-----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, FWWg2bBceMyDPXtOWWWOK9T7nx253I/RvXcuWTHD8PUZ91MJjhpo95x5Gm74Gz+3 tu8hMXZZgT53WbfM0R6VQg== 0000891554-00-001407.txt : 20000523 0000891554-00-001407.hdr.sgml : 20000523 ACCESSION NUMBER: 0000891554-00-001407 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 DATE AS OF CHANGE: 20000522 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANKERS TRUST CORP CENTRAL INDEX KEY: 0000009749 STANDARD INDUSTRIAL CLASSIFICATION: 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: 637213 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 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-5920 BANKERS TRUST CORPORATION (Exact name of registrant as specified in its charter) New York 13-6180473 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 130 Liberty Street New York, New York 10006 (Address of principal executive offices) (Zip code) (212) 250-2500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ The registrant is a wholly-owned subsidiary of Deutsche Bank AG. As of the date hereof, 1 share of the registrant's Common Stock par value $1 per share, was issued and outstanding. 1 BANKERS TRUST CORPORATION MARCH 31, 2000 FORM 10-Q TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Income Three Months Ended March 31, 2000 and 1999 2 Consolidated Statement of Comprehensive Income Three Months Ended March 31, 2000 and 1999 3 Consolidated Balance Sheet At March 31, 2000 and December 31, 1999 4 Consolidated Statement of Changes in Stockholders' Equity Three Months Ended March 31, 2000 and 1999 5 Consolidated Statement of Cash Flows Three Months Ended March 31, 2000 and 1999 6 Consolidated Schedule of Net Interest Revenue Three Months Ended March 31, 2000 and 1999 7 In the opinion of management, all material adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods presented have been made. All such adjustments were of a normal recurring nature. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results of operations for the full year or any other interim period. The financial statements included in this Form 10-Q should be read with reference to the Bankers Trust Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk 31 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 32 SIGNATURE 33 2 PART I. FINANCIAL INFORMATION - - ----------------------------- BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (in millions) (unaudited)
Increase THREE MONTHS ENDED MARCH 31, 2000 1999 (Decrease) - - -------------------------------------------------------------------------------------------------------- NET INTEREST REVENUE Interest revenue $816 $1,511 $(695) Interest expense 700 1,250 (550) - - -------------------------------------------------------------------------------------------------------- Net interest revenue 116 261 (145) Provision for credit losses-loans (38) -- (38) - - -------------------------------------------------------------------------------------------------------- Net interest revenue after provision for credit losses-loans 154 261 (107) - - -------------------------------------------------------------------------------------------------------- NONINTEREST REVENUE Trading 63 340 (277) Fiduciary and funds management 205 271 (66) Corporate finance fees 37 197 (160) Other fees and commissions 80 211 (131) Securities available for sale gains (losses) -- (4) 4 Insurance premiums -- 48 (48) Other 191 186 5 - - -------------------------------------------------------------------------------------------------------- Total noninterest revenue 576 1,249 (673) - - -------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSES Salaries and commissions 123 373 (250) Incentive compensation and employee benefits 118 432 (314) Agency and other professional service fees 42 91 (49) Communication and data services 26 66 (40) Occupancy, net 25 58 (33) Furniture and equipment 31 69 (38) Travel and entertainment 10 30 (20) Provision for policyholder benefits -- 63 (63) Other 247 119 128 - - -------------------------------------------------------------------------------------------------------- Total noninterest expenses 622 1,301 (679) - - -------------------------------------------------------------------------------------------------------- Income before income taxes 108 209 (101) Income taxes 83 69 14 - - -------------------------------------------------------------------------------------------------------- NET INCOME $ 25 $ 140 $(115) ======================================================================================================== Certain prior period amounts have been reclassified to conform to the current presentation.
3
BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in millions) (unaudited) THREE MONTHS ENDED MARCH 31, 2000 1999 - - --------------------------------------------------------------------------------------- NET INCOME $ 25 $ 140 - - --------------------------------------------------------------------------------------- Other comprehensive income (loss), net of tax: Foreign currency translation adjustments: Unrealized foreign currency translation gains (losses) arising during period, net of tax (a) (36) (30) Reclassification adjustment for realized foreign currency translation (gains) losses, net of tax (b) 4 -- Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period, net of tax (c) 16 -- Reclassification adjustment for realized (gains) losses, net of tax (d) -- -- - - --------------------------------------------------------------------------------------- Total other comprehensive income (loss) (16) (30) - - --------------------------------------------------------------------------------------- COMPREHENSIVE INCOME $ 9 $ 110 ======================================================================================= (a) Amounts are net of an income tax benefit of $19 million and $23 million for the three months ended March 31, 2000 and March 31, 1999, respectively. (b) Amount is net of income tax expense of $2 million for the three months ended March 31, 2000. (c) Amounts are net of income tax expense of $10 million and $16 million for the three months ended March 31, 2000 and March 31, 1999, respectively. (d) Amount is net of an income tax benefit of $4 million for the three months ended March 31, 1999.
4 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ($ in millions, except par value)
March 31, December 31, 2000* 1999 ------------------------- ASSETS Cash and due from banks $ 2,416 $ 3,212 Interest-bearing deposits with banks 5,064 4,693 Federal funds sold 111 2,472 Securities purchased under resale agreements 5,976 6,764 Trading assets: Government securities 2,333 2,296 Corporate debt securities 1,231 1,367 Equity securities 9,480 7,144 Swaps, options and other derivatives 4,138 4,807 Other trading assets 4,447 3,403 - - ------------------------------------------------------------------------------------ Total trading assets 21,629 19,017 Securities available for sale 1,210 3,252 Loans, net of allowance for credit losses of $422 at March 31, 2000 and $491 at December 31, 1999 19,871 19,471 Customer receivables 266 306 Accounts receivable and accrued interest 2,396 2,307 Other assets 6,889 6,663 - - ------------------------------------------------------------------------------------ Total $ 65,828 $ 68,157 ==================================================================================== LIABILITIES Noninterest-bearing deposits Domestic offices $ 2,733 $ 2,690 Foreign offices 1,968 2,299 Interest-bearing deposits Domestic offices 10,470 12,118 Foreign offices 6,080 6,362 - - ------------------------------------------------------------------------------------ Total deposits 21,251 23,469 Trading liabilities: Securities sold, not yet purchased Government securities 53 53 Equity securities 367 21 Other trading liabilities 9 9 Swaps, options and other derivatives 4,711 5,183 - - ------------------------------------------------------------------------------------ Total trading liabilities 5,140 5,266 Securities loaned and securities sold under repurchase agreements 67 56 Other short-term borrowings 11,478 11,540 Accounts payable and accrued expenses 3,358 3,314 Other liabilities, including allowance for credit losses of $18 at March 31, 2000 and $24 at December 31, 1999 3,319 3,728 Long-term debt not included in risk-based capital 13,122 12,582 Long-term debt included in risk-based capital 2,319 2,424 Mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures included in risk-based capital 1,431 1,428 - - ------------------------------------------------------------------------------------ Total liabilities 61,485 63,807 - - ------------------------------------------------------------------------------------ STOCKHOLDERS' EQUITY Preferred stock 365 376 Common stock, $1 par value Authorized, 200 shares Issued, 1 share -- -- Capital surplus 2,319 2,318 Retained earnings 1,705 1,686 Accumulated other comprehensive income: Net unrealized gains (losses) on securities available for sale, net of taxes 32 16 Foreign currency translation, net of taxes (78) (46) - - ------------------------------------------------------------------------------------ Total stockholders' equity 4,343 4,350 - - ------------------------------------------------------------------------------------ Total $ 65,828 $ 68,157 ==================================================================================== * Unaudited Certain prior period amounts have been reclassified to conform to the current presentation.
5 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions, except par value) (unaudited)
THREE MONTHS ENDED MARCH 31, 2000 1999 - - -------------------------------------------------------------------------------- PREFERRED STOCK Balance, January 1 $ 376 $ 394 Preferred stock repurchased (11) -- - - -------------------------------------------------------------------------------- Balance, March 31 365 394 - - -------------------------------------------------------------------------------- COMMON STOCK Balance, January 1 and March 31 -* 105 - - -------------------------------------------------------------------------------- CAPITAL SURPLUS Balance, January 1 2,318 1,613 Preferred stock repurchased 1 -- Common stock distributed under employee benefit plans -- 4 - - -------------------------------------------------------------------------------- Balance, March 31 2,319 1,617 - - -------------------------------------------------------------------------------- RETAINED EARNINGS Balance, January 1 1,686 3,504 Net income (loss) 25 140 Cash dividends declared Preferred stock (6) (5) Common stock -- (98) Treasury stock distributed under employee benefit plans -- (89) - - -------------------------------------------------------------------------------- Balance, March 31 1,705 3,452 - - -------------------------------------------------------------------------------- COMMON STOCK IN TREASURY, AT COST Balance, January 1 -- (1,056) Purchases of stock -- (66) Treasury stock distributed under employee benefit plans -- 294 - - -------------------------------------------------------------------------------- Balance, March 31 -- (828) - - -------------------------------------------------------------------------------- OTHER STOCKHOLDERS' EQUITY Balance, January 1 -- 599 Deferred stock awards granted, net -- 1 Deferred stock distributed -- (207) Amortization of deferred compensation, net -- 97 - - -------------------------------------------------------------------------------- Balance, March 31 -- 490 - - -------------------------------------------------------------------------------- CUMULATIVE TRANSLATION ADJUSTMENTS Balance, January 1 (46) (398) Translation adjustments/entity transfers and sales (53) (53) Income taxes 21 23 - - -------------------------------------------------------------------------------- Balance, March 31 (78) (428) - - -------------------------------------------------------------------------------- SECURITIES VALUATION ALLOWANCE Balance, January 1 16 (65) Change in unrealized net gains (losses), after applicable income taxes and minority interest 16 -- - - -------------------------------------------------------------------------------- Balance, March 31 32 (65) - - -------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY, MARCH 31 $ 4,343 $ 4,737 ================================================================================ * 1 share, $1 par value
6 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited)
THREE MONTHS ENDED MARCH 31, 2000 1999 - - -------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 25 $ 140 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Provision for credit losses - loans (38) -- Provision for credit losses-other (6) -- Provision for policyholder benefits -- 63 Deferred income taxes, net 86 51 Depreciation and other amortization and accretion 12 183 Other, net (11) 6 - - -------------------------------------------------------------------------------- Earnings adjusted for noncash charges and credits 68 443 Net change in: Trading assets (2,959) 9,804 Trading liabilities (121) (4,519) Receivables and payables from securities transactions -- 355 Customer receivables 40 (330) Other operating assets and liabilities, net (455) (1,455) Securities available for sale losses -- 4 - - -------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (3,427) 4,302 - - -------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Net change in: Interest-bearing deposits with banks (407) 1,204 Federal funds sold 2,361 9 Securities purchased under resale agreements 788 (4,200) Securities borrowed -- (3,778) Loans (410) 2,892 Securities available for sale: Purchases (260) (3,354) Maturities and other redemptions 2,237 476 Sales 9 2,770 Acquisitions of premises and equipment (12) (40) Other, net 32 (290) - - -------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 4,338 (4,311) - - -------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in: Deposits (2,222) (965) Securities loaned and securities sold under repurchase agreements 11 (1,576) Other short-term borrowings (62) 2,148 Issuances of long-term debt 1,350 411 Repayments of long-term debt (726) (935) Redemptions and repurchases of preferred stock (11) -- Purchases of treasury stock -- (66) Cash dividends paid (6) (101) Other, net (30) 12 - - -------------------------------------------------------------------------------- Net cash used in financing activities (1,696) (1,072) - - -------------------------------------------------------------------------------- Net effect of exchange rate changes on cash (11) (3) - - -------------------------------------------------------------------------------- Net Decrease in Cash and Due from Banks (796) (1,084) Cash and due from banks, beginning of period 3,212 2,837 - - -------------------------------------------------------------------------------- Cash and due from banks, end of period $ 2,416 $ 1,753 ================================================================================ Interest paid $ 1,039 $ 1,167 ================================================================================ Income taxes paid, net $2 $14 ================================================================================ Noncash investing activities $2 $16 ================================================================================ Certain prior period amounts have been reclassified to conform to the current presentation.
7 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE (in millions) (unaudited)
Three Months Ended March 31, -------------------- Increase 2000 1999 (Decrease) - - -------------------------------------------------------------------------------------- INTEREST REVENUE Interest-bearing deposits with banks $ 55 $ 60 $ (5) Federal funds sold 33 26 7 Securities purchased under resale agreements 43 294 (251) Securities borrowed -- 223 (223) Trading assets 192 329 (137) Securities available for sale Taxable 33 142 (109) Exempt from federal income taxes 2 12 (10) Loans 449 394 55 Customer receivables 9 31 (22) - - -------------------------------------------------------------------------------------- Total interest revenue 816 1,511 (695) - - -------------------------------------------------------------------------------------- INTEREST EXPENSE Interest-bearing deposits Domestic offices 147 193 (46) Foreign offices 137 229 (92) Trading liabilities -- 68 (68) Securities loaned and securities sold under repurchase agreements 1 343 (342) Other short-term borrowings 184 228 (44) Long-term debt 202 161 41 Trust preferred capital securities 29 28 1 - - -------------------------------------------------------------------------------------- Total interest expense 700 1,250 (550) - - -------------------------------------------------------------------------------------- NET INTEREST REVENUE $ 116 $ 261 $ (145) ======================================================================================
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS CHANGES On June 4 1999, Deutsche Bank AG ("Deutsche Bank"), through its U.S. holding corporation, Taunus Corporation, acquired all of the outstanding shares of common stock of Bankers Trust Corporation ("Bankers Trust") from its shareholders (the "Acquisition"). Prior to the Acquisition, Bankers Trust Corporation together with its subsidiaries (the "Corporation" or the "Firm") was a global financial institution, providing products and services to its clients worldwide. Subsequent to the Acquisition and associated reorganization activities, the Corporation and its subsidiaries conduct their business primarily in the Americas, focusing their activities principally in the asset management, lending, institutional services, private equity, and private banking businesses. On June 5, 1999, Bankers Trust transferred its wholly-owned subsidiary BT Alex. Brown Incorporated ("BTAB") and substantially all of its interest in Bankers Trust International PLC ("BTI") to Deutsche Bank Securities Inc. ("DBSI") and Deutsche Holdings (BTI) Ltd., respectively, which are wholly-owned subsidiaries of Deutsche Bank. On August 31, 1999, Bankers Trust Corporation completed the sale of Bankers Trust Australia Limited ("BTAL"), a wholly-owned subsidiary, to the Principal Financial Group. In connection with the Acquisition, and in addition to the foregoing transactions, the Corporation has and will continue to transfer certain entities and financial assets and liabilities to Deutsche Bank related entities. The consideration received and to be received for such transactions was and will be fair market value of the financial assets and liabilities at and on the date of transfer. For further discussion of these transactions, see pages 3 and 29 of Bankers Trust's 1999 Annual Report on Form 10-K. RESULTS OF OPERATIONS The Corporation earned $25 million for the three months ended March 31, 2000 as compared to $140 million for the first three months of 1999. Because of the significant business changes as discussed above, the Corporation's historical financial statements are not fully comparable for all periods presented. 9 BUSINESS SEGMENT RESULTS Business segments results, which are presented in accordance with U.S. generally accepted accounting principles, are derived from internal management reports. In conjunction with the Acquisition, the Corporation realigned its business activities to conform to Deutsche Bank's management structure. In this regard, Retail and Private Banking focuses on the Corporation's private banking activities. The Asset Management division combines the Corporation's institutional asset management and retail investment fund businesses. Global Corporates and Institutions includes the Corporation's commercial banking and investment banking activities as well as trading activities. This business segment also includes credit business, trade finance, structured finance and cash management in addition to the Corporation's private equity business. Global Technology and Services includes four product groups: payments, securities processing, custody services and electronic banking services. Prior period results have been restated for changes in management structure. The following tables present results by Business Segment:
Total Non- Pretax Three Months Ended March 31, 2000 Total Net interest Income/ (in millions) Revenue Expenses (Loss) - - --------------------------------------------------------------------------------------- Retail and Private Banking $ 36 $ 39 $ (3) Asset Management 81 62 19 Global Corporates and Institutions 365 264 101 Global Technology and Services 231 274 (43) - - --------------------------------------------------------------------------------------- Total Business Segments 713 639 74 - - --------------------------------------------------------------------------------------- Corporate Items 17 (17) 34 - - --------------------------------------------------------------------------------------- Total $ 730 $ 622 $ 108 ======================================================================================= * There were no material intersegment revenues among the business segments.
Total Non- Pretax Three Months Ended March 31, 1999 Total Net interest Income/ (in millions) Revenue* Expenses (Loss) - - ---------------------------------------------------------------------------------------- Retail and Private Banking $ 47 $ 45 $ 2 Asset Management 59 36 23 Global Corporates and Institutions 841 790 51 Global Technology and Services 231 204 27 - - ---------------------------------------------------------------------------------------- Total Business Segments 1,178 1,075 103 - - ---------------------------------------------------------------------------------------- Corporate Items** 332 226 106 - - ---------------------------------------------------------------------------------------- Total $1,510 $1,301 $ 209 ======================================================================================== * There were no material intersegment revenues among the business segments. ** Due to the sale of BTAL in the third quarter of 1999, its results are included in Corporate Items.
10 BUSINESS SEGMENT RESULTS (continued) The Retail and Private Banking business recorded a pre-tax loss of $3 million in the first quarter of 2000, compared to pre-tax income of $2 million in the prior year quarter. The current quarter reflected lower revenue from fiduciary and funds management activities resulting from certain foreign activities transferred to a Deutsche Bank related entity in July 1999. Asset Management recorded pre-tax income of $19 million in the first quarter of 2000, compared to pre-tax income of $23 million in the 1999 first quarter. The decline in pre-tax income from the prior year period was mainly attributable to an increase in personnel-related costs, partially offset by higher fiduciary and funds management revenue. The Global Corporates and Institutions business recorded pre-tax income of $101 million in the first quarter of 2000, compared to pre-tax income of $51 million in the 1999 first quarter. Higher revenue from private equity investments contributed to the current quarter's improvement. Total revenue and total expense declined from the prior year quarter primarily due to the transfer of BTAB and BTI to Deutsche Bank related entities in the second quarter of 1999. The Corporation's Global Technology and Services business recorded a pre-tax loss of $43 million for the current quarter compared to pre-tax income of $27 million in the prior year quarter. The current quarter included severance expenses related to certain senior management changes in the Global Institutional Services business. Corporate Items generally include revenue and expenses that have not been allocated to business segments and the results of smaller businesses that are not included in the main business segments. Due to the sale of BTAL and Consorcio in the third quarter of 1999 and second quarter of 1999, respectively, their results are included within Corporate Items for the three months ended March 31, 1999. The following table reconciles total pre-tax income for business segments to consolidated pre-tax income (in millions):
THREE MONTHS ENDED MARCH 31, 2000 1999 - - -------------------------------------------------------------------------------- Total pre-tax income reported for business segments $ 74 $ 103 Earnings associated with unassigned capital 69 64 Credit quality adjustment -- 47 Other unallocated amounts (35) (5) - - -------------------------------------------------------------------------------- Consolidated pre-tax income $ 108 $ 209 ================================================================================
11 REVENUE Net Interest Revenue The table below presents net interest revenue, average balances and average rates. The tax equivalent adjustment is made to present the revenue and yields on certain assets, primarily tax-exempt securities and loans, as if such revenue were taxable.
Three Months Ended March 31, ------------------------ Increase 2000 1999 (Decrease) - - -------------------------------------------------------------------------------------- NET INTEREST REVENUE (in millions) Book basis $ 116 $ 261 $ (145) Tax equivalent adjustment 1 9 (8) - - -------------------------------------------------------------------------------------- Fully taxable basis $ 117 $ 270 $ (153) ====================================================================================== AVERAGE BALANCES (in millions) Interest-earning assets $ 48,197 $100,160 $(51,963) Interest-bearing liabilities 43,914 97,016 (53,102) - - -------------------------------------------------------------------------------------- Earning assets financed by noninterest-bearing funds $ 4,283 $ 3,144 $ 1,139 ====================================================================================== AVERAGE RATES (fully taxable basis) Yield on interest-earning assets 6.82% 6.15% 0.67% Cost of interest-bearing liabilities 6.41 5.23 1.18 - - -------------------------------------------------------------------------------------- Interest rate spread 0.41 0.92 (0.51) Contribution of noninterest-bearing funds 0.57 .17 0.40 - - -------------------------------------------------------------------------------------- Net interest margin 0.98% 1.09% (0.11)% ======================================================================================
The significant transfers of entities and other financial assets and liabilities to Deutsche Bank following the Acquisition in June 1999 negatively impacted net interest revenue and levels of average interest-bearing assets and average interest-bearing liabilities for the three months ended March 31, 2000 as compared to the prior year period. Net interest revenue for the first quarter of 2000 totaled $116 million, down $145 million, or 56 percent, from the first quarter of 1999. The $145 million decrease in net interest revenue was primarily due to a $93 million decrease in trading-related net interest revenue, which was nil for the first quarter of 2000. Nontrading-related net interest revenue totaled $116 million for the first quarter of 2000 versus $168 million for the comparable period in 1999. In the first quarter of 2000, the interest rate spread was 0.41 percent compared to 0.92 percent in the prior year period. Net interest margin decreased to 0.98 percent from 1.09 percent. The yield on interest-earning assets increased by 67 basis points and the cost of interest-bearing liabilities increased by 118 basis points. Average interest-earning assets totaled $48.2 billion for the first quarter of 2000, down $52.0 billion from the same period in 1999. The decrease was primarily attributable to declines in trading assets and securities borrowed and other money-market related activities. Average interest-bearing liabilities totaled $43.9 billion for the first quarter of 2000, down $53.1 billion from the same period in 1999. The decrease was primarily attributable to a decline in securities sold under repurchase agreements, interest-bearing deposits and other money-market related activities. 12 REVENUE (continued) Trading Revenue Combined trading revenue and trading-related net interest revenue for the first quarter of 2000 was a gain of $63 million, down $370 million from the first quarter of 1999. The Corporation's trading activities were significantly reduced in the second half of 1999, reflecting the effect of integrating the Corporation into Deutsche Bank. The Corporation anticipates further curtailment of trading-related activities as a result of the Acquisition. The table below presents the Corporation's trading revenue by major category of market risk. These categories are based on management's view of the predominant underlying risk exposure of each of the Firm's trading positions.
(in millions) Three months ended March 31, 2000 1999 - - -------------------------------------------------------------------------------- Interest rate risk $ 16 $135 Foreign exchange risk 11 106 Equity and commodity risk 36 99 - - -------------------------------------------------------------------------------- Total trading revenue $ 63 $340 Trading-related net interest revenue -- 93 - - -------------------------------------------------------------------------------- Combined total $ 63 $433 ================================================================================
Interest Rate Risk - Trading revenue related to interest rate risk decreased from the prior year quarter. The decrease is attributable to significant reductions in the Corporation's trading activities and reassessment of risk reflective of the integration of the Corporation into Deutsche Bank. Foreign Exchange Risk - The decrease is primarily attributed to the overall reduction of the trading portfolio in addition to the sale of BTAL in the third quarter of 1999, which in the prior year quarter was responsible for a significant portion of the foreign exchange trading revenue. Equity and Commodity Risk - Trading revenue related to equity and commodity risk decreased from the prior year quarter. The decrease is reflective of reductions in trading activity consistent with the Corporation's overall curtailment of trading related activities. 13 REVENUE (continued) Noninterest Revenue (Excluding Trading) Fiduciary and funds management revenue was down $66 million, or 24%, from the first quarter of 1999. The decrease is due primarily to the sale of BTAL in the third quarter of 1999. Corporate finance fees of $37 million decreased $160 million from the $197 million earned in the first quarter of 1999. The decline is primarily attributable to lower revenue from underwriting, merger and acquisition and financial advisory activities resulting from the transfer of BTAB to DBSI in June 1999. Other fees and commissions of $80 million decreased $131 million from the prior year quarter primarily due to lower fees for brokerage services resulting from the transfer of BTAB to DBSI in June 1999. Insurance premium revenue decreased $48 million from the prior year quarter. The Corporation exited the insurance business with the sale of its remaining stake in Consorcio in the second quarter of 1999. Other noninterest revenue totaled $191 million compared to $186 million in the prior year period. The current quarter reflected higher revenue from mark-to-market adjustments on venture capital equity securities. 14 PROVISION AND ALLOWANCES FOR CREDIT LOSSES The allowance for credit losses represents management's estimate of probable losses that have occurred as of the date of the financial statements. The allowance for credit losses-loans is reported as a reduction of loans and the allowance for credit losses for other credit-related items is reported in other liabilities. The allowance for credit losses-loans is comprised of a specific allowance component, a country risk component and an expected loss component. The specific allowance component is the amount required for impaired loans as calculated under SFAS 114, "Accounting by Creditors for Impairment of a Loan". The country risk component is the amount provided for exposures in countries experiencing financial stress, excluding those exposures already identified and evaluated as impaired loans. The expected loss component is an estimate of the remaining probable losses inherent in the loan portfolio. This component is determined by using a statistical model that utilizes a loan-type, risk-rated stratified approach. Loss factors are derived by analyzing historical charge-offs and recent economic events and applied to categories of loans by type and risk rating. The provisions for credit losses and the other changes in the allowances for credit losses are shown below (in millions).
Three Months Ended March 31, ----------------------- Total allowance for credit losses 2000 1999 - - -------------------------------------------------------------------------------- Loans Balance, beginning of period $ 491 $ 652 Provision for credit losses (38) -- Net charge-offs Charge-offs 40 60 Recoveries 9 11 - - -------------------------------------------------------------------------------- Total net charge-offs 31 49 - - -------------------------------------------------------------------------------- Balance, end of period $ 422* $ 603 ================================================================================ * Comprised of a specific allowance component of $235 million, a country risk component of $30 million and an expected loss component of $157 million. Not comparable to the prior year period due to revised policies and procedures for determining the allowance for credit losses implemented in the third quarter of 1999. The allowance for credit losses-loans at December 31, 1999 was $491 million and was comprised of a specific allowance of $268 million, a country risk component of $56 million and an expected loss component of $167 million Other liabilities Balance, beginning of period $ 24 $ 18 Provision for credit losses (6) -- - - -------------------------------------------------------------------------------- Balance, end of period $ 18 $ 18 ================================================================================
15 RESTRUCTURING AND OTHER RELATED ACTIVITIES During the second and fourth quarters of 1999, the Corporation recorded pre-tax charges for restructuring and other related activities totaling $633 million. For a further discussion of these charges, refer to page 43 of the Corporation's Annual Report on Form 10-K.
Plan 1 Plan 2 ------------------------ ----------------------- (in millions) Severance Other Severance Other Total - - -------------------------------------------------------------------------------------------------------- Reserve Balance as of December 31, 1999 $112 $ 11 $ 57 $ 58 $238 Charges Against Reserve for the three months ended March 31, 2000 13 6 15 -- 34 - - -------------------------------------------------------------------------------------------------------- Ending Reserve Balance at March 31, 2000 $ 99 $ 5 $ 42 $ 58 $204 - - --------------------------------------------------------------------------------------------------------
At March 31, 2000, $141 million of the remaining reserve balance related to severance and other termination-related costs for further staff reductions of approximately 700 positions. These severance actions, as well as the actions related to other exit activities, are expected to be substantially completed during the remainder of 2000. 16 EXPENSES As compared to the first quarter of 1999, salaries and commissions expense decreased $250 million, or 67 percent, primarily due to a decrease in the average number of employees resulting from the transfer of BTAB and BTI in the second quarter of 1999, the sale of BTAL in the third quarter of 1999 and staff reductions resulting from the Acquisition. Incentive compensation and employee benefits decreased $314 million, or 73 percent from the prior year quarter, resulting from the previously mentioned decrease in the average number of employees. In addition, the prior year quarter included amortization expense for deferred compensation plans. The provision for policyholder benefits decreased $63 million from the prior year period. The Corporation exited the insurance business with the sale of its remaining stake in Consorcio in the second quarter of 1999. Other noninterest expenses increased $128 million from the prior year period primarily due to charges payable to a Deutsche Bank affiliated company relating to compensation arrangements. INCOME TAXES Income tax expense for the first quarter of 2000 amounted to $83 million, compared to $69 million in the first quarter of 1999. The effective tax rate was 77 percent for the current quarter and 33 percent for the prior year quarter. The increase in the effective tax rate is primarily due to an increase in state and local income taxes and an increase in the deferred tax valuation allowance. 17 BALANCE SHEET ANALYSIS The following table highlights the changes in the balance sheet. Since quarter-end balances can be distorted by one-day fluctuations, an analysis of changes in the quarterly averages is provided to give a better indication of balance sheet trends.
CONDENSED AVERAGE BALANCE SHEETS ---------------------------------- (in millions) 1st Qtr 4th Qtr Increase 2000 1999 (Decrease) - - -------------------------------------------------------------------------------- ASSETS Interest-earning Interest-bearing deposits with banks $ 5,147 $ 3,867 $ 1,280 Federal funds sold 2,263 3,608 (1,345) Securities purchased under resale agreements 2,940 5,478 (2,538) Trading assets 13,885 6,221 7,664 Securities available for sale Taxable 2,528 3,412 (884) Exempt from federal income taxes 16 16 -- - - -------------------------------------------------------------------------------- Total securities available for sale 2,544 3,428 (884) Loans Domestic offices 17,143 16,132 1,011 Foreign offices 3,642 4,613 (971) - - -------------------------------------------------------------------------------- Total loans 20,785 20,745 40 Customer receivables 633 569 64 - - -------------------------------------------------------------------------------- Total interest-earning assets 48,197 43,916 4,281 Noninterest-earning Cash and due from banks 2,354 1,745 609 Noninterest-earning trading assets 3,915 8,541 (4,626) All other assets 9,279 8,774 505 Less: Allowance for credit losses-loans (424) (508) 84 - - -------------------------------------------------------------------------------- Total $ 63,321 $ 62,468 $ 853 ================================================================================ LIABILITIES Interest-bearing Interest-bearing deposits Domestic offices $ 10,879 $ 12,200 $ (1,321) Foreign offices 6,955 7,659 (704) - - -------------------------------------------------------------------------------- Total interest-bearing deposits 17,834 19,859 (2,025) Trading liabilities 53 39 14 Securities loaned and securities sold under repurchase agreements 61 210 (149) Other short-term borrowings 9,340 7,691 1,649 Long-term debt 15,197 13,915 1,282 Trust preferred capital securities 1,429 1,427 2 - - -------------------------------------------------------------------------------- Total interest-bearing liabilities 43,914 43,141 773 Noninterest-bearing Noninterest-bearing deposits 4,503 4,724 (221) Noninterest-bearing trading liabilities 4,153 4,516 (363) All other liabilities 6,421 5,542 879 - - -------------------------------------------------------------------------------- Total liabilities 58,991 57,923 1,068 - - -------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Preferred stock 368 392 (24) Common stockholders' equity 3,962 4,153 (191) - - -------------------------------------------------------------------------------- Total stockholders' equity 4,330 4,545 (215) - - -------------------------------------------------------------------------------- Total $ 63,321 $ 62,468 $ 853 ================================================================================
18 BALANCE SHEET ANALYSIS (continued) Securities Available for Sale The fair value, amortized cost and gross unrealized holding gains and losses for the Corporation's securities available for sale are as follows:
March 31, December 31, (in millions) 2000 1999 - - -------------------------------------------------------------------------------- Fair value $ 1,210 $ 3,252 Amortized cost 1,156 3,227 ------- ------- Excess of fair value over amortized cost* $ 54 $ 25 ======= ======= * Components: Unrealized gains $ 67 $ 45 Unrealized losses (13) (20) ------- ------- $ 54 $ 25 ======= =======
19 TRADING DERIVATIVES The Corporation manages trading positions in a variety of derivative contracts. All positions are reported at fair value and changes in fair values are reflected in trading revenue as they occur. The following tables reflect the gross fair values and balance sheet amounts of trading derivative financial instruments:
At March 31, Average During 2000 1st Qtr. 2000 -------------------- -------------------- (Liabi- (Liabi- (in millions) Assets lities) Assets lities) - - -------------------------------------------------------------------------------------- OTC Financial Instruments Interest Rate and Currency Swap Contracts $ 4,872 $(5,270) $ 5,413 $(5,571) Interest Rate Contracts Forwards -- -- 1 (1) Options purchased 90 241 Options written (124) (395) Foreign Exchange Rate Contracts Spot and Forwards 24 (3) 53 (3) Options purchased 321 318 Options written (323) (318) Equity-related contracts 1,448 (1,652) 1,023 (1,177) Commodity-related and other contracts 1,695 (1,695) 1,004 (1,085) Exchange-Traded Options Interest Rate -- -- -- -- Foreign exchange -- -- -- -- Commodity -- -- 1 -- Equity 90 (46) 1 (4) - - -------------------------------------------------------------------------------------- Total Gross Fair Values 8,540 (9,113) 8,055 (8,554) Impact of Netting Agreements (4,402) 4,402 (4,502) 4,502 - - -------------------------------------------------------------------------------------- $ 4,138(1) $(4,711)(1) $ 3,553 $(4,052) ======= ======== ======= ======= (1) As reflected on the balance sheet in "Trading Assets" and "Trading Liabilities."
20 TRADING DERIVATIVES (continued)
At December 31, Average During 1999 4th Qtr. 1999 -------------------------- -------------------- (Liabi- (Liabi- (in millions) Assets lities) Assets lities) - - ------------------------------------------------------------------------------------------ OTC Financial Instruments Interest Rate and Currency Swap Contracts $ 6,400 $ (6,570) $ 6,927 $ (6,813) Interest Rate Contracts Forwards -- -- 3 (4) Options purchased 519 414 Options written (614) (628) Foreign Exchange Rate Contracts Spot and Forwards 11 (3) 193 (134) Options purchased 351 388 Options written (350) (388) Equity-related contracts 1,760 (1,865) 1,620 (1,893) Commodity-related and other contracts 853 (852) 677 (707) Exchange-Traded Options Interest Rate -- -- -- -- Foreign exchange -- -- -- -- Commodity -- -- -- -- Equity -- (16) -- -- - - ------------------------------------------------------------------------------------------ Total Gross Fair Values 9,894 (10,270) 10,222 (10,567) - - ------------------------------------------------------------------------------------------ Impact of Netting Agreements (5,087) 5,087 (6,100) 6,100 - - ------------------------------------------------------------------------------------------ $ 4,807(1) $ (5,183)(1) $ 4,122 $ (4,467) ======== ========= ======== ======== (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 $343 million at March 31, 2000 compared with unrealized losses of $145 million at December 31, 1999. The $198 million decrease was primarily due to the realization of $136 million in gains relating to the sell off of securities available for sale positions and changes in interest rates. 21 END-USER DERIVATIVES (continued) The following tables provide the gross unrealized gains and losses for end-user derivatives. Gross unrealized gains and losses for hedges of securities available for sale are recognized in the financial statements with the offset as an adjustment to securities valuation allowance in stockholder's equity. Gross unrealized gains and losses for hedges of loans, other assets, interest-bearing deposits, other short-term borrowings, long-term debt, and net investments in foreign subsidiaries are not yet recognized in the financial statements.
Other Net invest- short- ments in Securities Interest- term Long- foreign (in millions) available Other bearing borrow- term subsi- December 31, 1999 for sale Loans assets deposits ings debt(1) diaries Total - - --------------------------------------------------------------------------------------------------------------------- Interest Rate Swaps(2) Pay Variable Unrealized Gain $ -- $ -- $-- $ 4 $ 3 $ 18 $-- $ 25 Unrealized (Loss) -- (1) -- (261) (7) (168) -- (437) - - --------------------------------------------------------------------------------------------------------------------- Pay Variable Net -- (1) -- (257) (4) (150) -- (412) - - --------------------------------------------------------------------------------------------------------------------- Pay Fixed Unrealized Gain 1 -- -- 59 -- 4 -- 64 Unrealized (Loss) -- -- -- (15) -- -- -- (15) - - --------------------------------------------------------------------------------------------------------------------- Pay Fixed Net 1 -- -- 44 -- 4 -- 49 - - --------------------------------------------------------------------------------------------------------------------- Total Unrealized Gain 1 -- -- 63 3 22 -- 89 - - --------------------------------------------------------------------------------------------------------------------- Total Unrealized (Loss) -- (1) -- (276) (7) (168) -- (452) - - --------------------------------------------------------------------------------------------------------------------- Total Net $ 1 $ (1) $-- $(213) $ (4) $(146) $-- $(363) ===================================================================================================================== Currency Swaps and Forwards Unrealized Gain $ -- $ -- $-- $ -- $ -- $ 39 $-- $ 39 Unrealized (Loss) -- (1) -- -- -- (18) -- (19) - - --------------------------------------------------------------------------------------------------------------------- Net $ -- $ (1) $-- $ -- $ -- $ 21 $-- $ 20 ===================================================================================================================== Other Contracts Unrealized Gain $ -- $ -- $-- $ -- $ -- $ -- $-- $ -- Unrealized (Loss) -- -- -- -- -- -- -- -- - - --------------------------------------------------------------------------------------------------------------------- Net $ -- $ -- $-- $ -- $ -- $ -- $-- $ -- ===================================================================================================================== Total Unrealized Gain $ 1 $ -- $-- $ 63 $ 3 $ 61 $-- $ 128 Total Unrealized (Loss) -- (2) -- (276) (7) (186) -- (471) - - --------------------------------------------------------------------------------------------------------------------- Total Net $ 1 $ (2) $-- $(213) $ (4) $(125) $-- $(343) ===================================================================================================================== (1) Includes trust preferred capital securities. (2) Includes swaps with embedded options to cancel.
22 END-USER DERIVATIVES (continued)
Other Net invest- short- ments in Securities Interest- term Long- foreign (in millions) available Other bearing borrow- term subsi- December 31, 1999 for sale Loans assets deposits ings debt(1) diaries Total - - --------------------------------------------------------------------------------------------------------------------- Interest Rate Swaps(2) Pay Variable Unrealized Gain $ -- $ -- $-- $ 44 $ 3 $ 25 $-- $ 72 Unrealized (Loss) -- (2) -- (256) (3) (171) -- (432) - - -------------------------------------------------------------------------------------------------------------------- Pay Variable Net -- (2) -- (212) -- (146) -- (360) - - -------------------------------------------------------------------------------------------------------------------- Pay Fixed Unrealized Gain 1 -- -- 58 -- 7 -- 66 Unrealized (Loss) -- -- -- (17) -- -- -- (17) - - -------------------------------------------------------------------------------------------------------------------- Pay Fixed Net 1 -- -- 41 -- 7 -- 49 - - -------------------------------------------------------------------------------------------------------------------- Total Unrealized Gain 1 -- -- 102 3 32 -- 138 - - -------------------------------------------------------------------------------------------------------------------- Total Unrealized (Loss) -- (2) -- (273) (3) (171) -- (449) - - -------------------------------------------------------------------------------------------------------------------- Total Net $ 1 $ (2) $-- $(171) $ -- $(139) $-- $(311) ==================================================================================================================== Forward Rate Agreements Unrealized Gain $ 1 $ -- $-- $ -- $ -- $ -- $-- $ 1 Unrealized (Loss) -- -- -- -- -- -- -- -- - - -------------------------------------------------------------------------------------------------------------------- Net $ 1 $ -- $-- $ -- $ -- $ -- $-- $ 1 ==================================================================================================================== Currency Swaps and Forwards Unrealized Gain $ 136 $ -- $-- $ -- $ -- $ 54 $-- $ 190 Unrealized (Loss) -- (1) -- -- -- (24) -- (25) - - -------------------------------------------------------------------------------------------------------------------- Net $ 136 $ (1) $-- $ -- $ -- $ 30 $-- $ 165 ==================================================================================================================== Other Contracts Unrealized Gain $ -- $ -- $-- $ -- $ -- $ -- $-- $ -- Unrealized (Loss) -- -- -- -- -- -- -- -- - - -------------------------------------------------------------------------------------------------------------------- Net $ -- $ -- $-- $ -- $ -- $ -- $-- $ -- ==================================================================================================================== Total Unrealized Gain $ 138 $ -- $-- $ 102 $ 3 $ 86 $-- $ 329 Total Unrealized (Loss) -- (3) -- (273) (3) (195) -- (474) - - -------------------------------------------------------------------------------------------------------------------- Total Net $ 138 $ (3) $-- $(171) $ -- $(109) $-- $(145) ==================================================================================================================== (1) Includes trust preferred capital securities. (2) Includes swaps with embedded options to cancel.
23 END-USER DERIVATIVES (continued) For pay variable and pay fixed interest rate swaps entered into as an end user, the weighted average receive rate and pay rate (interest rates were based on the weighted averages of both U.S. and non-U.S. currencies) by maturity and corresponding notional amounts were as follows ($ in millions):
At March 31, 2000 Notional Paying Variable Paying Fixed Amount ------------------------------------ ------------------------------------ Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional - - --------------------------------------------------------------------------------------------------------- 2000 $24,396 6.01% 6.10% $ 816 6.10% 6.31% $25,212 2001-2002 3,068 6.75 6.11 316 6.10 6.77 3,384 2003-2004 1,305 6.26 6.10 167 5.80 6.72 1,472 2005 and thereafter 6,412 6.74 6.04 590 6.03 6.53 7,002 - - --------------------------------------------------------------------------------------------------------- Total $35,181 $1,889 $37,070 =========================================================================================================
All rates were those in effect at March 31, 2000. Variable rates are primarily based on LIBOR or Federal funds rate and may change significantly, affecting future cash flows.
At December 31, 1999 Notional Paying Variable Paying Fixed Amount ------------------------------------ ------------------------------------ Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional - - --------------------------------------------------------------------------------------------------------- 2000 $23,569 5.79% 5.78% $3,066 6.09% 5.82% $26,635 2001-2002 3,194 6.45 5.96 316 6.46 6.16 3,510 2003-2004 1,301 6.26 5.98 168 6.33 6.23 1,469 2005 and thereafter 6,240 6.36 6.26 550 6.24 6.24 6,790 - - --------------------------------------------------------------------------------------------------------- Total $34,304 $4,100 $38,404 =========================================================================================================
All rates were those in effect at December 31, 1999. Variable rates are primarily based on LIBOR or Federal funds rate and may change significantly, affecting future cash flows. 24 REGULATORY CAPITAL The Corporation and its banking subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. The Federal Reserve Board's ("FRB") risk-based capital guidelines address the capital adequacy of bank holding companies and banks (collectively, "banking organizations"). These guidelines include a definition of capital, a framework for calculating risk-weighted assets, and minimum risk-based capital ratios to be maintained by banking organizations. A banking organization's risk-based capital ratios are calculated by dividing its qualifying capital by its risk-weighted assets. The FRB also has a minimum Leverage ratio that is used as a supplement to the risk-based capital ratios in evaluating the capital adequacy of banks and bank holding companies. The Leverage ratio is calculated by dividing Tier 1 Capital by adjusted quarterly average assets. The Corporation's 1999 Annual Report on Form 10-K, on pages 11 and 40, provides a detailed discussion of these guidelines and regulations. Based on their respective regulatory capital ratios at March 31, 2000, both the Corporation and Bankers Trust Company ("BTCo") are well capitalized, as defined in the applicable regulations. The Corporation's and BTCo's ratios are presented in the table below.
FRB Minimum To Be Well Actual Actual for Capitalized as of as of Capital Under March 31, December 31, Adequacy Regulatory 2000 1999 Purposes Guidelines - - --------------------------------------------------------------------------------- Corporation Risk-Based Capital Ratios Tier 1 Capital 10.9% 10.4% 4.0% 6.0% Total Capital 18.7% 18.4% 8.0% 10.0% Leverage Ratio 7.2% 7.3% 3.0% N/A BTCo Risk-Based Capital Ratios Tier 1 Capital 18.6% 16.5% 4.0% 6.0% Total Capital 21.2% 18.9% 8.0% 10.0% Leverage Ratio 13.1% 12.3% 3.0% 5.0% N/A Not Applicable
25 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 March 31, December 31, (in millions) 2000 1999 - - -------------------------------------------------------------------------------- Corporation Tier 1 Capital $ 4,477 $ 4,462 Tier 2 Capital 3,226 3,399 ------- ------- Total Capital $ 7,703 $ 7,861 ======= ======= Total risk-weighted assets $41,251 $42,823 ======= ======= BTCo Tier 1 Capital $ 5,832 $ 5,710 Tier 2 Capital 806 851 ------- ------- Total Capital $ 6,638 $ 6,561 ======= ======= Total risk-weighted assets $31,298 $34,657 ======= =======
Comparing March 31, 2000 to December 31, 1999, the Corporation's Tier 1 Capital ratio increased 50 basis points due primarily to the decrease in risk-weighted assets of $1.57 billion. Risk-weighted assets decreased principally because positions were liquidated or transferred to other Deutsche Bank affiliates. The Total Capital ratio increased 30 basis points as the decrease in risk-weighted assets more than offset the decline of $158 million in Total Capital. BTCo's Tier 1 Capital ratio increased 210 basis points due to a reduction in risk-weighted assets of $3.4 billion and an increase in Tier 1 Capital of $122 million. Total Capital ratio increased 230 basis points due to the reduction in risk-weighted assets and increase in Total Capital. The Leverage ratio increased 80 basis points primarily due to the significant reduction of $2.0 billion in quarterly average assets. 26 RISK MANAGEMENT Market risk is the risk of losses in the value of the Corporation's portfolio due to movements in market prices and rates. Market risk arises from the Corporation's investment, trading, and client activities. This section discusses changes in the Corporation's market-risk profile as characterized by the quantitative information presented on pages 13 to 14 of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. Table 1 below shows the results of statistical measures of loss for the first three months of 2000 and all of 1999 for the set of financial assets and liabilities whose values are functions of market traded variables irrespective of accounting intention. This measure shows the 99th percentile loss potential of the Firm assuming the Firm's positions are held unchanged for 1 day. Table 2 shows the same information for the subset of these positions that appear as Trading Assets on the Corporation's balance sheet. Table 1 BT Corporation Total Value at Risk (in millions)
Three Months 1999 2000 December 31, March 31, Risk Class Average Average 1999 2000 - - ------------------------------------------------------------------------- Interest Rate $ 18.0 $ 3.8 $ 5.1 $ 3.3 Currency 2.5 2.0 0.6 1.6 Equity 22.6 16.6 11.7 14.1 Commodity 0.6 -- -- -- Diversification (12.4) (5.2) (4.6) (4.4) - - ------------------------------------------------------------------------- Overall Portfolio $ 31.3 $ 17.2 $ 12.8 $ 14.6 - - -------------------------------------------------------------------------
Table 1 shows that the Corporation's overall market-risk exposure increased on a spot basis by 14 percent from year-end, which was mainly driven by an increase in equity risk. The primary risks at March 31, 2000 are equity risk and interest rate risk. The interest rate risk stems mainly from the loan trading, loan syndication and loan securitization businesses. The equity risk is primarily from private equity investments held by the Corporation. This equity risk increased sharply in February and early March mainly due to market movements in the Corporation's private equity investments. 27 RISK MANAGEMENT (continued) Table 2 BT Corporation Trading Value at Risk (in millions)
Three Months 1999 2000 December 31, March 31, Risk Class Average Average 1999 2000 - - -------------------------------------------------------------------------------- Interest Rate $ 11.1 $ 3.8 $ 5.0 $ 3.2 Currency 2.3 2.0 0.6 1.6 Equity 8.7 11.7 5.8 2.6 Commodity 0.6 -- -- -- Diversification (7.0) (4.8) (3.7) (3.0) --------------------------------------------------- Overall Portfolio $ 15.7 $ 12.7 $ 7.7 $ 4.4 ---------------------------------------------------
Table 2 shows that the Corporation's March 31st risk levels from Trading Assets decreased by 43 percent on a spot basis from December 31, 1999. LIQUIDITY Liquidity is the ability to have funds available at all times to meet the commitments of the Corporation. The Corporation's liquidity process has become an integral part of Deutsche Bank's global liquidity process. Management's policy is designed to maintain Deutsche Bank's ability to fund assets and meet any contractual financial obligations on a timely basis at a fair market cost under any market conditions. While Deutsche Bank and the Corporation manage their liquidity positions on a day-to-day basis to meet ongoing funding needs, Deutsche Bank's planning and management process also encompasses contingency planning to address even the most severe liquidity events. Short-term unsecured financing for the Corporation is available under an uncommitted credit line with its parent, Deutsche Bank. At March 31, 2000, this credit line totaled over $5 billion. Of this amount, approximately $3 billion was drawn. 28 NONPERFORMING ASSETS The components of cash basis loans, renegotiated loans, other real estate and other nonperforming assets are shown below ($ in millions).
March 31, December 31, 2000 1999 - - -------------------------------------------------------------------------------- CASH BASIS LOANS Domestic Commercial and industrial $522 $495 Secured by real estate 60 67 Financial institutions 10 11 ---- ---- Total domestic 592 573 ---- ---- International Commercial and industrial 57 132 Secured by real estate 10 10 Lease financings 1 1 Other 21 21 ---- ---- Total international 89 164 ---- ---- Total cash basis loans $681 $737 ==== ==== Ratio of cash basis loans to total gross loans 3.4% 3.7% ==== ==== Ratio of allowance for credit losses-loans to cash basis loans 62% 67% ==== ==== RENEGOTIATED LOANS $ -- $ 11 ==== ==== OTHER REAL ESTATE $ 83 $ 88 ==== ==== OTHER NONPERFORMING ASSETS $ 8 $ 8 ==== ====
There were no loans 90 days or more past due and still accruing interest at March 31, 2000 and December 31, 1999. 29 NONPERFORMING ASSETS (continued) An analysis of the changes in the Corporation's total cash basis loans during the first three months of 2000 follows (in millions):
Balance, December 31, 1999 $ 737 Net transfers to cash basis loans 63 Net transfers to other real estate (2) Net paydowns (69) Charge-offs (40) Other (8) ----- Balance, March 31, 2000 $ 681 =====
The Corporation's total cash basis loans amounted to $681 million at March 31, 2000, down $56 million, or 8 percent, from December 31, 1999. Impaired loans under SFAS 114, were $785 million and $889 million at March 31, 2000 and December 31, 1999, respectively. Included in these amounts were $675 million and $718 million of loans that required a specific allowance of $235 million and $268 million at those same dates, respectively. The following table sets forth the approximate effect on interest revenue of cash basis loans and renegotiated loans. This disclosure reflects the interest on loans that were carried on the balance sheet and classified as either cash basis or renegotiated at March 31 of each year. The rates used in determining the gross amount of interest which would have been recorded at the original rate were not necessarily representative of current market rates.
Three Months Ended March 31, -------------------- (in millions) 2000 1999 - - -------------------------------------------------------------------------------- Domestic Loans Gross amount of interest that would have been recorded at original rate $13 $ 4 Less, interest, net of reversals, recognized in interest revenue 8 2 --- --- Reduction of interest revenue 5 2 --- --- International Loans Gross amount of interest that would have been recorded at original rate 1 5 Less, interest, net of reversals, recognized in interest revenue 1 4 --- --- Reduction of interest revenue -- 1 --- --- Total reduction of interest revenue $ 5 $ 3 === ===
30 RELATED PARTY TRANSACTIONS The Corporation has entered into various related party transactions with Deutsche Bank and its affiliated entities. For further discussion, see page 58 of the Corporation's 1999 Annual Report on Form 10-K. The Corporation also has related party balances with Deutsche Bank or affiliated companies. These balances generally include interest-bearing deposits with banks, securities purchased under resale agreements, securities borrowed, securities loaned and securities sold under repurchase agreements, other short-term borrowings, and derivative contracts. These transactions are entered into in the ordinary course of business. Included in the Corporation's financial statements were the following balances with such affiliates.
(in millions) March 31, 2000 December 31, 1999 - - -------------------------------------------------------------------------------- Interest-earning assets $10,689 $10,843 Noninterest-earning assets 1,738 1,147 Interest-bearing liabilities 8,956 6,568 Noninterest-bearing liabilities 2,766 139
ACCOUNTING DEVELOPMENTS In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires companies to recognize all derivatives on the balance sheet as assets or liabilities measured at fair value. SFAS 137 deferred the effective date of SFAS 133 until January 1, 2001 for calendar year companies. Depending on the underlying risk management strategy, the accounting for these products under the new standard could affect reported earnings and balance sheet accounts. The Corporation continues to evaluate the potential impact of the new standard as plans for implementation proceed. SUPERVISION AND REGULATION In November 1999 federal financial modernization legislation was enacted which allows qualifying banks and bank holding companies to elect to be treated as financial holding companies ("FHCs"). FHCs may engage in a broader range of activity than non-FHCs, which will be limited to the activities traditionally permissible for bank holding companies. Although bank regulatory authorities have issued interim and proposed regulations, the full scope of the new powers available to FHCs will only become clear after the bank regulatory authorities adopt final implementing regulations. Although Deutsche Bank has received FHC status, the Corporation at this time is unable to predict the impact the modernization legislation may have on it and its affiliates. See "Supervision and Regulation" on pages 68 and 69 of Bankers Trust's 1999 Annual Report on Form 10-K for more information on the modernization legislation. 31 Item 3. Quantitative and Qualitative Disclosures About Market Risk See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management" on page 26 for Quantitative and Qualitative Disclosures About Market Risk. FORWARD-LOOKING STATEMENTS Certain sections of this report contain forward-looking statements and can be identified by the use of such words as "anticipates," "expects," and "estimates," and similar expressions. These statements are subject to certain risks and uncertainties. These risks and uncertainties could cause actual results to differ materially from the current statements. See also "Important Factors Relating to Forward-Looking Statements" contained in the Corporation's Annual Report. 32 PART II. OTHER INFORMATION - - -------------------------- Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (3) Articles of Incorporation and By-laws, as amended (4) Instruments Defining the Rights of Security Holders, Including Indentures (v) - The Corporation hereby agrees to furnish to the Commission, upon request, a copy of any instruments defining the rights of security holders issued by Bankers Trust Corporation or its subsidiaries. (12) Statement re Computation of Ratios (27) Financial Data Schedule (99) Additional Exhibits (b) Reports on Form 8-K - Bankers Trust Corporation did not file any reports on Form 8-K during the quarter ended March 31, 2000. 33 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, on May 15, 2000. BANKERS TRUST CORPORATION BY: /S/ RONALD HASSEN ------------------------------------- RONALD HASSEN Senior Vice President, Controller and Principal Accounting Officer BANKERS TRUST CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 EXHIBIT INDEX (3) Articles of Incorporation and By-laws, as amended (ii) - By-laws as in effect April 27, 2000 (4) Instruments Defining the Rights of Security Holders, Including Indentures (v) - Long-Term Debt Indentures (a) (12) Statement re Computation of Ratios (a) - Computation of Consolidated Ratios of Earnings to Fixed Charges (b) - Computation of Consolidated Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements (27) Financial Data Schedule (99) (i) Additional Exhibits (1) Unaudited Pro Forma Condensed Financial Statement for the three months ended March 31,1999. [FN] (a) The Corporation hereby agrees to furnish to the Commission, upon request, a copy of any instruments defining the rights of holders of long-term debt issued by Bankers Trust Corporation or its subsidiaries. EX-3.II 2 BY-LAWS EXHIBIT 3(ii) BY-LAWS APRIL 27, 2000 Bankers Trust Corporation (Incorporated under the New York Business Corporation Law) BANKERS TRUST CORPORATION ----------------------------------------------- BY-LAWS ----------------------------------------------- ARTICLE I SHAREHOLDERS SECTION 1.01 Annual Meetings. The annual meetings of shareholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held in January of each year. SECTION 1.02 Special Meetings. Special meetings of the shareholders, except those regulated otherwise by statute, may be called at any time by the Board of Directors, or by any person or committee expressly so authorized by the Board of Directors and by no other person or persons. SECTION 1.03 Place of Meetings. Meetings of shareholders shall be held at such place within or without the State of New York as shall be determined from time to time by the Board of Directors or, in the case of special meetings, by such person or persons as may be authorized to call a meeting. The place in which each meeting is to be held shall be specified in the notice of such meeting. SECTION 1.04 Notice of Meetings. A copy of the written notice of the place, date and hour of each meeting of shareholders shall be given personally or by mail, not less than ten nor more than fifty days before the date of the meeting, to each shareholder entitled to vote at such meeting. Notice of a special meeting shall indicate that it is being issued by or at the direction of the person or persons calling the meeting and shall also state the purpose or purposes for which the meeting is called. SECTION 1.05 Record Date. For the purpose of determining the shareholders entitled to notice of or to vote any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than fifty nor less than ten days before the date of such meeting, nor more than fifty days prior to any other action. SECTION 1.06 Quorum. The presence, in person or by proxy, of the holders of a majority of the shares entitled to vote thereat shall constitute a quorum at a meeting of shareholders for the transaction of business, except as otherwise provided by statute, by the Certificate of Incorporation or by the By-Laws. The shareholders present in person or by proxy and entitled to vote at any meeting, despite the absence of a quorum, shall have power to adjourn the meeting from time to time, to a designated time and place, without notice other than by announcement at the meeting, and at any adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. SECTION 1.07 Business at Annual Meeting. At an annual meeting of shareholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors or by any shareholder of the corporation. ARTICLE II BOARD OF DIRECTORS SECTION 2.01 Number and Qualifications. The business of the corporation shall be managed by its Board of Directors. The number of directors constituting the entire Board of Directors shall be not less than seven nor more than fifteen, as shall be fixed from time to time by vote of a majority of the entire Board of Directors. Each director shall be at least 21 years of age. Directors need not be shareholders. No Officer-Director who shall have attained age 65, or earlier relinquishes his responsibilities and title, shall be eligible to serve as a director. SECTION 2.02 Election. At each annual meeting of shareholders, directors shall be elected by a plurality of the votes to hold office until the next annual meeting. Subject to the provisions of the statute, of the Certificate of Incorporation and of the By-Laws, each director shall hold office until the expiration of the term for which elected, and until his successor has been elected and qualified. SECTION 2.03 Nomination and Notification of Nomination. Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, nominations for the election of directors may be made by the Board of Directors or to any committee appointed by the Board of Directors or by any shareholder entitled to vote in the election of directors generally. SECTION 2.04 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such places and times as may be fixed from time to time by resolution of the Board and a regular meeting for the purpose of organization and transaction of other business shall be held each year after the adjournment of the annual meeting of shareholders. 2 SECTION 2.05 Special Meetings. The Chairman of the Board, the Chief Executive Officer, the President or any Vice Chairman may, and at the request of three directors shall, call a special meeting of the Board of Directors, two days' notice of which shall be given in person or by mail, electronic mail, telephone or via facsimile transmission. Notice of a special meeting need not be given to any director who submits a signed waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him. SECTION 2.06 Place of Meeting. The directors may hold their meetings, have one or more offices, and keep the books of the corporation (except as may be provided by law) at any place, either within or without the State of New York, as they may from time to time determine. SECTION 2.07 Quorum and Vote. At all meetings of the Board of Directors the presence of one-third of the entire Board, but not less than two directors, shall constitute a quorum for the transaction of business. Any one or more members of the Board of Directors or of any committee thereof may participate in a meeting of the Board of Directors or a committee thereof by means of a conference telephone, video conference or similar communications equipment which allows all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at such a meeting. The vote of a majority of the directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board of Directors, except as may be otherwise provided by statute or the By-Laws. SECTION 2.08 Vacancies. Newly created directorships resulting from increase in the number of directors and vacancies in the Board of Directors, whether caused by resignation, death, removal or otherwise, may be filled by vote of a majority of the directors then in office, although less than a quorum exists. ARTICLE III EXECUTIVE AND OTHER COMMITTEES SECTION 3.01 Designation and Authority. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members an Executive Committee and other committees, each consisting of three or more directors, except for the Transaction Authorization Committee which shall consist of at least two directors. Each such committee, to the extent provided in the resolution or the By-Laws, shall have all the authority of the Board, except that no such committee shall have authority as to: (i) the submission to shareholders of any action as to which shareholders' authorization is required by law. 3 (ii) the filling of vacancies in the Board of Directors or any committee. (iii) the fixing of compensation of directors for serving on the Board or on any committee. (iv) the amendment or appeal of the By-Laws, or the adoption of new By-Laws. (v) the amendment or repeal of any resolution of the Board which by its terms shall not be so amendable or repealable. The Board may designate one or more directors as alternate members of any such committee, who may replace any absent member or members at any meeting of such committee. Each such committee shall serve at the pleasure of the Board of Directors. SECTION 3.02 Procedure. Except as may be otherwise provided by statute, by the By-Laws or by resolution of the Board of Directors, each committee may make rules for the call and conduct of its meetings. Each committee shall keep a record of its acts and proceedings and shall report the same from time to time to the Board of Directors. ARTICLE IV OFFICERS SECTION 4.01 Titles and General. The Board of Directors shall elect from among their number a Chairman of the Board and a Chief Executive Officer, and may also elect a President, one or more Vice Chairmen, one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Directors, one or more Vice Presidents, a Secretary, a Controller, a Treasurer, a General Counsel, a General Auditor, and a General Credit Auditor, who need not be directors. The officers of the corporation may also include such other officers or assistant officers as shall from time to time be elected or appointed by the Board. The Chairman of the Board or the Chief Executive Officer or, in their absence, the President or any Vice Chairman, may from time to time appoint assistant officers. All officers elected or appointed by the Board of Directors shall hold their respective offices during the pleasure of the Board of Directors, and all assistant officers shall hold office at the pleasure of the Board or the Chairman of the Board or the Chief Executive Officer or, in their absence, the President or any Vice Chairman. The Board of Directors may require any and all officers and employees to give security for the faithful performance of their duties. SECTION 4.02 Chairman of the Board. The Chairman of the Board shall preside at all meetings of the shareholders and of the Board of Directors. Subject to the Board of Directors, he shall exercise all the powers and perform all the duties usual to such office and shall have such other powers as may be prescribed by the Board of Directors or the Executive Committee or vested in him by the By-Laws. 4 SECTION 4.03 Chief Executive Officer. The Board of Directors shall designate the Chief Executive Officer of the corporation, which person may also hold the additional title of Chairman of the Board, or President Subject to the Board of Directors, he shall exercise all the powers and perform all the duties usual to such office and shall have such other powers as may be prescribed by the Board of Directors or the Executive Committee or vested in him by the By-Laws. SECTION 4.04 Chairman of the Board, President, Vice Chairmen, Executive Vice Presidents, Senior Vice Presidents, Directors and Vice Presidents. The Chairman of the Board or, in his absence or incapacity the President or, in his absence or incapacity, the Vice Chairmen, the Executive Vice Presidents, or in their absence, the Senior Vice Presidents, in the order established by the Board of Directors shall, in the absence or incapacity of the Chief Executive Officer perform the duties of the Chief Executive Officer. The President, the Vice Chairmen, the Executive Vice Presidents, the Senior Vice Presidents, the Directors, and the Vice Presidents shall also perform such other duties and have such other powers as may be prescribed or assigned to them, respectively, from time to time by the Board of Directors, the Executive Committee, the Chief Executive Officer, or the By-Laws. SECTION 4.05 Controller. The Controller shall perform all the duties customary to that office and except as may be otherwise provided by the Board of Directors shall have the general supervision of the books of account of the corporation and shall also perform such other duties and have such powers as may be prescribed or assigned to him from time to time by the Board of Directors, the Executive Committee, the Chief Executive Officer, or the By-Laws. SECTION 4.06 Secretary. The Secretary shall keep the minutes of the meetings of the Board of Directors and of the shareholders and shall have the custody of the seal of the corporation. He shall perform all other duties usual to that office, and shall also perform such other duties and have such powers as may be prescribed or assigned to him from time to time by the Board of Directors, the Executive Committee, the Chairman of the Board, the Chief Executive Officer, or the By-Laws. ARTICLE V INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS SECTION 5.01 The corporation shall, to the fullest extent permitted by Section 721 of the New York Business Corporation Law, indemnify any person who is or was made, or threatened to be made, a party to an action or proceeding, whether civil or criminal, whether involving any actual or alleged breach of duty, neglect or error, any accountability, or any actual or alleged misstatement, misleading statement or other act or omission and whether brought or threatened in any court or administrative or legislative body or agency, including an action by or in the right of the corporation to procure a judgment in its favor and an action by or in the right of any other corporation of any type or kind, domestic or 5 foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the corporation is serving or served in any capacity at the request of the corporation by reason of the fact that he, his testator or intestate, is or was a director or officer of the corporation, or is serving or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement, and costs, charges and expenses, including attorneys' fees, or any appeal therein; provided, however, that no indemnification shall be provided to any such person if a judgment or other final adjudication adverse to the director or officer establishes that (i) his acts were committed in bad faith or were the result of active and deliberate dishonesty and, in either case, were material to the cause of action so adjudicated, or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled. SECTION 5.02 The corporation may indemnify any other person to whom the corporation is permitted to provide indemnification or the advancement of expenses by applicable law, whether pursuant to rights granted pursuant to, or provided by, the New York Business Corporation Law or other rights created by (i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an agreement providing for such indemnification, it being expressly intended that these By-Laws authorize the creation of other rights in any such manner. SECTION 5.03 The corporation shall, from time to time, reimburse or advance to any person referred to in Section 5.01 the funds necessary for payment of expenses, including attorneys' fees, incurred in connection with any action or proceeding referred to in Section 5.01, upon receipt of a written undertaking by or on behalf of such person to repay such amount(s) if a judgment or other final adjudication adverse to the director or officer establishes that (i) his acts were committed in bad faith or were the result of active and deliberate dishonesty and, in either case, were material to the cause of action so adjudicated, or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled. SECTION 5.04 Any director or officer of the corporation serving (i) another corporation, of which a majority of the shares entitled to vote in the election of its directors is held by the corporation, or (ii) any employee benefit plan of the corporation or any corporation referred to in clause (i), in any capacity shall be deemed to be doing so at the request of the corporation. In all other cases, the provisions of this Article V will apply (i) only if the person serving another corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise so served at the specific request of the corporation, evidenced by a written communication signed by the Chairman of the Board, the Chief Executive Officer, the President or any Vice Chairman, and (ii) only if and to the extent that, after making such efforts as the Chairman of the Board, the Chief Executive Officer, or the President shall deem adequate in the circumstances, such person shall be unable to obtain indemnification from such other enterprise or its insurer. SECTION 5.05 Any person entitled to be indemnified or to the reimbursement or advancement of expenses as a matter of right pursuant to this Article V may elect to have the right to indemnification (or advancement of expenses) interpreted on the basis of the 6 applicable law in effect at the time of the occurrence of the event or events giving rise to the action or proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time indemnification is sought. SECTION 5.06 The right to be indemnified or to the reimbursement or advancement of expenses pursuant to this Article V (i) is a contract right pursuant to which the person entitled thereto may bring suit as if the provisions hereof were set forth in a separate written contract between the corporation and the director or officer, (ii) is intended to be retroactive and shall be available with respect to events occurring prior to the adoption hereof, and (iii) shall continue to exist after the rescission or restrictive modification hereof with respect to events occurring prior thereto. SECTION 5.07 If a request to be indemnified or for the reimbursement or advancement of expenses pursuant hereto is not paid in full by the corporation within thirty days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled also to be paid the expenses of prosecuting such claim. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of or reimbursement or advancement of expenses to the claimant is proper in the circumstances, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses, shall be a defense to the action or create a presumption that the claimant is not so entitled. SECTION 5.08 A person who has been successful, on the merits or otherwise, in the defense of a civil or criminal action or proceeding of the character described in Section 5.01 shall be entitled to indemnification only as provided in Sections 5.01 and 5.03, notwithstanding any provision of the New York Business Corporation Law to the contrary. ARTICLE VI SEAL SECTION 6.01 Corporate Seal. The corporate seal shall contain the name of the corporation and the year and state of its incorporation. The seal may be altered from time to time at the discretion of the Board of Directors. 7 ARTICLE VII SHARE CERTIFICATES SECTION 7.01 Form. The certificates for shares of the corporation shall be in such form as shall be approved by the Board of Directors and shall be signed by the Chairman of the Board, the Chief Executive Officer, the President or any Vice Chairman and the Secretary or an Assistant Secretary, and shall be sealed with the seal of the corporation or a facsimile thereof. The signatures of the officers upon the certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the corporation itself or its employees. ARTICLE VIII CHECKS SECTION 8.01 Signatures. All checks, drafts and other orders for the payment of money shall be signed by such officer or officers or agent or agents as the Board of Directors may designate from time to time. ARTICLE IX AMENDMENT SECTION 9.01 Amendment of By-Laws. The By-Laws may be amended, repealed or added to by vote of the holders of the shares at the time entitled to vote in the election of any directors. The Board of Directors may also amend, repeal or add to the By-Laws, but any By-Laws adopted by the Board of Directors may be amended or repealed by the shareholders entitled to vote thereon as provided herein. If any By-Law regulating an impending election of directors is adopted, amended or repealed by the Board, there shall be set forth in the notice of the next meeting of shareholders for the election of directors the By-Laws so adopted, amended or repealed, together with concise statement of the changes made. ARTICLE X SECTION 10.01 Construction. The masculine gender, when appearing in these By-Laws, shall be deemed to include the feminine gender. 8 I, Sonja K. Olsen, [Assistant] Secretary of Bankers Trust Corporation, New York, New York, hereby certify that the foregoing is a complete, true and correct copy of the By-Laws of Bankers Trust Corporation, and that the same are in full force and effect at this date. /s/ Sonja K. Olsen [Assistant] Secretary Dated: May 8, 2000 EX-12.1 3 COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS EXHIBIT 12(a) BANKERS TRUST CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES (dollars in millions)
Three Months Ended Year Ended December 31, March 31, ------------------------------------------------------------------ 1995 1996 1997 1998 1999 2000 ---------------------------------------------------------------------------------- Earnings: 1. Income (loss) before income taxes $ 469 $1,131 $1,239 $ (77) $(1,415) $ 108 2. Add: Fixed charges excluding capitalized interest (Line 10) 5,138 5,483 5,959 6,954 3,654 709 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 28 30 (117) 15 75 18 ---------------------------------------------------------------------------------- 4. Earnings including interest on deposits 5,579 6,584 7,315 6,862 2,164 799 5. Less: Interest on deposits 1,360 1,355 2,076 2,195 1,424 284 ---------------------------------------------------------------------------------- 6. Earnings excluding interest on deposits $4,219 $5,229 $5,239 $4,667 $ 740 $ 515 ================================================================================== Fixed Charges: 7. Interest Expense $5,105 $5,451 $5,926 $6,919 $ 3,612 $ 700 8. Estimated interest component of net rental expense 33 32 33 35 42 9 9. Amortization of debt issuance expense -- -- -- -- -- -- ---------------------------------------------------------------------------------- 10. Total fixed charges including interest on deposits and excluding capitalized interest 5,138 5,483 5,959 6,954 3,654 709 11. Add: Capitalized interest -- -- -- -- -- -- ---------------------------------------------------------------------------------- 12. Total fixed charges 5,138 5,483 5,959 6,954 3,654 709 13. Less: Interest on deposits (Line 5) 1,360 1,355 2,076 2,195 1,424 284 ---------------------------------------------------------------------------------- 14. Fixed charges excluding interest on deposits $3,778 $4,128 $3,883 $4,759 $ 2,230 $ 425 ================================================================================== Consolidated Ratios of Earnings to Fixed Charges: Including interest on deposits (Line 4/Line 12) 1.09 1.20 1.23 .99 N/A 1.13 ================================================================================== Excluding interest on deposits (Line 6/Line 14) 1.12 1.27 1.35 .98 N/A 1.21 ==================================================================================
For the years ended December 31, 1999 and 1998, earnings, as defined, did not cover fixed charges, including and excluding interest on deposits by $1,490 million and $92 million, respectively, as a result of a net loss recorded during the period. N/A - Not Applicable. EX-12.2 4 COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS 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)
Three Months Year Ended December 31, Ended ------------------------------------------------------------------ March 31, 1995 1996 1997 1998 1999 2000 ---------------------------------------------------------------------------------- Earnings: 1. Income (loss) before income taxes $ 469 $1,131 $1,239 $(77) $(1,415) $ 108 2. Add: Fixed charges excluding capitalized interest (Line 13) 5,138 5,483 5,959 6,954 3,654 709 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 28 30 (117) 15 75 18 ---------------------------------------------------------------------------------- 4. Earnings including interest on deposits 5,579 6,584 7,315 6,862 2,164 799 5. Less: Interest on deposits 1,360 1,355 2,076 2,195 1,424 284 ---------------------------------------------------------------------------------- 6. Earnings excluding interest on deposits $4,219 $5,229 $5,239 $4,667 $ 740 $ 515 ================================================================================== Preferred Stock Dividend Requirements: 7. Preferred stock dividend requirements $ 51 $ 51 $ 49 $ 32 $ 23 $ 5 8. Ratio of income (loss) from continuing operations before income taxes to income (loss) from continuing operations after income taxes 151% 148% 143% 105% 88% 432% ---------------------------------------------------------------------------------- 9. Preferred stock dividend requirements on a pretax basis $ 77 $ 75 $ 70 $ 34 $ 20 $ 22 ================================================================================== Fixed Charges: 10. Interest Expense $5,105 $5,451 $5,926 $6,919 $ 3,612 $ 700 11. Estimated interest component of net rental expense 33 32 33 35 42 9 12. Amortization of debt issuance expense -- -- -- -- -- -- ---------------------------------------------------------------------------------- 13. Total fixed charges including interest on deposits and excluding capitalized interest 5,138 5,483 5,959 6,954 3,654 709 14. Add: Capitalized interest -- -- -- -- -- -- ---------------------------------------------------------------------------------- 15. Total fixed charges 5,138 5,483 5,959 6,954 3,654 709
Three Months Ended Year Ended December 31, March 31, ---------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 ---------------------------------------------------------------------------------- 16. Add: Preferred stock dividend require- ments - pretax (Line 9) 77 75 70 34 20 22 ---------------------------------------------------------------------------------- 17. Total combined fixed charges and preferred stock dividend require- ments on a pretax basis 5,215 5,558 6,029 6,988 3,674 731 18. Less: Interest on deposits (Line 5) 1,360 1,355 2,076 2,195 1,424 284 ---------------------------------------------------------------------------------- 19. Combined fixed charges and preferred stock dividend requirements on a pretax basis excluding interest on deposits $3,855 $4,203 $3,953 $4,793 $ 2,250 $ 447 ================================================================================== Consolidated Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements: Including interest on deposits (Line 4/Line 17) 1.07 1.18 1.21 .98 N/A 1.09 ================================================================================== Excluding interest on deposits (Line 6/Line 19) 1.09 1.24 1.32 .97 N/A 1.15 ==================================================================================
For the years ended December 31, 1999 and 1998, earnings, as defined, did not cover fixed charges, and preferred stock dividend requirements, including and excluding interest on deposits, by $1,510 million and by $126 million, respectively, as a result of a net loss recorded during the period. N/A - Not Applicable. EX-99.1 5 UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS EXHIBIT 99.1 BANKERS TRUST CORPORATION UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (IN MILLIONS) The following Unaudited Pro Forma Condensed Statement of Income for the three months ended March 31, 1999 gives effect to Bankers Trust Corporation's ("BT" or the "Corporation") sale of its wholly-owned subsidiary Bankers Trust Australia Limited ("BTAL") to the Principal Financial Group for a price of approximately $1.4 billion. In addition, the following Unaudited Pro Forma Condensed Statement of Income for the three months ended March 31, 1999 gives effect to the Corporation's transfer on June 5, 1999 of its wholly-owned subsidiary BT Alex. Brown Incorporated ("BTAB") and substantially all of its interest in Bankers Trust International PLC ("BTI") to Deutsche Bank Securities Inc. and Deutsche Holdings (BTI) Ltd., respectively, which are wholly-owned subsidiaries of Deutsche Bank AG. The pro forma information is based on the historical consolidated financial statements of BT after giving effect to the pro forma adjustments described in the Notes to the Unaudited Pro Forma Condensed Financial Statements. The gain on the sale of BTAL has not been considered in the unaudited pro forma condensed income statement due to its nonrecurring nature. The pro forma financial data are not necessarily indicative of the results that actually would have occurred had the sale of BTAL and transfer of BTAB and BTI been consummated on the dates indicated or that may be obtained in the future. BANKERS TRUST CORPORATION UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME (IN MILLIONS)
For the Three Months Ended March 31, 1999 --------------------------------------------------------------------- BT BTAB, BTI Pro Forma Consolidated and BTAL Adjustments Pro Forma ------------ -------- ----------- ---------- (a) (b) NET INTEREST REVENUE Interest revenue $ 1,511 $ (737) $ 259 $ 1,033 Interest expense 1,250 (455) 68 863 - - -------------------------------------------------------------------------------------------------------------------- NET INTEREST REVENUE 261 (282) 191 170 Provision for credit losses-loans -- -- -- -- - - -------------------------------------------------------------------------------------------------------------------- NET INTEREST REVENUE AFTER PROVISION FOR CREDIT LOSSES-LOANS 261 (282) 191 170 - - -------------------------------------------------------------------------------------------------------------------- NONINTEREST REVENUE Trading 340 (120) (1) 219 Fiduciary and funds management 271 (69) -- 202 Corporate finance fees 197 (141) -- 56 Other fees and commissions 211 (119) -- 92 Net revenue from equity investments 99 -- -- 99 Securities available for sale gains (losses) (4) (6) -- (10) Insurance premiums 48 -- -- 48 Other 87 (15) 157 229 - - -------------------------------------------------------------------------------------------------------------------- Total noninterest revenue 1,249 (470) 156 935 - - -------------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSES Salaries and commissions 373 (164) -- 209 Incentive compensation and employee benefits 432 (223) -- 209 Agency and other professional service fees 91 (23) 9 77 Communication and data services 66 (28) -- 38 Occupancy, net 58 (16) -- 42 Furniture and equipment 69 (16) -- 53 Travel and entertainment 30 (18) -- 12 Provision for policyholder benefits 63 -- -- 63 Other 119 (69) 121 171 - - -------------------------------------------------------------------------------------------------------------------- Total noninterest expenses 1,301 (557) 130 874 - - -------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 209 (195) 217 231 Income taxes (benefit) 69 84 - - -------------------------------------------------------------- ---------- NET INCOME (LOSS) $ 140 $ 147 ============================================================== ==========
See Notes to Unaudited Pro Forma Condensed Financial Statements. BANKERS TRUST CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (a) Amounts represent the elimination of BTAB's, BTI's and BTAL's third-party amounts from BT's historical consolidated financial statements (b) Adjustments to record BTAB, BTI and BTAL intercompany amounts as third-party revenue or expense, as applicable. Intercompany amounts were eliminated in BT's historical consolidated financial statements. EX-27 6 FDS
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLDIATED STATEMENT OF CONDITION AT MARCH 31, 2000 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-2000 JAN-01-2000 MAR-31-2000 2,416 5,064 6,087 21,629 1,210 0 0 20,293 422 65,828 21,251 11,545 6,677 16,872 0 365 0 3,978 65,828 449 35 332 816 284 700 116 (38) 0 622 108 108 0 0 25 0 0 0.98 681 0 0 0 491 40 9 422 340 82 0 Short-term borrowings include the following: Securities loaned and securities sold under Repurchase Agreements 67 Other Short-term borrowings 11,478 Total 11,545 Other liabilities include the following: Accounts payable and accrued expenses 3,358 Other liabilities 3,319 Total 6,677 Amount pertains to the allowance related to loans
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