ENDED JUNE 30, 1999 1998 (Decrease) NET INTEREST REVENUE Interest revenue $2,804 $4,294 $(1,490) Interest expense 2,307 3,526 (1,219) Net interest revenue 497 768 (271) Provision for credit losses-loans (25) - (25) Net interest revenue after provision for credit losses-loans 522 768 (246) NONINTEREST REVENUE Trading (67) 228 (295) Fiduciary and funds management 555 546 9 Corporate finance fees 442 723 (281) Other fees and commissions 364 366 (2) Net revenue from equity investments 108 204 (96) Securities available for sale gains (losses) (143) 44 (187) Insurance premiums 86 128 (42) Other (88) 174 (262) Total noninterest revenue 1,257 2,413 (1,156) NONINTEREST EXPENSES Salaries and commissions 710 697 13 Incentive compensation and employee benefits 715 914 (199) Change in control related incentive compensation and employee benefits 1,101 - 1,101 Agency and other professional service fees 250 252 (2) Communication and data services 132 115 17 Occupancy, net 120 100 20 Furniture and equipment 138 110 28 Travel and entertainment 84 79 5 Provision for policyholder benefits 114 159 (45) Other 280 219 61 Restructuring charge 459 - 459 Total noninterest expenses 4,103 2,645 1,458 Income (loss) before income taxes (2,324) 536 (2,860) Income taxes (benefit) (516) 150 (666) NET INCOME (LOSS) $(1,808) $ 386 $(2,194) Certain prior period amounts have been reclassified to conform to the current presentation.
4 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in millions) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 NET INCOME (LOSS) $(1,948) $164 $(1,808) $386 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments: Unrealized foreign currency translation gains (losses) arising during period, net of tax(a) 27 (9) (3) (18) Reclassification adjustment for realized foreign currency translation (gains) losses, net of tax(b) 172 - 172 - Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period, net of tax(c) (24) 17 (24) (3) Reclassification adjustment for realized (gains) losses, net of tax(d) 117 (31) 117 (31) Total other comprehensive income (loss) 292 (23) 262 (52) COMPREHENSIVE INCOME (LOSS) $(1,656) $141 $(1,546) $334 (a) Amounts are net of income tax expense (benefit) of $4 million and $17 million for the three months ended June 30, 1999 and June 30, 1998, respectively and $(19) million and $8 million for the six months ended June 30, 1999 and June 30, 1998, respectively. (b) Realized foreign currency translation losses result from the transfer of certain foreign subsidiaries to Deutsche Bank in the second quarter of 1999. Amounts are net of income tax expense of $9 million for the three months and six months ended June 30, 1999. (c) Amounts are net of income tax expense (benefit) of $(8) million and $13 million for the three months ended June 30, 1999 and June 30, 1998, respectively and $8 million and $(3) million for the six months ended June 30, 1999 and June 30, 1998, respectively. (d) Amounts are net of income tax expense (benefit) of $(22) million and $19 million for the three months ended June 30, 1999 and June 30, 1998, respectively and $(26) million and $13 million for the six months ended June 30, 1999 and June 30, 1998, respectively.
Certain prior period amounts have been reclassified to conform to the current presentation. 5 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ($ in millions, except par value)
June 30, December 31, 1999* 1998 ASSETS Cash and due from banks $ 2,152 $ 2,837 Interest-bearing deposits with banks 7,412 2,382 Federal funds sold 708 2,484 Securities purchased under resale agreements 18,841 17,053 Securities borrowed 156 14,709 Trading assets: Government securities 5,424 5,731 Corporate debt securities 1,087 5,519 Equity securities 2,168 5,810 Swaps, options and other derivatives 12,805 17,376 Other trading assets 4,891 11,734 Total trading assets 26,375 46,170 Securities available for sale 2,041 12,748 Loans, net of allowance for credit losses of $532 at June 30, 1999 and $652 at December 31, 1998 23,711 22,633 Customer receivables 4 1,524 Accounts receivable and accrued interest 2,485 3,815 Other assets 8,068 6,760 Total $91,953 $133,115 LIABILITIES Noninterest-bearing deposits Domestic offices $ 2,463 $ 2,784 Foreign offices 3,106 1,689 Interest-bearing deposits Domestic offices 14,870 18,259 Foreign offices 12,717 14,602 Total deposits 33,156 37,334 Trading liabilities: Securities sold, not yet purchased Government securities 2,298 4,149 Equity securities 1,419 6,458 Other trading liabilities 159 789 Swaps, options and other derivatives 13,067 15,857 Total trading liabilities 16,943 27,253 Securities loaned and securities sold under repurchase agreements 1,871 17,420 Other short-term borrowings 12,029 16,313 Accounts payable and accrued expenses 5,062 5,210 Other liabilities, including allowance for credit losses of $14 at June 30, 1999 and $18 at December 31, 1998 3,664 5,466 Long-term debt not included in risk-based capital 11,298 14,890 Long-term debt included in risk-based capital 2,504 3,113 Mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures included in risk-based capital 1,423 1,420 Total liabilities 87,950 128,419 STOCKHOLDERS' EQUITY Preferred stock 394 394 Common stock, $1 par value Authorized, 200 shares at June 30, 1999 and 300,000,000 shares at December 31, 1998 Issued, 1 share at June 30, 1999 and 105,380,175 at December 31, 1998 - 105 Capital surplus 2,317 1,613 Retained earnings 1,493 3,504 Common stock in treasury, at cost: 1999, 0 shares; 1998, 9,666,055 shares - (1,056) Other stockholders' equity - 599 Accumulated other comprehensive income: Net unrealized gains (losses) on securities available for sale, net of taxes 28 (65) Foreign currency translation, net of taxes (229) (398) Total stockholders' equity 4,003 4,696 Total $91,953 $133,115 * Unaudited Certain prior period amounts have been reclassified to conform to the current presentation.
6 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions, except par value) (unaudited)
SIX MONTHS ENDED JUNE 30, 1999 1998 PREFERRED STOCK Balance, January 1 $ 394 $ 658 Preferred stock redeemed - (149) Preferred stock repurchased - (16) Balance, June 30 394 493 COMMON STOCK Balance, January 1 105 105 Retirement of common stock (105) - Issuance of common stock* - - Balance, June 30 - 105 CAPITAL SURPLUS Balance, January 1 1,613 1,563 Common stock distributed under employee benefit plans 4 44 Capital transactions related to change in control (700) - Capital contribution from parent 1,400 - Balance, June 30 2,317 1,607 RETAINED EARNINGS Balance, January 1 3,504 4,202 Net income (loss) (1,808) 386 Cash dividends declared Preferred stock (10) (21) Common stock (98) (194) Treasury stock distributed under employee benefit plans (95) (133) Balance, June 30 1,493 4,240 COMMON STOCK IN TREASURY, AT COST Balance, January 1 (1,056) (889) Purchases of stock (71) (428) Treasury stock distributed under employee benefit plans 322 332 Capital transactions related to change in control 805 - Balance, June 30 - (985) COMMON STOCK ISSUABLE - STOCK AWARDS Balance, January 1 817 901 Deferred stock awards granted, net 557 116 Deferred stock distributed (216) (91) Capital transactions related to change in control (1,158) - Balance, June 30 - 926 DEFERRED COMPENSATION - STOCK AWARDS Balance, January 1 (218) (438) Deferred stock awards granted, net (556) (117) Amortization of deferred compensation, net 749 174 Other 25 - Balance, June 30 - (381) CUMULATIVE TRANSLATION ADJUSTMENTS Balance, January 1 (398) (362) Translation adjustments 141 (10) Income taxes applicable to translation adjustments 28 (8) Balance, June 30 (229) (380) SECURITIES VALUATION ALLOWANCE Balance, January 1 (65) (32) Change in unrealized net gains (losses), after applicable income taxes and minority interest 93 (34) Balance, June 30 28 (66) TOTAL STOCKHOLDERS' EQUITY, JUNE 30 $4,003 $5,559 * 1 share, $1 par value.
7 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited)
SIX MONTHS ENDED JUNE 30, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(1,808) $ 386 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision for credit losses - loans (25) - Provision for policyholder benefits 114 159 Deferred income taxes, net (228) (8) Depreciation and other amortization and accretion 869 164 Other, net 117 21 Earnings adjusted for noncash charges and credits (961) 722 Net change in: Trading assets (16,407) (6,712) Trading liabilities 26,708 7,852 Receivables and payables from securities transactions 1,080 (1,500) Customer receivables (808) (154) Other operating assets and liabilities, net 250 (565) Securities available for sale losses (gains) 143 (44) Net cash provided by (used in) operating activities 10,005 (401) CASH FLOWS FROM INVESTING ACTIVITIES Net change in: Interest-bearing deposits with banks (6,197) 2,610 Federal funds sold 1,776 (2,063) Securities purchased under resale agreements (13,898) (8,164) Securities borrowed (8,763) (8,883) Loans (1,617) (3,367) Securities available for sale: Purchases (4,052) (11,730) Maturities and other redemptions 991 1,402 Sales 7,986 5,617 Acquisitions of premises and equipment (68) (171) Other, net (465) 1,543 Proceeds from transfer of legal entities 1,828 - Net cash used in investing activities (22,479) (23,206) CASH FLOWS FROM FINANCING ACTIVITIES Net change in: Deposits 1,231 3,845 Securities loaned and securities sold under repurchase agreements 13,588 8,349 Other short-term borrowings (3,138) 7,825 Issuances of long-term debt 1,841 4,885 Repayments of long-term debt (2,883) (885) Issuance of preferred stock of subsidiary - 304 Redemptions and repurchases of preferred stock - (165) Purchases of treasury stock (71) (428) Cash dividends paid (204) (216) Capital contribution from parent 1,400 - Other, net 25 108 Net cash provided by financing activities 11,789 23,622 Net effect of exchange rate changes on cash - 18 NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS (685) 33 Cash and due from banks, beginning of period 2,837 2,188 Cash and due from banks, end of period $ 2,152 $ 2,221 Interest paid $ 2,761 $ 3,166 Income taxes paid, net $31 $183 Noncash investing activities: Transfer of legal entity in exchange for shares in affiliate $792 $ - Other 24 (3) Total noncash investing activities $816 $(3) Noncash financing activities: Conversion of debt to equity $- $12 Certain prior period amounts have been reclassified to conform to the current presentation.
8 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE (in millions) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 INTEREST REVENUE Interest-bearing deposits with banks $ 72 $ 85 $ 132 $ 183 Federal funds sold 51 60 77 112 Securities purchased under resale agreements 223 459 517 789 Securities borrowed 146 389 369 664 Trading assets 283 671 612 1,305 Securities available for sale Taxable 112 181 254 318 Exempt from federal income taxes 6 10 18 20 Loans 373 414 767 832 Customer receivables 27 36 58 71 Total interest revenue 1,293 2,305 2,804 4,294 INTEREST EXPENSE Interest-bearing deposits Domestic offices 195 334 388 646 Foreign offices 198 286 427 545 Trading liabilities 54 135 122 234 Securities loaned and securities sold under repurchase agreements 183 569 526 955 Other short-term borrowings 257 344 485 630 Long-term debt 141 241 302 456 Trust preferred capital securities 29 30 57 60 Total interest expense 1,057 1,939 2,307 3,526 NET INTEREST REVENUE $ 236 $ 366 $ 497 $ 768
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ACQUISITION BY DEUTSCHE BANK AG Change in Control On June 4, 1999, the change-in-control ("COC") date, pursuant to an agreement dated as of November 30, 1998, between Deutsche Bank AG ("Deutsche Bank") and Bankers Trust Corporation ("Bankers Trust", the "Corporation", or the "Firm"), Deutsche Bank, through its U.S. holding corporation, Taunus Corporation ("Taunus"), acquired all of the outstanding shares of common stock of Bankers Trust from its shareholders at a price of $93.00 per share (the "Acquisition"). Bankers Trust was merged with a wholly-owned subsidiary of Deutsche Bank, with Bankers Trust as the surviving entity. On June 4, 1999, all Bankers Trust employee deferred compensation amounts vested in full. Employer contributions to individual employee retirement accounts also vested. In addition, all bonus-eligible employees on the date of COC became entitled to a pro rata bonus which was paid in cash on July 2, 1999 for that portion of the 1999 performance year ending on the COC date. The pro rata bonus was based on the greater of an employee's total (cash and deferred stock) 1998 performance bonus or the employee's average total 1996, 1997 and 1998 performance bonus awards. In conjunction with the Acquisition, the Corporation incurred pre-tax charges of approximately $1.1 billion in COC-related costs, principally due to the aforementioned vesting of all employee deferred compensation amounts and related pro-rata bonus awards as well as a pre-tax restructuring charge of $459 million. Also, in connection with the Acquisition, the Corporation incurred other charges reflecting a change in management's intention regarding certain assets as a result of integrating the Corporation into Deutsche Bank, a change in certain pricing methodologies in order to conform to those of Deutsche Bank, and the transfer of certain available for sale securities to Deutsche Bank related entities based on changes in management responsibility. These one-time charges are included in Deutsche Bank's consolidated financial statements as of June 30, 1999 as part of the goodwill associated with the Acquisition. The goodwill will be amortized over 15 years. Disposition of Assets On June 5, 1999, Bankers Trust transferred its wholly-owned subsidiary BT Alex. Brown Incorporated ("BTAB") and substantially all of its interest in Bankers Trust International PLC ("BTI") to Deutsche Bank Securities Inc. ("DBSI") and Deutsche Holdings (BTI) Ltd., respectively, which are wholly- owned subsidiaries of Deutsche Bank. The transfer of BTAB to DBSI took the form of an exchange of stock pursuant to which BTAB became a wholly-owned subsidiary of DBSI and Bankers Trust received shares of DB U.S. Financial Markets Holding Corporation, the parent of DBSI. Bankers Trust, as part of an ongoing reorganization, intends to transfer, by dividend or otherwise, the shares received to Taunus. The transfer of substantially all of Bankers Trust's interest in BTI was for cash in the amount of approximately $1.7 billion. On June 18, 1999, Deutsche Bank announced that it had agreed to sell Bankers Trust Australia Limited ("BTAL"), a wholly-owned subsidiary of Bankers Trust for a price of approximately $1.4 billion. The sale, which is expected to close in the third quarter of 1999, is conditional upon regulatory approvals in Australia and the United States. 10 ACQUISITION BY DEUTSCHE BANK AG (continued) In connection with the Acquisition and in addition to the foregoing transactions, the Corporation has and will continue to transfer certain entities and financial assets and liabilities to Deutsche Bank related entities. The consideration received and to be received for such transactions was and will be fair market value of the financial assets and liabilities at and on the date of transfer. In addition, the Corporation's money market related funding activities, which are short-term in nature, are expected to be significantly reduced over time, commensurate with its ongoing reorganization. Capital Contribution In conjunction with the Acquisition and to strengthen the Corporation's capital base, Deutsche Bank made a capital contribution of $1.4 billion. RESULTS OF OPERATIONS The Corporation reported a loss of $1,948 million for the three months ended June 30, 1999 and a loss of $1,808 million for the first six months of 1999. As previously mentioned, in the second quarter of 1999 the Corporation incurred pre-tax charges of approximately $1.1 billion in COC- related costs and a pre-tax restructuring charge of $459 million. Also, in connection with the Acquisition, the Corporation incurred other charges reflecting a change in management's intention regarding certain assets as a result of integrating the Corporation into Deutsche Bank, a change in certain pricing methodologies in order to conform to those of Deutsche Bank, and the transfer of certain available for sale securities to Deutsche Bank related entities based on changes in management responsibility. The Corporation earned $164 million for the three months ended June 30, 1998 and $386 million for the first six months of 1998. During the second quarter of 1999, the Corporation completed the sale of its remaining stake in Consorcio. The impact of the sale was immaterial to the Corporation's results of operations. Because of the significant business and net financial asset transfers to Deutsche Bank entities and the aforementioned other charges reflecting changes in management intent and responsibility in the second quarter of 1999, the Corporation's historical financial statements are not fully comparable for all periods presented. BUSINESS SEGMENT RESULTS Business segments results, which are presented in accordance with U.S. generally accepted accounting standards, are derived from internal management reports. In conjunction with the Acquisition, the Corporation realigned its business activities to conform to Deutsche Bank's management structure. In this regard, Retail and Private Banking focuses on the Corporation's private banking activities. The Asset Management division includes the Corporation's institutional and retail funds management operations. Global Corporates and Institutions includes the Corporation's commercial banking and investment banking activities as well as trading activities. This business segment also includes credit business, trade finance, structured finance and cash management in addition to the Corporation's private equity business. Global Technology and Services includes four product groups: payments, securities processing, custody services and electronic banking services. Prior period results have been restated for changes in organizational structure. 11 BUSINESS SEGMENT RESULTS (continued) The following tables present results by Business Segment:
Total Non- Pretax Net Three Months Ended June 30, 1999 Total Net interest Income/ Income/ (in millions) Revenue* Expenses (Loss) (Loss) Retail and Private Banking $ 46 $ 65 $ (19)$ (14) Asset Management 47 46 1 1 Global Corporates and Institutions (347) 1,325 (1,672) (1,288) Global Technology and Services 243 331 (88) (68) Other Business Segments** 161 254 (93) (72) Total Business Segments 150 2,021 (1,871) (1,441) Corporate Items*** 119 781 (662) (507) Total $ 269 $2,802 $(2,533)$(1,948) * There were no material intersegment revenues among the business segments. ** Due to its impending sale, the results of BTAL are included in Other Business Segments. *** Includes restructuring charges of $459 million.
Total Non- Pretax Net Three Months Ended June 30, 1998 Total Net interest Income/ Income/ (in millions) Revenue* Expenses (Loss) (Loss) Retail and Private Banking $ 54 $ 45 $ 9 $ 6 Asset Management 43 27 16 12 Global Corporates and Institutions 920 715 205 148 Global Technology and Services 248 243 5 4 Other Business Segments** 212 187 25 18 Total Business Segments 1,477 1,217 260 188 Corporate Items 71 103 (32) (24) Total $1,548 $1,320 $ 228 $164 * There were no material intersegment revenues among the business segments. ** Due to its impending sale, the results of BTAL are included in Other Business Segments.
Total Non- Pretax Net Six Months Ended June 30, 1999 Total Net interest Income/ Income/ (in millions) Revenue* Expenses (Loss) (Loss) Retail and Private Banking $ 93 $ 109 $ (16)$ (13) Asset Management 94 72 22 17 Global Corporates and Institutions 513 2,069 (1,556) (1,214) Global Technology and Services 482 541 (59) (46) Other Business Segments** 359 425 (66) (52) Total Business Segments 1,541 3,216 (1,675) (1,308) Corporate Items*** 238 887 (649) (500) Total $1,779 $4,103 $(2,324)$(1,808) * There were no material intersegment revenues among the business segments. ** Due to its impending sale, the results of BTAL are included in Other Business Segments. *** Includes restructuring charges of $459 million.
12 BUSINESS SEGMENT RESULTS (continued)
Total Non- Pretax Net Six Months Ended June 30, 1998 Total Net interest Income/ Income/ (in millions) Revenue* Expenses (Loss) (Loss) Retail and Private Banking $ 98 $ 89 $ 9 $ 7 Asset Management 82 51 31 22 Global Corporates and Institutions 1,975 1,470 505 363 Global Technology and Services 491 477 14 10 Other Business Segments** 432 380 52 37 Total Business Segments 3,078 2,467 611 439 Corporate Items 103 178 (75) (53) Total $3,181 $2,645 $536 $386 * There were no material intersegment revenues among the business segments. ** Due to its impending sale, the results of BTAL are included in Other Business Segments.
The Retail and Private Banking business recorded a net loss of $14 million in the second quarter of 1999, compared to net income of $6 million in the prior year quarter. For the first six months of 1999, net loss was $13 million as compared to net income of $7 million in the prior year period. The current quarter and year-to-date results contain pre-tax COC- related costs of approximately $21 million. Asset Management recorded net income of $1 million in the second quarter of 1999, compared to net income of $12 million in the 1998 second quarter. Net income was $17 million for the first six months of 1999 versus $22 million for the first six months of 1998. The current quarter and year-to-date results contain pre-tax COC-related costs of approximately $16 million. The Global Corporates and Institutions business recorded a net loss of $1,288 million in the second quarter of 1999, compared to net income of $148 million in the 1998 second quarter. Net loss was $1,214 million for the first six months of 1999 versus net income of $363 million for the first six months of 1998. The current quarter and year-to-date results contain pre-tax COC-related costs of approximately $770 million. Trading losses for the second quarter of 1999 negatively impacted both the current quarter and year-to-date results. Total net revenue also includes the impact of a change in management's intention regarding certain assets as a result of integrating the Corporation into Deutsche Bank, as well as the transfer of certain securities available for sale to Deutsche Bank related entities. The current quarter and first six months of 1999 also reflect lower revenue from corporate finance fees. The Corporation's Global Technology and Services business recorded a net loss of $68 million for the current quarter compared to net income of $4 million in the prior year quarter. For the first six months of 1999, net loss was $46 million as compared to net income of $10 million in the prior year period. The current quarter and year-to-date results contain pre-tax COC-related costs of approximately $90 million. Other business segments primarily include the income and expenses of BTAL and Consorcio, and the results of smaller businesses that are not included in the main business segments. Due to its impending sale, the results of BTAL are not included as a reportable business segment. Corporate Items include revenue and expenses that have not been allocated to business segments and restructuring charges of approximately $459 million. 13 BUSINESS SEGMENT RESULTS (continued) The following table reconciles total net income (loss) for business segments to consolidated net income (loss) (in millions):
SIX MONTHS ENDED JUNE 30, 1999 1998 Total net income (loss) reported for business segments$(1,308) $439 Restructuring charges (358) - Realized foreign currency translation losses (172) - Earnings associated with unassigned capital 16 30 Loan net charge-offs in excess of the total provision for credit losses - ans 71 18 Unallocated costs of corporate staff (71) (19) Other unallocated amounts 14 (82) Consolidated net income(loss) $(1,808) $386
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.
Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 NET INTEREST REVENUE (in millions) Book basis $ 236 $ 366 $ 497 $768 Tax equivalent adjustment 4 7 13 16 Fully taxable basis $ 240 $ 373 $ 510 $784 AVERAGE BALANCES (in millions) Interest-earning assets $84,745 $133,364 $92,410 $123,260 Interest-bearing liabilities 82,120 129,915 89,527 120,142 Earning assets financed by noninterest-bearing funds $ 2,625 $ 3,449 $2,883 $3,118 AVERAGE RATES (fully taxable basis) Yield on interest-earning assets 6.14% 6.95% 6.15% 7.05% Cost of interest-bearing liabilities 5.16 5.99 5.20 5.92 Interest rate spread .98 .96 .95 1.13 Contribution of noninterest-bearing funds .16 .16 .16 .15 Net interest margin 1.14% 1.12% 1.11% 1.28%
14 REVENUE (continued) The significant transfers of entities and other financial assets and liabilities to Deutsche Bank in the second quarter of 1999 negatively impacted net interest revenue and levels of average interest-bearing assets and average interest-bearing liabilities for the three months and six months ended June 30, 1999 as compared to prior year periods. Net interest revenue for the second quarter of 1999 totaled $236 million, down $130 million, or 36 percent, from the second quarter of 1998. The $130 million decrease in net interest revenue was primarily due to a $68 million decrease in trading-related net interest revenue, which totaled $77 million for the second quarter of 1999. Nontrading-related net interest revenue totaled $159 million for the second quarter of 1999 versus $221 million for the comparable period in 1998. Net interest revenue for the first half of 1999 totaled $497 million, down $271 million, or 35 percent, from the first half of 1998. The $271 million decrease in net interest revenue was primarily due to a $190 million decrease in trading-related net interest revenue, which totaled $154 million for the first half of 1999. Nontrading-related net interest revenue totaled $343 million for the first half of 1999 versus $424 million for the comparable period in 1998. In the second quarter of 1999, the interest rate spread was .98 percent compared to .96 percent in the prior year period. Net interest margin increased to 1.14 percent from 1.12 percent. The yield on interest- earning assets decreased by 81 basis points and the cost of interest- bearing liabilities declined by 83 basis points. Average interest-earning assets totaled $84.7 billion for the second quarter of 1999, down $48.6 billion from the same period in 1998. The decrease was primarily attributable to declines in trading assets and securities borrowed. Average interest-bearing liabilities totaled $82.1 billion for the second quarter of 1999, down $47.8 billion from the same period in 1998. The decrease was primarily attributable to a decline in securities sold under repurchase agreements and interest-bearing deposits. In the first six months of 1999, the interest rate spread was .95 percent compared to 1.13 percent in the prior year period. Net interest margin fell to 1.11 percent from 1.28 percent. The yield on interest- earning assets decreased by 90 basis points and the cost of interest- bearing liabilities declined by 72 basis points. Average interest-earning assets totaled $92.4 billion for the first six months of 1999, down $30.9 billion from the same period in 1998. The decrease was primarily attributable to a decrease in trading assets and securities borrowed. Average interest-bearing liabilities totaled $89.5 billion for the first six months of 1999, down $30.6 billion from the same period in 1998. The decrease was primarily attributable to a decrease in interest-bearing deposits and securities sold under repurchase agreements. Trading Revenue The Firm's trading and risk management activities include significant transactions in interest rate instruments and related derivatives. These activities can periodically shift revenue between trading and net interest, depending on a variety of factors, including risk management strategies. Therefore, the Corporation has historically viewed trading revenue and trading-related net interest revenue together. The Corporation's trading activities in the second quarter of 1999 were significantly reduced, reflecting the effects of integrating the Corporation into Deutsche Bank as well as a continuation of risk reduction efforts begun in the third quarter of 1998. In conjunction with the Acquisition, the Corporation anticipates further curtailment of trading- related activities. Combined trading revenue and trading-related net interest revenue for the second quarter of 1999 was a loss of $330 million, down $512 million from the second quarter of 1998. Combined trading revenue and trading- related net interest for the first six months of 1999 totaled $87 million, down $485 million from the first six months of 1998. Trading losses for the quarter and first six months of 1999 reflect the impact of a change in management's intention regarding certain assets as a result of integrating the Corporation into Deutsche Bank and other risk reduction efforts. 15 REVENUE (continued) The table below presents the Corporation's trading revenue and trading- related net interest revenue by major category of market risk. These categories are based on management's view of the predominant underlying risk exposure of each of the Firm's trading positions.
Trading- Related Net Trading Interest (in millions) Revenue Revenue Total Three months ended June 30, 1999 Interest rate risk $(378) $ 66 $(312) Foreign exchange risk 48 - 48 Equity and commodity risk (77) 11 (66) Total $(407) $ 77 $(330) Three months ended June 30, 1998 Interest rate risk $(69) $182 $113 Foreign exchange risk 143 - 143 Equity and commodity risk (37) (37) (74) Total $ 37 $145 $182 Six months ended June 30, 1999 Interest rate risk $(243) $170 $(73) Foreign exchange risk 154 - 154 Equity and commodity risk 22 (16) 6 Total $ (67) $154 $ 87 Six months ended June 30, 1998 Interest rate risk $(66) $362 $296 Foreign exchange risk 260 - 260 Equity and commodity risk 34 (18) 16 Total $228 $344 $572
Second Quarter 1999 vs. Second Quarter 1998 Interest Rate Risk - The decrease reflects the integration of Bankers Trust trading assets into the Deutsche Bank entity and includes post merger risk reduction initiatives and the impact of a change in management's intention regarding certain trading and trading-related assets. Foreign Exchange Risk - The decrease in foreign exchange is primarily related to reduced revenue in the Australian markets. Equity and Commodity Risk - Equity and commodity revenue increased slightly from the prior year quarter. Six Months 1999 vs. Six Months 1998 Interest Rate Risk - The decrease reflects the integration of Bankers Trust trading assets into the Deutsche Bank entity and includes post merger risk reduction initiatives and the impact of a change in management's intention regarding certain trading and trading-related assets. 16 REVENUE (continued) Foreign Exchange Risk - The decrease in foreign exchange revenue is primarily related to reduced revenue in the Australian markets. Equity and Commodity Risk - The year-to-date decrease in equity and commodity revenue is principally due to risk reduction initiatives. Noninterest Revenue (Excluding Trading) Second Quarter 1999 vs. Second Quarter 1998 Corporate finance fees of $245 million decreased $147 million from the $392 million earned in the second quarter of 1998. The decline is primarily attributable to lower revenue from underwriting and merger and acquisition activities and is further attributable to the transfer of BTAB to DBSI in June 1999. Other fees and commissions of $153 million decreased $53 million from the prior year quarter. A decline in customer trading activity resulted in lower fees for brokerage services. Net revenue from equity investments decreased $64 million from the prior year quarter. Securities available for sale losses totaled $139 million compared to securities available for sale gains of $50 million in the prior year period. The current quarter reflected third-party sale activity and the transfer of Latin American debt securities to related Deutsche Bank entities based on changes in management responsibility related to such securities. Insurance premium revenue decreased $21 million from the prior year quarter. The decrease reflects the sale of the Corporation's remaining stake in Consorcio in the second quarter of 1999. Other noninterest revenue was a negative $175 million compared to $80 million in the prior year period. The current quarter included the recognition of cumulative translation adjustments for certain legal entities transferred to affiliated Deutsche Bank entities. Six Months 1999 vs. Six Months 1998 Corporate finance fees of $442 million decreased $281 million, or 39 percent, from the first half of 1998, primarily due to lower underwriting fees, loan syndication fees and merger and acquisition activities and is further attributable to the transfer of BTAB to DBSI in June 1999. Net revenue from equity investments was $108 million during the first half of 1999 as compared with $204 million during the first half of 1998. The current period reflected lower gains on direct equity investments. Securities available for sale losses totaled $143 million compared to securities available for sale gains of $44 million in the prior year period. The current period reflected third-party sale activity and the transfer of Latin American debt securities to related Deutsche Bank entities based on changes in management responsibility related to such securities. Insurance premium revenue decreased $42 million from the prior year period. The decrease reflects the general decline in the Chilean annuities market and the sale of the Corporation's remaining stake in Consorcio in the second quarter of 1999. Other noninterest revenue was a negative $88 million compared to $174 million in the prior year period. The current period included the recognition of cumulative translation adjustments for certain legal entities transferred to affiliated Deutsche Bank entities. 17 PROVISION AND ALLOWANCES FOR CREDIT LOSSES The allowance for credit losses-loans represents management's estimate of probable loan losses that have occurred as of the date of the financial statements. For a more detailed discussion of this topic, refer to page 31 of the Corporation's 1998 Annual Report on Form 10-K. The Corporation is undertaking a comprehensive review of its accounting policies and procedures related to the determination of the allowance for credit losses-loans to ensure that they are appropriate within the framework of generally accepted accounting principles. These policies and procedures will be revised, as necessary, to improve and ensure a systematic, consistently applied and adequately documented process. More specifically, the Corporation intends to revise certain procedures and enhance its documentation governing the estimation of credit losses and related charge-offs. In November 1998, the Securities and Exchange Commission, Federal Deposit Insurance Corporation, Federal Reserve Board, Office of the Comptroller of the Currency, and Office of Thrift Supervision (the "Agencies") issued a Joint Interagency Statement which underscored the requirement that depository institutions record and report their allowance for loan and lease losses in accordance with generally accepted accounting principles. In March 1999, the Agencies announced the establishment of a Joint Working Group to gain a better understanding of the procedures and processes, including sound practices, used by banking organizations to determine the allowance for credit losses with the objective of issuing parallel guidelines on the appropriate methodologies and supporting documentation and enhanced disclosures regarding the allowance for credit losses. In April 1999, the FASB staff issued a Viewpoints article, "Application of FASB Statements 5 and 114 to a Loan Portfolio". The article describes the requirements of these Statements and how they relate to each other and responds to questions about the detailed application of those Statements to a loan portfolio. In July 1999, the Agencies issued a Joint Interagency Letter to Financial Institutions which stated their agreement on some important aspects of loan loss allowance practices. The Corporation will continue to monitor developments in this area and will revise its procedures as needed to conform with the guidelines when they are finalized. The provisions for credit losses and the other changes in the allowances for credit losses are shown below (in millions).
Quarter Ended Six Months Ended June 30, June 30, Total allowance for credit losses 1999 1998 1999 1998 Loans Balance, beginning of period $603 $695 $652 $699 Provision for credit losses (25) - (25) - Transfer to Deutsche Bank * (29) - (29) - Net charge-offs Charge-offs 24 23 84 30 Recoveries 7 6 18 9 Total net charge-offs 17 17 66 21 Balance, end of period $532 $678 $532 $678 * Reflects the allowance for credit losses of BTI on the date of transfer. Other liabilities Balance, beginning of period $18 $13 $18 $13 Provision for credit losses (4) - (4) - Balance, end of period $14 $13 $14 $13
18 PROVISION AND ALLOWANCES FOR CREDIT LOSSES (continued) Impaired loans under SFAS 114, were $363 million and $418 million at June 30, 1999 and December 31, 1998, respectively. Included in these amounts were $275 million and $295 million of loans which required a valuation allowance of $66 million and $61 million at those same dates, respectively. RESTRUCTURING CHARGE As previously mentioned, the Corporation incurred a pre-tax restructuring charge of $459 million in conjunction with the Acquisition. The restructuring charge reflected $394 million of severance and other termination-related costs for approximately 2,200 positions as well as $65 million of other costs primarily related to lease terminations and write- offs of fixed assets and leasehold improvements. As of June 30, 1999, no significant payments have been made with regards to this restructuring accrual. EXPENSES Second Quarter 1999 vs. Second Quarter 1998 Total noninterest expenses of $2.802 billion increased by $1.482 billion from the second quarter of 1998. Included in noninterest expenses were integration costs of approximately $70 million in connection with the Acquisition and the previously mentioned restructuring charge of $459 million. In addition, noninterest expenses for the current period included $1.1 billion of change-in-control related incentive compensation and employee benefits, primarily as a result of accelerated amortization of deferred compensation amounts as of the COC date. Six Months 1999 vs. Six Months 1998 Total noninterest expenses of $4.103 billion increased by $1.458 billion from the first six months of 1998. Included in noninterest expenses were integration costs of approximately $73 million in connection with the Acquisition and the previously mentioned restructuring charge of $459 million. In addition, noninterest expenses for the current period included $1.1 billion of change-in-control related incentive compensation and employee benefits, primarily as a result of accelerated amortization of deferred compensation amounts as of the COC date. INCOME TAXES The income tax benefit for the second quarter of 1999 amounted to $585 million, compared to income tax expense of $64 million in the second quarter of 1998. For the first six months of 1999, the income tax benefit was $516 million compared with income tax expense of $150 million in the first half of 1998. The effective tax rate was 23 percent for the current quarter and 22 percent for the six months ended June 30, 1999, and 28 percent for the prior year quarter and six months ended June 30, 1998. 19 YEAR 2000 READINESS DISCLOSURE As discussed on page 18 in the Corporation's 1998 Annual Report on Form 10-K, the Corporation maintains a firm-wide program (the "Year 2000 Program") to prepare its computer systems, applications and infrastructure for properly processing dates after December 31, 1999. The Corporation's Year 2000 Program is proceeding on schedule in accordance with regulatory guidelines. Based on the Federal Financial Institutions Examination Council ("FFIEC") guidelines, the Corporation's Year 2000 Program consists of the following phases related to technology: 1) Awareness Phase - A strategic approach was developed to address the Year 2000 problem in mid 1996. 2) Assessment Phase - Detailed plans and target dates were developed. 3) Renovation Phase - This phase includes code enhancements, hardware and software upgrades, system replacements, vendor certification, and other associated changes. 4) Validation Phase - This phase includes testing and conversion of system applications. 5) Implementation Phase - This phase includes a review of Year 2000 compliance and user acceptance. The Awareness, Assessment, Renovation and Validation Phases have been completed. The Corporation expects the Implementation Phase to continue through the third quarter of 1999. The remainder of 1999 will focus on the completion of firm-wide risk mitigation and contingency planning. Although the priority given to Year 2000 issues may cause other technology projects to be deferred, the deferral of these other projects is not expected to have a material impact on the Corporation's business or operational controls. The Corporation's Year 2000 Program includes other issues not directly related to technology. Business lines, infrastructure and other support functions have been focusing on topics such as: Facilities Compliance Program - The Year 2000 problem could affect building management systems and other systems critical to the Corporation's business operations. The Corporation's Facilities Year 2000 Compliance Program deals with infrastructure components, including all applicable embedded systems, that are used in a facility (e.g., elevators, HVAC, generators, security systems, etc.) and third- party-provided facilities or services (utilities, landlord services, etc.). The facilities assessment and inventory phases were completed in 1997. Third-party service provider assessment and independent assessment verification began in mid-1998. The Facilities Year 2000 Compliance Program was completed at the end of the first quarter of 1999. Any new locations and/or issues will be addressed as they arise prior to the millennium changeover. Counterparty Assessment Program - This program addresses the Year 2000 readiness of counterparties. Counterparty Year 2000 assessment has been incorporated into the standard credit process. At June 30, 1999, the Corporation had substantially completed its assessment of the Year 2000 readiness of its material customers in accordance with FFIEC guidelines. The counterparty assessment program is an ongoing process, which will continue throughout 1999, and for as long as necessary thereafter. 20 YEAR 2000 READINESS DISCLOSURE (continued) Critical Vendor/Service Provider Program - This program assesses the Year 2000 readiness of the Corporation's critical vendors and service providers, as well as dealing with related contractual issues. These third parties are providers in such areas as telecommunications, hardware and software, office equipment and market data as well as correspondent financial services. Risk mitigation actions are in the process of being identified for any critical vendor/service provider deficient in its Year 2000 readiness. The Corporation is continuing to communicate with its significant obligors, counterparties, other credit clients, vendors and entities in which the Corporation holds a significant interest to determine the likely extent to which the Corporation may be affected by third parties' Year 2000 plans and target dates. In this regard, while the Corporation does not currently expect a material loss as a result of the Year 2000 problem, there can be no guarantee that the systems of other companies and counterparties on which the Corporation relies will be remediated on a timely basis, or that a failure to remediate by another party, or a remediation or conversion that is incompatible with the Corporation's systems, would not have a material adverse effect on the Corporation. The Corporation's Year 2000 Program considers crisis management efforts for Year 2000 as part of its overall Year 2000 Risk Mitigation and Contingency Planning Program. As with Year 2000 contingency planning generally, the Corporation anticipates that any crisis management structure would leverage off of its pre-existing Business Continuity Planning (BCP) framework and would likely follow the structure of its ultimate parent company, Deutsche Bank AG. As the basis for the Corporation's existing BCP process primarily focuses on outages and loss of facilities, data centers and applications, it is anticipated that, for Year 2000 purposes, contingency planning, and thus crisis management efforts, will be supplemented for those risks unique to Year 2000. Existing BCPs are maintained by each operating unit throughout the firm. Business-aligned BCP Coordinators are responsible for administering these plans. In those instances where a single business is predominant in an office, the business-aligned BCP framework from that particular business will likely be the basis of its crisis management structure. In addition, alternate sites that might be needed due to a Year 2000 related problem will likely be the same sites included and utilized in existing BCPs. All businesses are required to ensure that these sites are Year 2000 compliant. As mentioned above, the existing BCP plans have been expanded to include other Year 2000 specific categories, creating a Year 2000 contingency plan for each core business. Plans for the Corporation's core business processes have been updated to comply with the timeframe established by the FFIEC as of June 30, 1999. The Corporation recognizes that, since there are multiple external factors not within the Corporation's direct control that will influence the focus of any one contingency plan, plans must continue to be updated through the end of 1999, and for as long as necessary thereafter. The Corporation has established a methodology to validate all plans supporting core processes and the Corporation considers such plans to be validated by one or more of the following: 1) large-scale physical testing; 2) business walk-throughs of contingency plans; and 3) peer reviews by internal business management, including those managers independent from the developers of the plan. In addition, the Corporation actively participates in industry-wide tests and reviews its progress against industry benchmarks through participation in Global 2000 and other forums. The validation of contingency plans supporting core processes has been substantially completed. The Corporation's goal is to complete the validation of all plans supporting core processes by the end of third quarter. 21 YEAR 2000 READINESS DISCLOSURE (continued) The Corporation envisions that a Year 2000 specific crisis management structure will be in place by the end of the third quarter of 1999. As noted above, the Corporation will leverage off of its existing BCP process, which already includes concepts such as Business Recovery Intersect During General Emergencies (BRIDGE) teams, employee notification measures, command centers and recovery efforts. The Corporation anticipates that information on significant outages will be communicated to designated command centers in a similar manner as during the EMU conversion. This group will likely be composed of representation from the Corporation's Year 2000 Program Management Office (PMO), business management, and corporate resource areas. The Corporation incurred approximately $15 million for the second quarter of 1999 and $31 million for the six months ended June 30, 1999 for Year 2000 expenditures. Based on information currently available, the Corporation expects its Year 2000 expenditures for 1999 and over the next year to be approximately $75 million to $105 million. A significant portion of these expenditures are not likely to be incremental costs to the Corporation, but rather will represent the redeployment of existing information technology resources. The costs of the Year 2000 Program and the dates on which the Corporation plans to complete the various stages of the Year 2000 Program are based on management's current estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. The Corporation is currently evaluating its systems needs in connection with its acquisition by Deutsche Bank. As a result of this acquisition and subsequent restructuring, the Corporation's Year 2000 expenditures for the remainder of 1999 and 2000 could differ from current estimates. 22 BALANCE SHEET ANALYSIS The following table highlights the changes in the balance sheet. Since quarter-end balances can be distorted by one-day fluctuations, an analysis of changes in the quarterly averages is provided to give a better indication of balance sheet trends.
CONDENSED AVERAGE BALANCE SHEETS (in millions) 2nd Qtr 1st Qtr 4th Qtr 1999 1999 1998 ASSETS Interest-earning Interest-bearing deposits with banks $ 3,693 $ 2,878 $ 2,370 Federal funds sold 4,213 2,182 3,445 Securities purchased under resale agreements 16,339 19,165 19,316 Securities borrowed 12,326 18,516 17,903 Trading assets 16,958 21,402 25,206 Securities available for sale Taxable 6,775 9,573 10,038 Exempt from federal income taxes 1,193 1,645 1,692 Total securities available for sale 7,968 11,218 11,730 Loans Domestic offices 13,625 12,953 12,847 Foreign offices 8,266 10,094 10,417 Total loans 21,891 23,047 23,264 Customer receivables 1,357 1,752 1,622 Total interest-earning assets 84,745 100,160 104,856 Noninterest-earning Cash and due from banks 1,964 3,053 2,721 Noninterest-earning trading assets 17,289 23,224 29,650 All other assets 12,101 11,390 11,853 Less: Allowance for credit losses-loans 581 647 665 Total $115,518 $137,180 $148,415 LIABILITIES Interest-bearing Interest-bearing deposits Domestic offices $16,520 $ 16,854 $ 18,891 Foreign offices 15,215 17,988 16,650 Total interest-bearing deposits 31,735 34,842 35,541 Trading liabilities 4,258 5,211 5,918 Securities loaned and securities sold under repurchase agreements 11,297 21,032 20,650 Other short-term borrowings 17,264 17,006 19,247 Long-term debt 16,143 17,505 18,645 Trust preferred capital securities 1,423 1,420 1,419 Total interest-bearing liabilities 82,120 97,016 101,420 Noninterest-bearing Noninterest-bearing deposits 3,609 4,253 4,362 Noninterest-bearing trading liabilities 15,672 19,962 26,454 All other liabilities 9,806 11,182 11,271 Total liabilities 111,207 132,413 143,507 PREFERRED STOCK OF SUBSIDIARY - - 144 STOCKHOLDERS' EQUITY Preferred stock 394 394 394 Common stockholders' equity 3,917 4,373 4,370 Total stockholders' equity 4,311 4,767 4,764 Total $115,518 $137,180 $148,415
23 BALANCE SHEET ANALYSIS (continued) Securities Available for Sale The fair value, amortized cost and gross unrealized holding gains and losses for the Corporation's securities available for sale are as follows:
June 30, March 31, December 31, (in millions) 1999 1999 1998 Fair value $2,041 $10,371 $12,748 Amortized cost 1,996 10,472 12,903 Excess of amortized cost over fair value* $ 45 $ (101) $ (155) * Components: Unrealized gains $ 71 $ 205 $ 264 Unrealized losses (26) (306) (419) $ 45 $(101) $(155)
The decline in the balance of securities available for sale from March 31, 1999 and December 31, 1998 was primarily due to the transfer at fair market value of certain securities available for sale to other Deutsche Bank related entities as well as the sale of securities available for sale to third parties. 24 TRADING DERIVATIVES The Corporation actively manages trading positions in a variety of derivative contracts. Many of the Corporation's trading positions are established as a result of providing derivative products to meet customers' demands. To anticipate customer demand for such transactions, the Corporation also carries an inventory of capital markets instruments and maintains its access to market liquidity by quoting bid and offer prices to, and trading with, other market makers. These two activities are essential to provide customers with capital market products at competitive prices. All positions are reported at fair value and changes in fair values are reflected in trading revenue as they occur. The following tables reflect the gross fair values and balance sheet amounts of trading derivative financial instruments:
At June 30, Average During 1999 2nd Qtr. 1999 (Liabi- (Liabi- (in millions) Assets lities) Assets lities) OTC Financial Instruments Interest Rate and Currency Swap Contracts $ 12,905 $(13,273) $ 24,274 $(24,088) Interest Rate Contracts Forwards 46 (29) 283 (300) Options purchased 1,167 1,588 Options written (1,361) (1,616) Foreign Exchange Rate Contracts Spot and Forwards 12,185 (12,035) 8,959 (8,739) Options purchased 1,677 1,047 Options written (1,587) (880) Equity-related contracts 3,993 (3,944) 6,521 (6,630) Commodity-related and other contracts 1,265 (1,351) 789 (884) Exchange-Traded Options Interest Rate 5 (3) Foreign exchange 1 (2) Commodity 16 (15) 5 (11) Equity 130 (51) 212 (142) Total Gross Fair Values 33,384 (33,646) 43,684 (43,295) Impact of Netting Agreements (20,579) 20,579 (32,604) 32,604 $ 12,805(1) $11,080 $(13,067)(1) $(10,691) (1) As reflected on the balance sheet in "Trading Assets" and "Trading Liabilities."
25 TRADING DERIVATIVES (continued)
At December 31, AverageDuring 1998 4th Qtr. 1998 (Liabi- (Liabi- (in millions) Assets lities) Assets lities) OTC Financial Instruments Interest Rate and Currency Swap Contracts $ 26,923 $(26,401) $29,422$(27,742) Interest Rate Contracts Forwards 188 (193) 326 (319) Options purchased 2,236 2,156 Options written (2,111) (2,155) Foreign Exchange Rate Contracts Spot and Forwards 17,851 (17,169) 18,364 (18,097) Options purchased 1,254 1,350 Options written (1,048) (1,152) Equity-related contracts 5,508 (5,672) 4,956 (5,424) Commodity-related and other contracts 966 (970) 824 (808) Exchange-Traded Options Interest Rate 12 (4) 9 (7) Foreign exchange 30 (39) 33 (32) Commodity 8 (9) 2 (5) Equity 531 (372) 652 (421) Total Gross Fair Values 55,507 (53,988) 58,094 (56,162) Impact of Netting Agreements (38,131) 38,131 (36,835) 36,835 $17,376(1) $21,259 $(15,857)(1) $(19,327) (1) As reflected on the balance sheet in "Trading Assets" and "Trading Liabilities."
END-USER DERIVATIVES The Corporation, as an end user, utilizes various types of derivative products (principally interest rate and currency swaps) to manage the interest rate, currency and other market risks associated with certain liabilities and assets such as interest-bearing deposits, short-term borrowings and long-term debt, as well as securities available for sale, loans, investments in non-marketable equity instruments and net investments in foreign entities. Revenue or expense pertaining to management of interest rate exposure is predominantly recognized over the life of the contract as an adjustment to interest revenue or expense. Total net end-user derivative unrealized losses were $164 million at June 30, 1999 compared with unrealized gains of $264 million at December 31, 1998. The $428 million decrease was primarily due to the transfer of Corporation entities to affiliated Deutsche Bank entities and changes in interest rates. 26 END-USER DERIVATIVES (continued) The following tables provide the gross unrealized gains and losses for end-user derivatives. Gross unrealized gains and losses for hedges of securities available for sale are recognized in the financial statements with the offset as an adjustment to securities valuation allowance in stockholders' equity. Gross unrealized gains and losses for hedges of loans, other assets, interest-bearing deposits, other short-term borrowings, long-term debt, and net investments in foreign subsidiaries are not yet recognized in the financial statements.
Other Net invest- short- ents in Securities Interest- term Long- foreign (in millions) available Other bearing borrow- term subsi- June 30, 1999 for sale Loans assets deposits ings debt(1) diaries Total Interest Rate Swaps(2) Pay Variable Unrealized Gain $ - $ 5 $ - $ 68 $ 6 $ 80 $ - $ 159 Unrealized (Loss) - (8) - (141) (3) (82) - (234) Pay Variable Net - (3) - (73) 3 (2) - (75) Pay Fixed Unrealized Gain - - - 34 24 5 - 63 Unrealized (Loss) - (61) - (41) (8) (10) - (120) Pay Fixed Net - (61) - (7) 16 (5) - (57) Total Unrealized Gain - 5 - 102 30 85 - 222 Total Unrealized (Loss) - (69) - (182) (11) (92) - (354) Total Net $ - $(64) $ - $ (80) $ 19 $ (7) $ -$(132) Currency Swaps and Forwards Unrealized Gain $ - $ - $ 1 $ - $ - $ 15 $ 18 $ 34 Unrealized (Loss) - (2) - - - (47) (17) (66) Net $ - $(2) $ 1 $ - $ - $(32) $ 1 $(32) Other Contracts Unrealized Gain $ - $- $ - $ - $ - $ - $ - $ - Unrealized (Loss) - - - - - - - Net $ - $- $ - $ - $ - $ - $ - $ - Total Unrealized Gain $ - $ 5 $ 1 $ 102 $ 30 $ 100 $ 18 $ 256 Total Unrealized (Loss) (71) - (182) (11) (139) (17) (420) Total Net $ - $(66) $ 1 $ (80) $ 19$ (39) $ 1$(164) (1) Includes trust preferred capital securities. (2) Includes swaps with embedded options to cancel.
27 END-USER DERIVATIVES (continued)
Other Net invest- short- ments in Securities Interest- term Long- foreign (in millions) available Other bearing borrow- term subsi- Dec 31, 1998 for sale Loans assets deposits ings debt(1) diaries Total Interest Rate Swaps(2) Pay Variable Unrealized Gain $ 64 $ 8 $ - $149 $ 17 $471 $ - $ 709 Unrealized (Loss) (3) (7) - (13) (14) (55) - (92) Pay Variable Net 61 1 - 136 3 416 - 617 Pay Fixed Unrealized Gain 6 - - 3 - 7 - 16 Unrealized (Loss) (129)(76) (13) (70) (16) (30) - (334) Pay Fixed Net (123) (76) (13) (67) (16) (23) - (318) Total Unrealized Gain 70 8 - 152 17 478 - 725 Total Unrealized (Loss) (132) (83) (13) (83) (30) (85) - (426) Total Net $(62) $(75) $(13) $ 69 $ (13) $393 $ - $ 299 Currency Swaps and Forwards Unrealized Gain $ 6 $ - $ - $ 5 $ 1 $ 76 $ 19 $ 107 Unrealized (Loss) (7) (3) (1) (4) (1) (89) (34) (139) Net $(1) $(3) $(1) $ 1 $ - $(13) $(15)$ (32) Other Contracts Unrealized Gain $ - $ - $ - $ - $ - $ - $ - $ - Unrealized (Loss) (3) - - - - - - (3) Net $(3) $ - $ - $ - $ - $ - $ - $ (3) Total Unrealized Gain $ 76 $ 8 $ - $157 $18 $ 554 $ 19 $ 832 Total Unrealized (Loss) (142) (86) (14) (87) (31) (174) (34) (568) Total Net $ (66) $(78) $(14) $ 70 $(13) $ 380 $(15) $ 264 (1) Includes trust preferred capital securities. (2) Includes swaps with embedded options to cancel.
28 END-USER DERIVATIVES (continued) For pay variable and pay fixed interest rate swaps entered into as an end user, the weighted average receive rate and pay rate (interest rates were based on the weighted averages of both U.S. and non-U.S. currencies) by maturity and corresponding notional amounts were as follows ($ in millions):
At June 30, 1999 Notional Amount Paying Variable Paying Fixed Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional 1999 $33,653 5.11% 5.00% $4,052 5.11% 5.42% $37,705 2000-2001 14,022 5.37 4.97 4,137 4.83 6.25 18,159 2002-2003 2,815 5.41 5.14 412 5.21 6.29 3,227 2004 and thereafter 6,617 6.75 5.04 810 5.05 6.37 7,427 Total $57,107 $9,411 $66,518
All rates were those in effect at June 30, 1999. Variable rates are primarily based on LIBOR and may change significantly, affecting future cash flows.
At December 31, 1998 Notional Amount Paying Variable Paying Fixed Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional 1999 $55,494 5.37% 5.18% $8,704 5.34% 5.54% $64,198 2000-2001 9,802 5.63 5.32 3,266 4.94 6.49 13,068 2002-2003 5,601 5.48 4.51 983 4.15 5.04 6,584 2004 and thereafter 8,071 6.49 4.90 2,120 5.28 6.34 10,191 Total $78,968 $15,073 $94,041
All rates were those in effect at December 31, 1998. Variable rates are primarily based on LIBOR and may change significantly, affecting future cash flows. 29 REGULATORY CAPITAL The Corporation and its banking subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. The Federal Reserve Board's ("FRB") risk-based capital guidelines address the capital adequacy of bank holding companies and banks (collectively, "banking organizations"). These guidelines include: a definition of capital, a framework for calculating risk-weighted assets, and minimum risk-based capital ratios to be maintained by banking organizations. A banking organization's risk-based capital ratios are calculated by dividing its qualified capital by its risk-weighted assets. The FRB also has a minimum leverage ratio which is used as a supplement to the risk-based capital ratios in evaluating the capital adequacy of banks and bank holding companies. The Leverage ratio is calculated by dividing Tier 1 Capital by adjusted quarterly average assets. The Corporation's 1998 Annual Report on Form 10-K, on pages 22 and 62, provides a detailed discussion of these guidelines and regulations. In conjunction with the Acquisition and to strengthen the Corporation's capital base, Deutsche Bank made a capital contribution of $1.4 billion. Based on their respective regulatory capital ratios as of June 30, 1999, both the Corporation and Bankers Trust Company ("BTCo") are well capitalized, as defined in the applicable regulations. The Corporation's and BTCo's ratios are presented in the table below.
FRB Minimum To Be Well Actual Actual for Capitalized as of as of Capital Under June 30, December 31, Adequacy Regulatory 1999 1998 Purposes Guidelines Corporation Risk-Based Capital Ratios Tier 1 Capital 7.1% 7.5% 4.0% 6.0% Total Capital 13.7% 13.6% 8.0% 10.0% Leverage Ratio 3.4% 3.5% 3.0% N/A BTCo Risk-Based Capital Ratios Tier 1 Capital 11.3% 10.5% 4.0% 6.0% Total Capital 13.2% 13.4% 8.0% 10.0% Leverage Ratio 5.9% 5.7% 3.0% 5.0% N/A Not Applicable
30 REGULATORY CAPITAL (continued) The following are the essential components used in calculating the Corporation's and BTCo's risk-based capital ratios:
Actual as of Actual as of June 30, December 31, (in millions) 1999 1998 Corporation Tier 1 Capital $3,929 $5,069 Tier 2 Capital 3,622 3,812 Tier 3 Capital - 400 Total Capital $7,551 $9,281 Total risk-weighted assets $55,174 $67,980 BTCo Tier 1 Capital $5,384 $ 6,682 Tier 2 Capital 941 1,858 Total Capital $6,296 $ 8,540 Total risk-weighted assets $47,590 $63,748
Comparing June 30, 1999 to December 31, 1998, the Corporation's Tier 1 Capital ratio decreased 40 basis points as a decline in Tier 1 Capital of $1.1 billion was only partly offset by a decrease in risk-weighted assets of $12.8 billion. The $1.4 billion capital contribution by Deutsche Bank strengthens the Corporation's Tier 1 Capital base which was impacted by losses for the period. Risk-weighted assets decreased principally because positions were liquidated or transferred to other Deutsche Bank affiliates. The Total Capital ratio increased 10 basis points as the decrease in risk- weighted assets more than offset the decline of $1.7 billion in Total Capital. The Leverage ratio decreased 10 basis points as the decrease in Tier 1 Capital related to the operating losses more than offset the favorable impact of a $31.6 billion decline in quarterly average assets. The negative effect of the aforementioned operating losses and positive effect of the asset liquidations and transfers were also the main reasons for comparative variances in BTCo's ratios. BTCo's Tier 1 Capital ratio increased 80 basis points as the decrease in Tier 1 Capital of $1.3 billion was more than offset by a reduction of $16.2 billion in risk- weighted assets. Total Capital ratio declined 20 basis points due to a reduction in subordinated debt qualifying as Tier 2 Capital that was provided by the Corporation to BTCo. The Leverage ratio increased 20 basis points as the reduction in Tier 1 Capital was more than offset by the decline in quarterly average assets of $24.9 billion. 31 RISK MANAGEMENT Market risk is the risk of losses in the value of the Corporation's portfolio due to movements in market prices and rates. Market risk arises from the Corporation's investment, trading, and client activities. This section discusses changes in the Corporation's market-risk profile as characterized by the quantitative information presented on pages 23 to 28 of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 ("Annual Report"). Table 1 below shows the results of statistical measures of loss for the first six months of 1999 and all of 1998 for the set of financial assets and liabilities whose values are functions of market traded variables irrespective of accounting intention. This measure shows the 99th percentile loss potential of the Firm assuming the Firm's positions are held unchanged for 10 days. This measure is commonly known as Value-at- Risk (VaR) and is computed according to standards set by the Federal Reserve for determining regulatory capital required for market risk. Table 2 shows the same information for the subset of these positions that appear as Trading Assets on the Corporation's balance sheet. Table 1 BT Corporation Total Ten-Day Value at Risk (in millions)
Six Months 1998 1999 December 31, June 30, Risk Class Average Average 1998 1999 Interest Rate $101.4 $68.8 $ 77.4 $ 68.6 Currency 35.5 12.7 26.0 2.5 Equity 88.0 89.5 105.0 61.7 Commodity 4.2 3.8 3.9 1.1 Diversification (67.9) (52.7) (64.7) (31.6) Overall Portfolio $161.2 $122.1 $147.6 $102.3
32 RISK MANAGEMENT (continued) Table 2 BT Corporation Trading Ten-Day Value at Risk (in millions)
Six Months 1998 1999 December 31, June 30, Risk Class Average Average 1998 1999 Interest Rate $ 61.1 $ 38.4 $ 52.2 $ 31.7 Currency 34.8 12.6 22.0 2.5 Equity 57.0 39.0 51.2 13.5 Commodity 4.2 3.8 3.9 1.1 Diversification (53.7) (31.6) (47.5) (11.0) Overall Portfolio 103.4 $62.2 $81.8 $ 37.8
Table 1 shows that the Corporation's overall market-risk exposure declined during the first six months of 1999 on an average and spot basis by 24 percent and 31 percent, respectively. The overall decline was driven by declines in interest rate and currency risk. Although average equity risk rose by 2 percent during the six months in comparison with the 1998 average, the six months average declined by 15 percent from the December 31 level. On a spot basis, equity risk declined by 41 percent as of June 30 in comparison with the December 31 level. These reductions reflect the effects of integrating the Corporation into Deutsche Bank Group as well as a continuation of risk reduction efforts begun in the third quarter of 1998. Table 2 shows that the Corporation's risk levels from Trading Assets declined even more sharply during this period than the risk levels reported in Table 1, declining on an average and spot basis by 40 percent and 54 percent, respectively. The decline was evident across all significant risk areas. 33 LIQUIDITY Liquidity is the ability to have funds available at all times to meet the commitments of the Corporation. As part of the Acquisition, the Corporation's liquidity process has now become an integral part of Deutsche Bank's global liquidity process. The Corporation continues to have a formal process for managing the liquidity for the Firm as a whole and for each of its significant subsidiaries. Management's policy is designed to maintain the Corporation's ability to fund assets and meet any contractual financial obligations on a timely basis at a fair market cost under any market conditions. The fundamental objective is to ensure that, even in the event of a complete loss of access to liquidity, the Corporation will be able to fund those assets that cannot be liquidated on a timely basis. While the Corporation manages its liquidity position on a day-to-day basis to meet its ongoing funding needs, the Firm's planning and management process also encompasses contingency planning to address even the most severe liquidity events. One of the Corporation's principal liquidity strengths is its stock of highly liquid assets. An important component of these liquid assets is the "liquidity warehouse" and the aggregate warehouse size relative to maturing liabilities. The "liquidity warehouse" is defined as liquid assets which are under the direct control of the Treasury area and which can be liquidated at current market value on a timely basis. Interest Rate Sensitivity Condensed interest rate sensitivity data for the Corporation at June 30, 1999 is presented in the table below. For purposes of this presentation, the interest-earning/bearing components of trading assets and trading liabilities are assumed to reprice within three months. The interest rate gaps reported in the table arise when assets are funded with liabilities having different repricing intervals, after considering the effect of off-balance sheet hedging instruments. Since these gaps are actively managed and change daily as adjustments are made in interest rate views and market outlook, positions at the end of any period may not be reflective of the Corporation's interest rate view in subsequent periods. Active management dictates that longer-term economic views are balanced against prospects of short-term interest rate changes in all repricing intervals.
By Repricing Interval Non- interest- (in billions) Within 1 - 5 After bearing June 30, 1999 1 year years 5 years funds Total Assets $ 58.6 $ 3.4 $ 1.3 $ 28.7 $ 92.0 Liabilities and preferred stock (45.8) (7.0) (6.8) (28.8) (88.4) Common stockholder's equity - - - (3.6) (3.6) Effect of off-balance sheet hedging instruments (2.3) 1.5 0.8 - - Interest rate sensitivity gap $10.5 $(2.1) $(4.7) $(3.7) $ -
34 NONPERFORMING ASSETS The components of cash basis loans, renegotiated loans, other real estate and other nonperforming assets are shown below ($ in millions).
June 30, December 31, 1999 1998 CASH BASIS LOANS Domestic Commercial and industrial $ 45 $ 91 Secured by real estate 75 86 Financial institutions 13 15 Total domestic 133 192 International Commercial and industrial 83 135 Secured by real estate 11 18 Foreign governments 3 23 Lease financings 2 7 Other 20 17 Total international 119 200 Total cash basis loans $252 $392 Ratio of cash basis loans to total gross loans 1.0% 1.7% Ratio of allowance for credit losses-loans to cash basis loans 211% 166% RENEGOTIATED LOANS Secured by real estate $- $25 Other - 1 Total renegotiated loans $- 26 OTHER REAL ESTATE $92 $87 OTHER NONPERFORMING ASSETS $8 $8
There were no loans 90 days or more past due and still accruing interest at June 30, 1999 and December 31, 1998. 35 NONPERFORMING ASSETS (continued) An analysis of the changes in the Corporation's total cash basis loans during the first six months of 1999 follows (in millions):
Balance, December 31, 1998 $392 Net transfers to cash basis loans 63 Net transfers to other real estate (11) Net paydowns (70) Charge-offs (84) Other (38) Balance, June 30, 1999 $252
The Corporation's total cash basis loans amounted to $252 million at June 30, 1999, down $140 million, or 36 percent, from December 31, 1998. Within cash basis loans, loans secured by real estate were $86 million and $104 million at June 30, 1999 and December 31, 1998, respectively. Commercial and industrial loans to highly leveraged borrowers were $36 million and $66 million at June 30, 1999 and December 31, 1998, respectively. The following table sets forth the approximate effect on interest revenue of cash basis loans and renegotiated loans. This disclosure reflects the interest on loans which were carried on the balance sheet and classified as either cash basis or renegotiated at June 30 of each year. The rates used in determining the gross amount of interest which would have been recorded at the original rate were not necessarily representative of current market rates.
Six Months Ended June 30, (in millions) 1999 1998 Domestic Loans Gross amount of interest that would have been recorded at original rate $5 $4 Less, interest, net of reversals, recognized in interest revenue 2 1 Reduction of interest revenue 3 3 International Loans Gross amount of interest that would have been recorded at original rate 11 5 Less, interest, net of reversals, recognized in interest revenue 8 2 Reduction of interest revenue 3 3 Total reduction of interest revenue $6 $6
36 EMERGING MARKETS CROSS-BORDER EXPOSURES(1)
% Change from June 30, December 31, December 31, ($ in billions) 1999 1998 1998 Korea, Republic of $0.6 $0.8 (25)% Indonesia - 0.4 (100)% Hong Kong 0.1 0.4 (75)% Thailand - 0.2 (100)% Malaysia - 0.1 (100)% Other(2) 0.3 0.8 (63)% Total Emerging Asia $1.0 $2.7 (63)% Brazil $0.3 $0.7 (57)% Mexico 0.4 0.6 (33)% Argentina 0.2 0.5 (60)% Venezuela - 0.1 (100)% Other(3) 0.3 0.6 (50)% Total Latin America $1.2 $2.5 (52)% Russian Federation $0.2 $0.2 -% Total $2.4 $5.4 (56)% As a % of Total Assets 2.6% 4.1% (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.
The decline in emerging markets cross-border exposures was partly due to the transfer of BTI. 37 RELATED PARTY TRANSACTIONS In conjunction with the integration of the Corporation into Deutsche Bank's management structure, the Corporation has entered into various related party transactions with Deutsche Bank. As previously mentioned on page 9, the Corporation has transferred BTAB and substantially all of its interest in BTI to Deutsche Bank entities. In addition, the Corporation has transferred at fair market value certain other entities and financial assets and liabilities to Deutsche Bank entities. In order to realign the Corporation's businesses with the Deutsche Bank management structure, the Corporation will continue to transfer other financial assets and liabilities and entities as necessary. ACCOUNTING DEVELOPMENTS In March 1998, the Accounting Standards Executive Committee of the AICPA issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1), which provides guidance as to when it is or is not appropriate to capitalize the cost of software developed or obtained for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The adoption as of January 1, 1999 of SOP 98-1 did not have a material impact on the Corporation's net income, stockholders' equity or total assets. In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires companies to recognize all derivatives on the balance sheet as assets or liabilities measured at fair value. SFAS 137 deferred the effective date of SFAS 133 until January 1, 2001 for calendar year companies. Depending on the underlying risk management strategy, the accounting for these products under the new standard could affect reported earnings and balance sheet accounts. The Corporation continues to evaluate the potential impact of the new standard as plans for implementation proceed. 38 Item 3. Quantitative and Qualitative Disclosures About Market Risk See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management" on page 31 for Quantitative and Qualitative Disclosures About Market Risk. FORWARD-LOOKING STATEMENTS Certain sections of this report contain forward-looking statements and can be identified by the use of such words as "anticipates," "expects," and "estimates," and similar expressions. See "Year 2000 Readiness Disclosure". These statements are subject to certain risks and uncertainties. These risks and uncertainties could cause actual results to differ materially from the current statements. See also "Important Factors Relating to Forward-Looking Statements" contained in the Corporation's Annual Report. 39 PART II. OTHER INFORMATION Item 5. OTHER INFORMATION On June 15, 1999, Richard H. Daniel, the Chief Financial Officer of the Corporation resigned to pursue other interests. On June 30, 1999, Frank N. Newman, the Chairman of the Board, Chief Executive Officer, and President of the Corporation, resigned. The Corporation at its Board meeting held on July 21, 1999, elected Dr. Josef Ackermann, a director of the Corporation, as the Chairman of the Board, Chief Executive Officer and President effective as of July 1, 1999, to succeed Mr. Frank N. Newman. At the same meeting, the resignation of Mr. Robert B. Allardice III as a director of the Corporation was accepted effective as of July 21, 1999. Mr. Hans H. Angermueller and Dr. Ronaldo H. Schmitz were elected as directors of the Corporation effective as of July 21, 1999, to fill the vacancies created by the resignations of Messrs. Newman and Allardice. The current directors of the Corporation are as follows: Dr. Josef Ackermann Mr. Hans H. Angermueller Mr. George B. Beitzel Mr. William R. Howell Mr. Hermann-Josef Lamberti Mr. John A. Ross Dr. Ronaldo H. Schmitz Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (4) Instruments Defining the Rights of Security Holders, Including Indentures (v) - The Corporation hereby agrees to furnish to the Commission, upon request, a copy of any instru- ments defining the rights of security holders issued by Bankers Trust Corporation or its subsidiaries. (10) Material Contracts iii (a) - Management Contracts and Compensation Plans (12) Statement re Computation of Ratios (27) Financial Data Schedule (99) Additional Exhibits (b) Reports on Form 8-K - Bankers Trust Corporation filed five reports on Form 8-K during the quarter ended June 30, 1999. - The report dated June 4, 1999 and filed June 21, 1999 reported: under Item 1 thereof that Deutsche Bank AG acquired all of the outstanding shares of common stock of Bankers Trust Corporation from its shareholders at a price of $93.00 per share; under Item 2 thereof the transfer of certain wholly-owned subsidiaries to Deutsche Bank AG and the proposed sale of Bankers Trust Australia Limited; under Item 5 thereof the resignations of all directors of Bankers Trust Corporation other than Frank N. Newman and certain other events; under Item 7 thereof unaudited pro forma financial information. 40 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (continued) - The report dated and filed June 4, 1999 filed a Press Release issued by Deutsche Bank AG which announced the merger of the Corporation with a wholly-owned subsidiary of Deutsche Bank AG. - The report filed May 21, 1999, filed the Corporation's Press Release dated May 20, 1999 that announced that the Federal Reserve Board approved the Company's merger with Deutsche Bank. - The report filed April 28, 1999, filed the Corporation's Press Release dated April 27, 1999 that announced that its shareholders voted to approve the Company's merger with Deutsche Bank. - The report filed April 26, 1999, filed the Corporation's Press Release dated April 26, 1999, which announced earnings for the first quarter of 1999. 41 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 16, 1999. BANKERS TRUST CORPORATION BY: /S/ RONALD HASSEN RONALD HASSEN Senior Vice President, Controller and Principal Accounting Officer BANKERS TRUST CORPORATION FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 EXHIBIT INDEX (4) Instruments Defining the Rights of Security Holders, Including Indentures (v) - Long-Term Debt Indentures (a) (10) Material Contracts iii(a) Management Contracts and Compensation Plans (1) Severance Agreement with Frank N. Newman (2) Severance Agreement with Richard H. Daniel (12) Statement re Computation of Ratios (a) - Computation of Consolidated Ratios of Earnings to Fixed Charges (b) - Computation of Consolidated Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements (27) Financial Data Schedule (99) (i) Additional Exhibits (1) Unaudited Pro Forma Condensed Financial Statements for the six months ended June 30, 1999 and 1998 [FN] (a) The Corporation hereby agrees to furnish to the Commission, upon request, a copy of any instruments defining the rights of holders of long-term debt issued by Bankers Trust Corporation or its subsidiaries. EX-10 2 EXHIBIT 10 iii(a)(1) SEPARATION AGREEMENT This Separation Agreement (this "Agreement) is made on June 29, 1999, by and between Frank N. Newman (the "Executive") and Bankers Trust Corporation (the "Company"). 1. Termination of Employment. The Executive and the Company agree that the Executive's employment with the Company shall terminate effective as of June 30, 1999 (the "Termination Date"). The Executive hereby resigns, effective as of the Termination Date, all positions, titles, duties, authorities and responsibilities with, arising out of or relating to his employment with the Company and its affiliates. 2. Payments. (a) On the first business day following the Effective Time (as such term is hereinafter defined), the Company shall pay the Executive his earned but unpaid base salary through the Termination Date at an annual rate of nine-hundred thousand dollars ($900,000). (b) On the first business day following the Effective Time, the Company shall pay the Executive, by wire transfer to an account designated by the Executive, fifty-two million seven hundred fifty thousand seven hundred fifty eight dollars, ($52,750,758.00). (c) On July 1 (or such later date not after the first business day following the Effective Time on which such payments are distributed generally to executives of the Company), the Company shall also pay to the Executive, by wire transfer to an account designated by the Executive, twenty-one million three hundred eight thousand five hundred six dollars and thirty-one cents ($21,308,506.31), in cash in a lump sum, in full satisfaction of the Executive's entitlement under various incentive plans of the Company. (d) The Company shall continue to provide the Executive and his spouse with medical and dental benefits on the same basis and terms as the Company provides generally to its senior executive officers from time to time, for the period from the Termination Date through the earlier of June 30, 2002, or such date as the Executive is entitled to receive substantially similar benefits from any new employer of the Executive. Such benefit continuation shall not satisfy the Company's obligation to offer to continue the Executive's medical benefits at the Executive's own expense under the federal law commonly referred to as COBRA. (e) For the period from the Effective Time through the earlier of December 31, 2003, or the date on which the Executive commences new employment (i) the Company shall continue to provide the Executive with a car and driver for his personal use; and (ii) the Company will continue to provide the Executive with an office that is reasonably acceptable to the Executive and the Company and with a secretary, who may be his current secretary or another secretary of his choosing, provided that the annual cost of such secretary does not exceed $75,000, increased each year by the increase in the Consumer Price Index for the New York City area. (f) The payment provided for in Section 2(b) hereof shall not be taken into account as compensation under, and no service credit shall be given after the Termination Date for purposes of determining the benefits payable under, any employee benefit plan, program, agreement or arrangement of the Company. 3. Other Agreements. (a) Following the Effective Time, the Executive shall have the honorary title "Chairman Emeritus of Bankers Trust Corporation." (b) The Executive acknowledges and agrees to comply as of the Effective Date with the agreements set forth in Section 6 and 7 (concerning confidentiality and competition) of the Employment Agreement dated as of November 30, 1998, between the Company and the Executive (the "Employment Agreement"). (c) The Company and the Executive acknowledge and reaffirm their agreements set forth in Section 9 of the Employment Agreement (concerning excise taxes). The Company and the Executive agree that the payments referred to in Section 9(a) of the Employment Agreement include the payments referred to in this Agreement. The Company and the Executive also agree that, in lieu of the agreements set forth in Section 9(b) of the Employment Agreement the Company shall make all of the determinations required by Section 9(a) of the Employment Agreement and, subject to Sections 9(c) and (d) of the Employment Agreement, the Executive agrees not to take any position inconsistent with such determinations. (d) The Executive agrees to reasonably cooperate (including attending meetings) with respect to any claim, arbitral, hearing, lawsuit, action or governmental or internal investigation relating to the conduct of the business of the Company or its affiliates. The Executive agrees to provide full and complete disclosure in response to any inquiry in connection with any such matters. The Company agrees to reimburse the Executive for his reasonable expenses incurred in connection with such cooperation, (e) The Executive and the Company agree that Deutsche Bank AG will issue the press release attached hereto as Exhibit A as soon as practical after the date hereof. (f) Executive shall not intentionally make any public statements, encourage others to make statements or release information intended to disparage or defame the Company, any of its affiliates or any of their respective directors or officers. The Company shall cause its senior executives and the senior executives and directors of Deutsche Bank AG not to intentionally make, or cause or encourage others to make, any public statements or release information intended to disparage or defame the Executive's reputation, and the Company shall not take any such action on its own behalf. Notwithstanding the foregoing, nothing in this Section 3(f) shall prohibit any person from making truthful statements when required by order of a court or other body having jurisdiction or as required by law. (g) The Company agrees to continue to maintain a directors' and officers' liability insurance policy covering the Executive until such time as suits against the executive with respect to his employment with the Company are no longer permitted by law. 4. General Release and Waiver (a) The Executive hereby releases, remises and acquits the Company and all of its affiliates, and their respective officers, directors, shareholders, members, agents, executives, consultants, independent contractors, attorneys, advisers, successors and assigns, jointly and severally, from any and all claims, known or unknown, which the Executive or the Executive's heirs, successors or assigns have or may have against any of such parties arising on or prior to this date of this Agreement and any and all liability which any of such parties may have to the Executive, whether denominated claims, demands, causes of action, obligations, damages or liabilities arising from any and all bases, however denominated, including but not limited to all contractual claims and any claims, under the Age Discrimination in Employment Act, the Americans With Disabilities Act of 1990, the Family and Medical Leave Act of 1993, Title VII of the United States Civil Rights Act of 1964, 42 U.S.C. S 1981 or any other Federal, State or local law and any workers' compensation or disability claim under any such law. This release relates to claims arising from and during the Executive's employment relationship with the Company or as a result of the termination of such relationship. The Executive further agrees that the Executive will not file or permit to be filed on the Executive's behalf any such claim. Notwithstanding the preceding sentence or any other provision of this Agreement, this release is not intended to interfere with the Executive's right to file a charge with the Equal Employment Opportunity Commission in connection with any claim he believes he may have against the Company. However, by executing this Agreement the Executive hereby waives the right to recover in any proceeding the Executive may bring before the Equal Employment Opportunity Commission or any State human rights commission or in any proceeding brought by the Equal Employment Opportunity Commission or any State human rights commission on the Executive's behalf. This release is for any relief no matter how denominated, including, but not limited to, injunctive relief, wages, back pay, front pay, compensatory damages, or punitive damages. This release shall not apply to any obligation of the Company pursuant to this Agreement any benefit to which the Executive may be entitled under any tax qualified pension plan of the Company or its affiliates, COBRA continuation coverage benefits or any other similar benefits required to be provided by law, any rights in the nature of indemnification which the Executive may have with respect to claims against the Executive relating to or arising out of his employment with the Company or any rights that the Executive may have to obtain contribution in the event of the entry of judgment against him as a result of any act or failure to act for which both the Executive and the Company or any of its affiliates are jointly responsible. (b) The Executive acknowledges that the agreements of the Company hereunder are being provided in consideration of the foregoing release and that the Executive may not otherwise be entitled to certain of the benefits described herein. The Executive agrees not to make any claim or take any position inconsistent with the preceding sentence. (c) The Company hereby releases, remises and acquits the Executive and his successors, heirs and advisers, jointly and severally, from any and all claims, known or unknown, which the Company or its affiliates, successors or assigns have or may have against any of such parties arising on or prior to the date of this Agreement and any and all liability which any of such parties may have to the Company, whether denominated claims, demands, causes of action, obligations, damages or liabilities arising from any and all bases, however denominated, including but not limited to all contractual claims and any claims under law, excluding any claim relating to intentional gross misconduct by the Executive damaging in a material way to the Company or one of its affiliates. The Company further agrees that the Company will not file or permit to be filed any such claim. This release is for any relief no matter how denominated, including, but not limited to, injunctive relief, compensatory damages or punitive damages. This release shall not apply to any obligation of the Executive pursuant to this Agreement or any rights that the Company or its affiliates may have to obtain contribution in the event of the entry of judgment against the Company or any such affiliate as a result of any act or failure to act for which both the Executive and the Company or such affiliate are jointly responsible. 5. No Admission. This Agreement does not constitute an admission of liability or wrongdoing of any kind by the Company or its affiliates or Executive. 6. Reirs and Assigns. The terms of this Agreement shall be binding on the parties hereto and their respective successors and assigns. 7. Confidentially. (a) For the period during which this Agreement has not been publicly disclosed by the Company, the Executive agrees to keep in full confidence all information concerning this Agreement except (i) to the extent disclosure is or may be required by a statute, by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order him to divulge, disclose or make accessible such information, (ii) to the extent disclosure to the Executive's legal counsel and personal financial advisors is reasonably necessary in connection Executive's consideration of the terms of this Agreement or Executive's personal financial dealings and (iii) to members of his immediate family. (b) The Company agrees to keep in full confidence all information concerning this Agreement, except (i) to the extent disclosure is or may be required by the Company or any of its affiliates by a statute, by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order the Company or its affiliate to divulge, disclose or make accessible such information, (ii) to the extent disclosure to the legal counsel and auditors by the Company or its affiliates is reasonably necessary and (iii) to those persons within the Company and its affiliates who, as reasonably determined by the Company, must, know about it in carrying out their duties. (c) The Executive and the Company acknowledge and agree that each shall be entitled to enforce specifically the covenants in this Section 7 by seeking an injunction to prevent violation thereof in addition to any other remedies available at law or in equity. 8. General Provisions. (a) This Agreement constitutes the entire understanding of the Company and the Executive with respect to the subject matter hereof and supersedes all prior understandings, written or oral, with respect thereto. The terms of this Agreement may be changed, modified or discharged only by an instrument in writing signed by the parties hereto. A failure of the Company or the Executive to insist on strict compliance with any provision of this Agreement shall not be deemed a waiver of such provision or any other provision hereof. In the event that any provision of this Agreement is determined to be so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. (b) This Agreement shall be construed enforced and interpreted in accordance with and governed by the laws of the State of New York. The Company and the Executive irrevocably and unconditionally submit to the exclusive jurisdiction of the United States District Court for the Southern District of New York located in the borough of Manhattan in the City of New York or the Supreme Court of the State of New York, New York County for the purposes of any suit, action or other proceeding arising out of or relating to this Agreement and each party agrees that any such suit, action or other proceeding shall be heard without a jury and hereby waives any right to a trial by jury in connection therewith. (c) The parties hereto acknowledge and agree that each party has reviewed and negotiated the terms and provisions of this Agreement and has had the opportunity to contribute to its revision. Accordingly, the rule of construction to the effect that ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement. Rather, the terms of this Agreement shall be construed fairly as to both parties hereto and not in favor or against either party. (d) This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which counterpart, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement (e) All notice, requests, demands or other communications under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or when received by facsimile or overnight express to the party to whom such notice is being given as follows: As to Executive: Frank N. Newman 927 Fifth Avenue New York, New York 10021 As to the Company: Dr. Klaus Kohler Deutsche Bank AG Paunusanlage 12 60262 Frankfurt-am-Main, Germany Either party may change his or its address or the name of the person to whose attention the notice or other communication shall be directed from time to time by serving notice thereof upon the other party as provided herein. (f) The Company represents and warrants to the Executive that the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized and that all corporate action required to be taken by the Company for the execution, delivery and performance of this Agreement has been duly and effectively taken. The Company acknowledges that the Executive has relied upon such representations and warranties in entering into this Agreement. (g) All payments and benefits payable pursuant hereto shall be paid subject to all required tax withholdings. 9. Knowing and Voluntary Waiver. The Executive acknowledges that by the Executive's free and voluntary act of signing below, the Executive agrees to all of the terms of this Agreement and intends to be legally bound thereby. The Executive understands that he may consider whether to agree to the terms contained herein for a period of twenty-one days after the date hereof. Accordingly, the Executive may execute this Agreement by July 20, 1999, to acknowledge his understanding of and agreement with the foregoing. The Executive acknowledges that he has been advised to consult with an attorney prior to executing this Agreement. This Agreement will become effective, enforceable and irrevocable at 5 p.m. (eastern time) on the seventh day after the date on which it is executed by the Executive (the "Effective Time"). During the seven-day period prior to the Effective Time, the Executive may revoke his agreement to accept the terms hereof by notifying the Company of his intention to revoke. If the Executive exercises his right to revoke hereunder, he shall forfeit his right to receive any of the benefits provided for herein. BANKERS TRUST CORPORATION /S/ James T. Byrne By: James T. Byrne, Secretary-Bankers Trust Corporation /S/ Frank N. Newman Frank N. Newman Acknowledgment STATE OF NEW YORK ) ss: COUNTY OF NEW YORK ) On the 29th day of June, 1999, before me personally came Frank N. Newman who, being by me duly sworn, did depose and say that he resides at 927 Fifth Avenue, New York, New York; and did acknowledge and represent that he has had an opportunity to consult with attorneys and other advisers of his choosing regarding the Separation Agreement attached hereto, that he has reviewed all of the terms of the Separation Agreement and that he fully understands all of its provisions, including, without limitation, the general release and waiver set forth therein. /S/ Joan S. Montello Notary Public Date: June 29, 1999 JOAN S. MONTELLO NOTARY PUBLIC, STATE OF NEW YORK NO. 31-MO4867292 QUALIFIED IN NEW YORK COUNTY COMMISSION EXPIRES AUGUST 11, 2000 PRESS RELEASE DEUTSCHE BANK Frankfurt am Main, June 29, 1999 Frank Newman, Co-Chairman of Global Corporates and Institutions (GCI) Division of the Deutsche Bank Group and Chairman of the Board of Directors and Chief Executive Officer of Bankers Trust Corp. will be leaving the Deutsche Bank Group after the recent successful acquisition of Bankers Trust by Deutsche Bank. His resignation will be on amicable terms and will take effect on June 30,1999. With the closing having occurred and the smooth integration process well on its way, Frank Newman has attained his goals of achieving maximum value for the Bankers Trust shareholders and delivering the Bankers Trust franchise into a secure future. He is now planning to devote his future time on new projects. Dr. Rolf-E. Breuer, Spokesman of the Board of Managing Directors of Deutsche Bank thanked Frank Newman for his constructive cooperation and his essential contribution to the closing and to the smooth integration of Bankers Trust's businesses and employees. Frank Newman stated: "BT has now been delivered into sound hands. Much has already been accomplished, as a result of active integration planning over the past several months. Combined operations are off to an excellent start. At this point, I concluded that the role originally envisioned for me will not be necessary. I thought it made sense for me to step aside at this time, and let the continuing management team carry on with the momentum already initiated. I expect the expanded DB to be very successful, and take my leave on excellent terms with Rolf Breuer, for whom I have a great deal of respect, as well as the other members of the Management Board. I'll also take this opportunity to once again thank the exceptional people of BT, who have helped so much to build and transform the company over these past few years; I wish them great success in their new roles." BANKERS TRUST CORPORATION 130 Liberty Street New York, New York 10006 June 29, 1999 Frank N. Newman 927 Fifth Avenue New York, New York 10021 Dear Mr. Newman: This letter confirms that Bankers Trust Corporation agrees to contribute the sum of five million dollars ($5,000,000) to a charitable foundation or trust that is qualified under Section 170(c) of the U.S. Internal Revenue Code of 1986 (the "Charitable Trust") specified by you. It is understood that you or your designees will act as trustees of the Charitable Trust and will designate the non-profit organizations to receive funds from the Charitable Trust over time. While the Charitable Trust may pay administrative costs, no funds of the Charitable Trust may be paid to you or any member of your family. Bankers Trust Corporation's contribution to the Charitable Trust will be made on the business day following the Effective Date under your Separation Agreement, or any subsequent date specified by you, provided that you provide the Corporate Secretary of Bankers Trust Corporation or its successor with at least three business days' notice. Sincerely, /S/_James Byrne__________________ James Byrne, Secretary-Bankers Trust Corporation EX-10 3 EXHIBIT 10 iii(a)(2) SETTLEMENT AND NON-DISCLOSURE AGREEMENT RICHARD H. DANIEL, on his own behalf and on behalf of his heirs, executors, administrators, attorneys, successors and assigns (hereinafter collectively referred to as "Daniel"), and BANKERS TRUST CORPORATION on its own behalf and on behalf of its, domestic and international subsidiaries, divisions, and affiliates and its and their successors (including without limitation, Deutsche Bank AG) and assigns, respective officers, directors, agents, representatives and employees (hereinafter collectively referred to as "Bankers Trust" or the "Corporation"), have reached the within agreement ("Agreement") in settlement of any and all issues related to Daniel's employment with, and separation from the employ of, Bankers Trust, such Agreement being reached on the following terms and conditions: 1 . Daniel's employment with Bankers Trust will end on June l5, 1999 (the "Termination Date"). 2. In full and complete satisfaction of all known and unknown claims against Bankers Trust, and in consideration for executing this Agreement and a second original of this Agreement reaffirming its terms and conditions including the waiver and release provisions contained herein on his last day on the Corporation's premises, Daniel will receive payments and benefits in accordance with the following provisions, together with all deferred compensation and other payments due him pursuant to the so-called "Trigger 1 Change of Control Payout" (as detailed in Exhibit 1), immediately following his off payroll date but not before the eighth day following his execution and return to the Corporation of this Agreement: (i) In full satisfaction of the benefits available under the Change in Control Severance Plan I ("COC-1"), Daniel will be paid a lump sum of 7.5 million dollars; (ii) Daniel will receive a lump sum payment of 6.75 million dollars, less $1,296,212.12, an amount equal to any compensation received by him for 1999 up to and including the Termination Date, provided that his off payroll date is June 14, 1999, as full payment of all compensation under the December 17, 1998 Retention Agreement between Daniel and Bankers Trust, which is hereby mutually rescinded. To the extent that Daniel's off payroll date is subsequent to June 14, 1999, the amount deducted from the lump sum payment will increase by $1,325.76 per day; (iii) Daniel's 401(k) Savings Plan and Cash Balance Retirement Plan Accounts were fully vested as of the Change of Control date. All additional accruals subsequent to this date will vest and be distributable on the Termination Date. The 401(k) Savings Plan will have an additional trailing contribution at year end, which will be available immediately at that time; (iv) Daniel will receive the cash value of his 1999 accrued and unused vacation days; (v) As provided for under the COC-1, Daniel's group medical and dental benefits will continue for a period of three (3) years following the Termination Date, or until Daniel is reemployed by another employer and eligible to receive the welfare benefits from such an employer, whichever first occurs. Daniel shall share the costs of such coverage on the same tax effective basis as in effect prior to the date of his termination. At the end of the three (3) year period, Daniel will be offered the opportunity to continue his group health insurance at his own expense through COBRA. (vi) The Corporation will arrange for Daniel to be provided with the use of Off-premises office facilities for the initial period of three (3) months which thereafter may be extended by mutual agreement in separate one (1) month increments. The extended period(s) will be provided in the event that Daniel has not obtained employment at the conclusion of the initial period or at the conclusion of each of the individual extensions. Daniel acknowledges that the payments and benefits set forth above shall be subject to applicable federal, state and local taxes, and all other deductions as required by applicable laws and Bankers Trust policy. Daniel shall have no duty to seek other employment or to become self- employed to mitigate any payments or benefits to which he is entitled pursuant to this Agreement nor shall there be any offset against such payments or benefits in the event of such employment or self-employment. In the event that it is determined that any payment or distribution by the Corporation to Daniel is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, Daniel shall be entitled to receive an additional cash payment (a "Gross-Up Payment") in an amount such that after payment by Daniel of all taxes, he retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the payments provided hereunder. 3. Daniel agrees that he will not publicly or privately disparage Bankers Trust or any of the Corporation's products, services, divisions, affiliates, related companies or current or former officers, directors, trustees, employees, agents, administrators, representatives or fiduciaries. Notwithstanding the foregoing, neither Daniel nor the Corporation will be restricted from providing information about the other as required by a court or governmental agency or by applicable law. Further, the Corporation and Daniel shall not be restricted from reporting information regarding his performance while employed by the Corporation to internal or external auditors, special counsel or investigators, any applicable enforcement agencies, regulatory agencies, insurance carriers or in litigation involving Daniel or the Corporation. The Corporation agrees that it will not publicly or privately disparage Daniel. 4. In exchange for the consideration described in Paragraph 2, Daniel hereby releases Bankers Trust from any and all liability arising from any and all acts or omissions including, but not limited to, those arising out of his employment relationship with the Corporation or under any contract, tort, federal, state, or local fair employment practices or civil rights law including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Older Worker Benefits Protection Act of 1990, the Civil Rights Act of 1866, the Americans With Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974, the New York State and New York City Civil Rights Laws, or any claim for physical or emotional distress or injuries, or any other duty or obligation of any kind or description. This release shall apply to all known, unknown, unsuspected and unanticipated claims, liens, injuries and damages including, but not limited to, claims of employment discrimination, indemnity for discharge, or claims sounding in tort or in contract, express or implied, as of the date of the execution of this Agreement, and including any claims for wages, bonuses or separation allowance or severance payments including under the Bankers Trust Corporation's Change In Control Severance Plan 1, or any other form of compensation or benefits. Notwithstanding the foregoing, Daniel does not release his right to have the Corporation perform its obligations under this Agreement, including without limitation, his right to (i) indemnification pursuant to this paragraph 4, or any other right to indemnification by the Corporation, (ii) any compensation or benefits pursuant to any plan or program that is part of the subject matter of this Agreement, including the amounts shown on Exhibit 1, (iii) pension, health or similar benefits under the Corporation's retirement programs. Daniel also agrees not to initiate any legal action, charges or complaints against Bankers Trust in any forum whatsoever, in connection with the claims released by him pursuant to this paragraph 4. In the event any such actions, charges or complaints are asserted in the future by or on behalf of Daniel, a material violation of a material provision of this Agreement shall be deemed to have occurred, entitling Bankers Trust to the return of the consideration set forth in this Agreement which is over and above the 7.5 million dollar separation allowance to which Daniel is normally entitled under Bankers Trust's Change in Control Severance Plan 1, the compensation received by him for 1999 up to and including the Termination Date and the pro rata bonus paid in conjunction with the Change in Control, as well as the attorneys' fees incurred by Bankers Trust in defending such action, charge or complaint. Bankers Trust expressly denies that it has violated any law, statute, ordinance, contract, duty or obligation whatsoever, or that it committed any tort or engaged in any wrongful conduct with respect to Daniel. Daniel acknowledges that the consideration described in this Agreement is in excess of that to which he was otherwise entitled upon his termination under either applicable law, Corporation policy, or pursuant to any contractual agreement he may have with Bankers Trust. Daniel also acknowledges that the consideration provided herein is good and sufficient consideration to support the waivers and releases in this Agreement and the second original of this Agreement he will be executing on his last day on Corporation premises. Bankers Trust agrees that Daniel is entitled to indemnification to the fullest extent provided by the Corporation to officers, as set forth in the Corporation's by-laws as may exist from time to time. Daniel shall also be entitled to officers' liability insurance in accordance with the terms of the policy provided by the Corporation for its officers, as amended from time to time. 5. The terms of this Agreement, the claims that have been or could have been raised against Bankers Trust as of the date of this Agreement, and the facts and circumstances underlying any such claim shall not be admissible by Daniel in any litigation or proceeding in any forum, except as required by law, for any purpose other than to secure enforcement of the terms and conditions of this Agreement. 6. Neither Daniel nor the Corporation will publish, publicize, or disseminate or cause to be published, publicized or disseminated or permit to be published, publicized or disseminated, directly or indirectly, and will keep entirely confidential any information, data or documents (1) relating to Daniel's employment with and separation from Bankers Trust, except that (a) either party may discuss the fact that he was employed by Bankers Trust, his title, responsibilities and that he resigned his position and (b) the parties shall agree in advance to the wording of an announcement concerning Daniel's departure from the Corporation; or (2) relating to the terms of this Agreement or the fact that this Agreement exists, except for (a) the purpose of enforcing this Agreement should that ever become necessary; or (b) disclosures required by a court or governmental agency or by applicable law, or to any investigatory or regulatory agency with authority over the Corporation. Daniel may disclose the terms of this Agreement to his spouse, outplacement firms, accountants, attorneys or tax preparers, or prospective employers, provided that disclosures to prospective employers shall be limited according to the provisions of paragraphs 3 and 6, and, the Corporation may disclose the terms of this Agreement to its accountants, attorneys, tax preparers, its employees who have a need to know such terms, and as otherwise set forth above. Daniel further agrees that he will not publish, publicize or disseminate, or cause to be published, publicized or disseminated or permit to be published, publicized or disseminated, directly or indirectly, and will keep entirely confidential any confidential information, data or documents relating to the operations of the Corporation, including any trade secrets or other proprietary information, except as may be required by a court or governmental agency. Confidential information shall mean all information that is not known or available to the public concerning the business of the Corporation relating to its financial products, product development, trade secrets, customers, suppliers, finances, and business plans and strategies, including know-how, financial information concerning the Corporation and its customers and specifications, programs, documentation and manuals relating to all financial models, telecommunications and computer systems, software, hardware and applications developed or used by Bankers Trust. Confidential information shall include information that is, or becomes, known to the public as a result of a breach by Daniel of the provisions of this paragraph 6. Bankers Trust reserves the right to seek appropriate damages, including attorneys' fees and injunctive relief, should Daniel violate this Agreement. 7. Daniel agrees that during his employment and for the six-month period following his termination, he will not, directly or indirectly, personally solicit or induce or cause any third party to solicit or induce any Bankers Trust employees to work for him or any competitor of the Corporation, it being understood that if any such employee contacts Daniel on his or her own initiative, Daniel may thereafter discuss with such employee his or her working for him or a competitor, provided that in such situations, Daniel agrees to notify the Chief Legal or Human Resources Officer of Bankers Trust and advise either executive of such contact and of the employee(s) making such contact, before extending any offer of employment to such individual(s). 8. The failure of either party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of the Agreement. Any waiver must be in writing and signed by Daniel or any authorized officer of the Corporation, as the case may be. 9. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to its conflicts of laws provisions. 10. If any of the provisions, terms, clauses, or waivers or releases of claims or rights contained in this Agreement are declared illegal, unenforceable, or ineffective in a legal forum, such provisions, terms, clauses, waivers, releases or claims or rights shall be deemed severable, such that all other provisions, terms, clauses, waivers, releases of claims and rights contained in this Agreement shall remain valid and binding upon both parties. 11. Daniel agrees to voluntarily cooperate with the Corporation in connection with any threatened, actual or future litigation or investigations by federal, state, or local agencies involving the Corporation, whether administrative, civil or criminal in nature, in which and to the extent his cooperation is deemed necessary by the Corporation in its discretion. The Corporation agrees to reimburse Daniel for reasonable and necessary out-of-pocket expenses incurred in connection with providing such cooperation. This shall cover transportation, meals, and lodging, if required. 12. Daniel acknowledges that he has had at least (21) days from the date he received this Agreement to consider the terms of this Agreement and further, acknowledges that he is fully aware of its contents and of its legal effects. Daniel is also hereby advised in writing by Bankers Trust to consult with an attorney regarding this Agreement. The Corporation agrees to pay Daniel's counsel up to Five Thousand ($5,000) Dollars for such services. In the event that Daniel's attorneys' fees appear that they will exceed this amount, Daniel agrees to notify the Corporation prior to such time the fees exceed Five Thousand ($5,000) and seek prior approval for the payment of an additional sum certain. Further, Daniel may revoke either this Agreement, or the second original of this Agreement he will be executing on his last day on Corporation premises, within seven (7) days after Daniel executes the same, by notifying Perry Capitani of Deutsche Bank AG, in writing, during this seven (7) day period. Daniel's failure to execute the second original of this Agreement on his last day on Corporation premises, or his revocation of same will not affect the validity of the waivers and releases given by Daniel as a result of his initial execution of this Agreement. 13. This Agreement has been executed freely, knowingly and voluntarily by Daniel without duress, coercion, or undue influence, with a full and free understanding of its terms. 14. This Agreement supersedes all prior oral and written agreements, if any, with respect to the subject matter hereof between the parties. This Agreement may not be changed except by a writing signed by Daniel and an authorized management representative of Bankers Trust. AGREED: /S/ Richard H. Daniel Richard H. Daniel 15 June 99 Date On this 15th day of June 1999, before me personally came Richard H. Daniel to me known to be the individual described in and who executed the fore- going Settlement and Non-disclosure Agreement, and duly acknowledged to me that he executed the same. /S/ Perry V. Capitani Notary Public AGREED: BANKERS TRUST CORPORATION By: /S/ Frank N. Newman Frank N. Newman Chairman and Chief Executive Officer Date 15 June 99 On this 15th day of June 1999, before me personally came Frank N. Newman, authorized representative for Bankers Trust Corporation to me known to be the individual described in and who executed the foregoing Settlement and Non-disclosure Agreement, and duly acknowledged to me that he executed the same. /S/ Perry V. Capitani Notary Public PERRY V. CAPITANI NOTARY PUBLIC, STATE OF NEW YORK NO.4863442 OUALIFIED IN NASSAU COUNTY CERTIFICATE FILED IN NEW YORK COUNTY COMMISSION EXPIRES OCTOBER 27, 19 _____ Richard Daniel Exhibit I - Trigger I Change of Control Payout Stock Options: [CAPTION] Grant Date Option Price ISO NQSO Total Payout at $93 2/1/96 64.5625 1,548 18,452 20,000 568,750.00 6/18/96 76.4375 0 60,000 60,000 993,750.00 6/17/97 90.7500 1,101 58,899 60,000 135,000.00 Total 2,649 137,351 140,000 $1,697,500.00
Partnership Equity Plan (PEP): [CAPTION] Vested Unvested Total Shares Award Year Shares Shares Outstanding Payout at $93 1996 23,305.1831 1,334.0261 24,639.2092 2,291,446.46 1997 16,373.4287 250.9058 16,624.3345 1,546,063.11 Total 39,678.6118 1,584.9319 41,263.5437 $3,837,509.56
EPP: Total Shares Award Year Outstanding Payout at $93 1996 4,702.4246 $437,325.49 1997 6,821.7055 634,418.61 1998 22,464.3379 2,089,183.42 Total 33,988.4680 $3,160,927.52 POP: (As of 7/1/99) POP 1 $1,443,750.00 Interest $256,275.51 POP 11 $2,741,666.67 $4,441,692.18 Prorata Bonus: (As of 6/4/99) $1,137,121.21 ADCAP: $331,363.91* Total Payout at COC $14,606,114.39 * This amount is as of March 31,1999 and will be adjusted to reflect performance through June 4, 1999 EX-12 4 EXHIBIT 12(a) BANKERS TRUST CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES (dollars in millions) [CAPTION] Six Months Ended Year Ended December 31, June 30, 1994 1995 1996 1997 1998 1999 Earnings: 1. Income (loss) before income taxes $ 987 $ 469 $1,131 $1,239 $ (77) $(2,324) 2. Add: Fixed charges excluding capitalized interest (Line 10) 3,911 5,138 5,483 5,959 6,954 2,328 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 45 28 30 (117) 15 52 4. Earnings including interest on deposits 4,853 5,579 6,584 7,315 6,862 (48) 5. Less: Interest on deposits 965 1,360 1,355 2,076 2,195 815 6. Earnings excluding interest on deposits $3,888 $4,219 $5,229 $5,239 $4,667 $ (863) Fixed Charges: 7. Interest Expense $3,880 $5,105 $5,451 $5,926 $6,919 $2,307 8. Estimated interest component of net rental expense 31 33 32 33 35 21 9. Amortization of debt issuance expense - - - - - - 10. Total fixed charges including interest on deposits and excluding capitalized interest 3,911 5,138 5,483 5,959 6,954 2,328 11. Add: Capitalized interest - - - - - - 12. Total fixed charges 3,911 5,138 5,483 5,959 6,954 2,328 13. Less: Interest on deposits (Line 5) 965 1,360 1,355 2,076 2,195 815 14. Fixed charges excluding interest on deposits $2,946 $3,778 $4,128 $3,883 $4,759 $1,513 Consolidated Ratios of Earnings to Fixed Charges: Including interest on deposits (Line 4/Line 12) 1.24 1.09 1.20 1.23 .99 N/A Excluding interest on deposits (Line 6/Line 14) 1.32 1.12 1.27 1.35 .98 N/A For the six months ended June 30, 1999 and for the year ended December 31, 1998, earnings, as defined, did not cover fixed charges, including and excluding interest on deposits by $2,376 million and $92 million, respectively, as a result of a net loss recorded during the period. N/A - Not Applicable.
EX-12 5 EXHIBIT 12(b) BANKERS TRUST CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS (dollars in millions) [CAPTION] Six Months Ended Year Ended December 31, June 30, 1994 1995 1996 1997 1998 1999 Earnings: 1. Income (loss) before income taxes $ 987 $ 469 $1,131 $1,239 $ (77) $(2,324) 2. Add: Fixed charges excluding capitalized interest (Line 13) 3,911 5,138 5,483 5,959 6,954 2,328 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 45 28 30 (117) 15 52 4. Earnings including interest on deposits 4,853 5,579 6,584 7,315 6,862 (48) 5. Less: Interest on deposits 965 1,360 1,355 2,076 2,195 815 6. Earnings excluding interest on deposits $3,888 $4,219 $5,229 $5,239 $4,667 $ (863) Preferred Stock Dividend Requirements: 7. Preferred stock dividend requirements $ 28 $ 51 $ 51 $ 49 $ 32 $ 11 8. Ratio of income (loss) from continuing operations before income taxes to income (loss) from continuing operations after income taxes 144% 151% 148% 143% 105% 129% 9. Preferred stock dividend requirements on a pretax basis $ 40 $ 77 $ 75 $ 70 $ 34 $ 14 Fixed Charges: 10. Interest Expense $3,880 $5,105 $5,451 $5,926 $6,919 $2,307 11. Estimated interest component of net rental expense 31 33 32 33 35 21 12. Amortization of debt issuance expense - - - - - - 13. Total fixed charges including interest on deposits and excluding capitalized interest 3,911 5,138 5,483 5,959 6,954 2,328 14. Add: Capitalized interest - - - - - - 15. Total fixed charges 3,911 5,138 5,483 5,959 6,954 2,328 16. Add: Preferred stock dividend require- ments - pretax (Line 9) 40 77 75 70 34 14 17. Total combined fixed charges and preferred stock dividend require- ments on a pretax basis 3,951 5,215 5,558 6,029 6,988 2,342 18. Less: Interest on deposits (Line 5) 965 1,360 1,355 2,076 2,195 815 19. Combined fixed charges and preferred stock dividend requirements on a pretax basis excluding interest on deposits $2,986 $3,855 $4,203 $3,953 $4,793 $1,527 Consolidated Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements: Including interest on deposits (Line 4/Line 17) 1.23 1.07 1.18 1.21 .98 N/A Excluding interest on deposits (Line 6/Line 19) 1.30 1.09 1.24 1.32 .97 N/A For the six months ended June 30, 1999 and for the year ended December 31, 1998, earnings, as defined, did not cover fixed charges, and preferred stock dividend requirements, including and excluding interest on deposits, by $2,390 million and by $126 million, respectively, as a result of a net loss recorded during the period. N/A - Not Applicable.
EX-27 6
9 This schedule contains summary information extracted from the Bankers Trust Corporation and Subsidiaries consolidated statement of condition at June 30, 1999 and the consolidated statement of income for the six months ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. 1,000,000 6-MOS DEC-31-1999 JUN-30-1999 2,152 7,412 19,549 26,375 2,041 0 0 24,243 532 91,953 33,156 13,900 8,726 15,225 0 394 0 3,609 91,953 767 272 1,153 2,804 815 2,307 497 (25) (143) 4,103 (2,324) (2,324) 0 0 (1,808) 0 0 1.11 252 0 0 0 652 84 18 532 159 203 170 Short-term borrowings include the following: Securities loand and securities sold under repurchase agreements 1,871 Other short-term borrowings 12,029 Total 13,900 Other liabilities include the following: Accounts payable and accrued expenses 5,062 Other liabilities 3,434 Acceptances outstanding 230 Total 8,726 Other interest income includes the following: Interest-bearing deposits with banks 132 Federal funds sold 77 Securities purchased under resale agreements 517 Securities borrowed 369 Customer receivables 58 Total 1,153 Amount pertains to the allowance related to loans.
EX-99 7 EXHIBIT 99.1 BANKERS TRUST CORPORATION UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (IN MILLIONS, EXCEPT PER SHARE DATA) The following Unaudited Pro Forma Condensed Statements of Income for the six months ended June 30, 1999 and 1998 give effect to Bankers Trust Corporation's ("BT" or the "Corporation") transfer of its wholly-owned subsidiary BT Alex. Brown Incorporated ("BTAB") and substantially all of its interest in Bankers Trust International PLC ("BTI") to Deutsche Bank Securities Inc. ("DBSI") and Deutsche Holdings (BTI) Ltd., respectively, which are wholly-owned subsidiaries of Deutsche Bank AG ("Deutsche Bank"). The transfer of BTAB to DBSI took the form of an exchange of stock pursuant to which BTAB became a wholly-owned subsidiary of DBSI and the Corporation received shares of DB U.S. Financial Markets Holding Corporation ("DBUS"), the parent of DBSI. The Corporation, as part of an ongoing reorganization, intends to transfer, by dividend or otherwise, the shares received to Taunus Corporation ("Taunus"), a U.S. holding corporation for Deutsche Bank. The pro forma information is based on the historical consolidated financial statements of BT after giving effect to the pro forma adjustments described in the Notes to the Unaudited Pro Forma Condensed Financial Statements. The pro forma financial data are not necessarily indicative of the results that actually would have occurred had the transfer of BTAB and BTI been consummated on the dates indicated or that may be obtained in the future. BANKERS TRUST CORPORATION UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME (IN MILLIONS, EXCEPT PER SHARE DATA)
For the Six Months Ended June 30, 1999 BT BTAB and Pro Forma Consolidated BTI** Adjustments** Pro Forma (a) (b) NET INTEREST REVENUE Interest revenue $ 2,804 $(1,022) $557 $ 2,339 Interest expense 2,307 (554) 235 1,988 NET INTEREST REVENUE 497 (468) 322 351 Provision for credit losses-loans (25) 26 - 1 NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES-LOANS 522 (494) 322 350 NONINTEREST REVENUE Trading (67) 305 2 240 Fiduciary and funds management 555 (24) - 531 Corporate finance fees 442 (285) - 157 Other fees and commissions 364 (175) - 189 Net revenue from equity investments 108 - - 108 Securities available for sale gains (losses) (143) 108 - (35) Insurance premiums 86 - - 86 Other (88) 13 207 132 Total noninterest revenue 1,257 (58) 209 1,408 NONINTEREST EXPENSES Salaries and commissions 710 (226) - 484 Incentive compensation and employee benefits* 1,816 (776) - 1,040 Agency and other professional service fees 250 (34) 54 270 Communication and data services 132 (44) - 88 Occupancy, net 120 (20) - 100 Furniture and equipment 138 (16) - 122 Travel and entertainment 84 (40) - 44 Provision for policyholder benefits 114 - - 114 Other 280 (119) 400 561 Restructuring charge 459 - - 459 Total noninterest expenses 4,103 (1,275) 454 3,282 Income (loss) before income taxes (2,324) 723 77 (1,524) Income taxes (benefit) (516) (516) NET INCOME (LOSS) $(1,808) $(1,008) * Includes charges of approximately $1.1 billion in change-in-control related costs. ** Includes results of operations of BTAB and BTI through the transfer date, June 5, 1999. See Notes to Unaudited Pro Forma Condensed Financial Statements.
BANKERS TRUST CORPORATION UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME (IN MILLIONS, EXCEPT PER SHARE DATA)
For the Six Months Ended June 30, 1998 BT BTAB and Pro Forma Consolidated BTI Adjustments Pro Forma (a) (b) NET INTEREST REVENUE Interest revenue $4,294 $(2,044) $1,044 $3,294 Interest expense 3,526 (1,142) 358 2,742 NET INTEREST REVENUE 768 (902) 686 552 Provision (recoveries) for credit losses-loans - (29) - (29) NET INTEREST REVENUE AFTER PROVISION (RECOVERIES) FOR CREDIT LOSSES-LOANS 768 (873) 686 581 NONINTEREST REVENUE Trading 228 132 11 371 Fiduciary and funds management 546 (26) - 520 Corporate finance fees 723 (504) - 219 Other fees and commissions 366 (197) - 169 Net revenue from equity investments 204 (3) - 201 Securities available for sale gains (losses) 44 (25) - 19 Insurance premiums 128 - - 128 Other 174 (23) 183 334 Total noninterest revenue 2,413 (646) 194 1,961 NONINTEREST EXPENSES Salaries and commissions 697 (233) - 464 Incentive compensation and employee benefits 914 (399) - 515 Agency and other professional service fees 252 (49) 80 283 Communication and data services 115 (41) - 74 Occupancy, net 100 (18) - 82 Furniture and equipment 110 (17) - 93 Travel and entertainment 79 (32) - 47 Provision for policyholder benefits 159 - - 159 Other 219 (104) 279 394 Total noninterest expenses 2,645 (893) 359 2,111 Income before income taxes 536 (626) 521 431 Income taxes 150 150 NET INCOME $ 386 $ 281 See Notes to Unaudited Pro Forma Condensed Financial Statements.
BANKERS TRUST CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (a) Elimination of BTAB's & BTI's third-party amounts from BT's historical consolidated financial statements. (b) Adjustment to record BTAB & BTI intercompany amounts as third-party assets, liabilities, revenue or expense, as applicable. Intercompany amounts were eliminated in BT's historical consolidated financial statements. -----END PRIVACY-ENHANCED MESSAGE-----