-----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, Lzlga3cIzEJXmiAou9YlnIcxvTi1jNS4mlJK/pfzLlRnDDxZ18qScLJtNrsqtRYw zS3RUPcPJQxRDOWja3D4hg== /in/edgar/work/20000814/0000891554-00-001987/0000891554-00-001987.txt : 20000921 0000891554-00-001987.hdr.sgml : 20000921 ACCESSION NUMBER: 0000891554-00-001987 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 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: 700364 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 0001.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 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 JUNE 30, 2000 FORM 10-Q TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Income Three Months Ended June 30, 2000 and 1999 2 Six Months Ended June 30, 2000 and 1999 3 Consolidated Statement of Comprehensive Income Three Months Ended June 30, 2000 and 1999 Six Months Ended June 30, 2000 and 1999 4 Consolidated Balance Sheet At June 30, 2000 and December 31, 1999 5 Consolidated Statement of Changes in Stockholders' Equity Six Months Ended June 30, 2000 and 1999 6 Consolidated Statement of Cash Flows Six Months Ended June 30, 2000 and 1999 7 Consolidated Schedule of Net Interest Revenue Three Months and Six Months Ended June 30, 2000 and 1999 8 In the opinion of management, all material adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods presented have been made. All such adjustments were of a normal recurring nature. The results of operations for the three months and six months ended June 30, 2000 are not necessarily indicative of the results of operations for the full year or any other interim period. The financial statements included in this Form 10-Q should be read with reference to the Bankers Trust Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 as supplemented by the first quarter 2000 Form 10-Q. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk 34 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 35 SIGNATURE 36 2 PART I. FINANCIAL INFORMATION BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (in millions) (unaudited)
Increase THREE MONTHS ENDED JUNE 30, 2000 1999 (Decrease) - -------------------------------------------------------------------------------------------------------------- NET INTEREST REVENUE Interest revenue $889 $1,293 $(404) Interest expense 749 1,057 (308) - -------------------------------------------------------------------------------------------------------------- Net interest revenue 140 236 (96) Provision for credit losses-loans (2) (25) 23 - -------------------------------------------------------------------------------------------------------------- Net interest revenue after provision for credit losses-loans 142 261 (119) - -------------------------------------------------------------------------------------------------------------- NONINTEREST REVENUE Trading 31 (407) 438 Fiduciary and funds management 208 284 (76) Corporate finance fees 45 245 (200) Other fees and commissions 82 153 (71) Securities available for sale gains (losses) 31 (139) 170 Insurance premiums -- 38 (38) Other (40) (166) 126 - -------------------------------------------------------------------------------------------------------------- Total noninterest revenue 357 8 349 - -------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSES Salaries and commissions 121 337 (216) Incentive compensation and employee benefits 100 283 (183) Change in control related incentive compensation and employee benefits -- 1,101 (1,101) Agency and other professional service fees 55 159 (104) Communication and data services 20 66 (46) Occupancy, net 26 62 (36) Furniture and equipment 30 69 (39) Travel and entertainment 11 54 (43) Provision for policyholder benefits -- 51 (51) Other 163 161 2 Restructuring charge (46) 459 (505) - --------------------------------------------------------------------------------------------------------------- Total noninterest expenses 480 2,802 (2,322) - --------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 19 (2,533) 2,552 Income taxes (benefit) 36 (585) 621 - -------------------------------------------------------------------------------------------------------------- NET LOSS $ (17) $(1,948) $1,931 ==============================================================================================================
Certain prior period amounts have been reclassified to conform to the current presentation. 3 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (in millions) (unaudited)
Increase SIX MONTHS ENDED JUNE 30, 2000 1999 (Decrease) - ------------------------------------------------------------------------------------------------------------- NET INTEREST REVENUE Interest revenue $1,705 $2,804 $(1,099) Interest expense 1,449 2,307 (858) - ------------------------------------------------------------------------------------------------------------- Net interest revenue 256 497 (241) Provision for credit losses-loans (40) (25) (15) - ------------------------------------------------------------------------------------------------------------- Net interest revenue after provision for credit losses-loans 296 522 (226) - ------------------------------------------------------------------------------------------------------------- NONINTEREST REVENUE Trading 94 (67) 161 Fiduciary and funds management 413 555 (142) Corporate finance fees 82 442 (360) Other fees and commissions 162 364 (202) Securities available for sale gains (losses) 31 (143) 174 Insurance premiums -- 86 (86) Other 151 20 131 - ------------------------------------------------------------------------------------------------------------- Total noninterest revenue 933 1,257 (324) - ------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSES Salaries and commissions 244 710 (466) Incentive compensation and employee benefits 218 715 (497) Change in control related incentive compensation and employee benefits -- 1,101 (1,101) Agency and other professional service fees 97 250 (153) Communication and data services 46 132 (86) Occupancy, net 51 120 (69) Furniture and equipment 61 138 (77) Travel and entertainment 21 84 (63) Provision for policyholder benefits -- 114 (114) Other 410 280 130 Restructuring charge (46) 459 (505) - ------------------------------------------------------------------------------------------------------------- Total noninterest expenses 1,102 4,103 (3,001) - ------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 127 (2,324) 2,451 Income taxes (benefit) 119 (516) 635 - ------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $8 $(1,808) $1,816 =============================================================================================================
Certain prior period amounts have been reclassified to conform to the current presentation. 4 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in millions) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 2000 1999 2000 1999 - ----------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $(17) $(1,948) $ 8 $(1,808) - ------------------------------------------------------------------------------------------------------------------ Other comprehensive income (loss), net of tax: Foreign currency translation adjustments: Unrealized foreign currency translation gains (losses) arising during period, net of tax(a) (17) 27 (53) (3) Reclassification adjustment for realized foreign currency translation (gains) losses, net of tax(b) -- 172 4 172 Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period, net of tax(c) 67 (24) 83 (24) Reclassification adjustment for realized (gains) losses, net of tax(d) (18) 117 (18) 117 - ----------------------------------------------------------------------------------------------------------------- Total other comprehensive income 32 292 16 262 - ----------------------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME (LOSS) $ 15 $(1,656) $24 $(1,546) ==================================================================================================================
(a) Amounts are net of income tax expense (benefit) of $(11) million and $4 million for the three months ended June 30, 2000 and June 30, 1999, respectively and $(30) million and $(19) million for the six months ended June 30, 2000 and June 30, 1999, respectively. (b) Amounts are net of income tax expense of $2 million for the six months ended June 30, 2000 and $9 million for the three and six months ended June 30, 1999. (c) Amounts are net of income tax expense (benefit) of $3 million and $(8) million for the three months ended June 30, 2000 and June 30, 1999, respectively and $13 million and $8 million for the six months ended June 30, 2000 and June 30, 1999, respectively. (d) Amounts are net of income tax expense (benefit) of $13 million and $(22) million for the three months ended June 30, 2000 and June 30, 1999, respectively and $13 million and $(26) million for the six months ended June 30, 2000 and June 30, 1999, respectively. 5 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ($ in millions, except par value)
June 30, December 31, 2000* 1999 ----------------------------------- ASSETS Cash and due from banks $ 2,309 $ 3,212 Interest-bearing deposits with banks 10,783 4,693 Federal funds sold 3 2,472 Securities purchased under resale agreements 4,347 6,764 Trading assets: Government securities 2,243 2,296 Corporate debt securities 2,522 1,367 Equity securities 9,223 7,144 Swaps, options and other derivatives 3,194 4,807 Other trading assets 3,868 3,403 - ---------------------------------------------------------------------------------------------------- Total trading assets 21,050 19,017 Securities available for sale 597 3,252 Loans, net of allowance for credit losses of $419 at June 30, 2000 and $491 at December 31, 1999 21,310 19,471 Customer receivables 282 306 Accounts receivable and accrued interest 2,519 2,307 Other assets 7,628 6,663 - ---------------------------------------------------------------------------------------------------- Total $70,828 $68,157 ==================================================================================================== LIABILITIES Noninterest-bearing deposits Domestic offices $ 2,637 $ 2,690 Foreign offices 1,456 2,299 Interest-bearing deposits Domestic offices 9,058 12,118 Foreign offices 6,070 6,362 - ---------------------------------------------------------------------------------------------------- Total deposits 19,221 23,469 Trading liabilities: Securities sold, not yet purchased Government securities 54 53 Equity securities 19 21 Other trading liabilities 11 9 Swaps, options and other derivatives 3,668 5,183 - ---------------------------------------------------------------------------------------------------- Total trading liabilities 3,752 5,266 Securities loaned and securities sold under repurchase agreements 54 56 Other short-term borrowings 14,326 11,540 Accounts payable and accrued expenses 3,484 3,314 Other liabilities, including allowance for credit losses of $4 at June 30, 2000 and $24 at December 31, 1999 3,757 3,728 Long-term debt not included in risk-based capital 18,321 12,582 Long-term debt included in risk-based capital 2,157 2,424 Mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures included in risk-based capital 1,404 1,428 - ---------------------------------------------------------------------------------------------------- Total liabilities 66,476 63,807 - ---------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Preferred stock 364 376 Common stock, $1 par value Authorized, 200 shares; Issued, 1 share -- -- Capital surplus 2,319 2,318 Retained earnings 1,683 1,686 Accumulated other comprehensive income: Net unrealized gains on securities available for sale, net of taxes 81 16 Foreign currency translation, net of taxes (95) (46) - ---------------------------------------------------------------------------------------------------- Total stockholders' equity 4,352 4,350 - ---------------------------------------------------------------------------------------------------- Total $70,828 $68,157 ====================================================================================================
* Unaudited Certain prior period amounts have been reclassified to conform to the current presentation. 6 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions, except par value) (unaudited)
SIX MONTHS ENDED JUNE 30, 2000 1999 - ----------------------------------------------------------------------------------------------------- PREFERRED STOCK Balance, January 1 $ 376 $ 394 Preferred stock repurchased (12) -- - ----------------------------------------------------------------------------------------------------- Balance, June 30 364 394 - ----------------------------------------------------------------------------------------------------- COMMON STOCK Balance, January 1 --* 105 Retirement of common stock -- (105) Issuance of common stock -- --* - ----------------------------------------------------------------------------------------------------- Balance, June 30 --* --* - ----------------------------------------------------------------------------------------------------- CAPITAL SURPLUS Balance, January 1 2,318 1,613 Preferred stock repurchased 1 -- Common stock distributed under employee benefit plans -- 4 Capital transactions related to change in control -- (700) Capital contribution from parent -- 1,400 - ----------------------------------------------------------------------------------------------------- Balance, June 30 2,319 2,317 - ----------------------------------------------------------------------------------------------------- RETAINED EARNINGS Balance, January 1 1,686 3,504 Net income (loss) 8 (1,808) Cash dividends declared Preferred stock (11) (10) Common stock -- (98) Treasury stock distributed under employee benefit plans -- (95) - ----------------------------------------------------------------------------------------------------- Balance, June 30 1,683 1,493 - ----------------------------------------------------------------------------------------------------- COMMON STOCK IN TREASURY, AT COST Balance, January 1 -- (1,056) Purchases of stock -- (71) Treasury stock distributed under employee benefit plans -- 322 Capital transactions related to change in control -- 805 - ----------------------------------------------------------------------------------------------------- Balance, June 30 -- -- - ----------------------------------------------------------------------------------------------------- OTHER STOCKHOLDERS' EQUITY Balance, January 1 -- 599 Deferred stock awards granted, net -- 1 Deferred stock distributed -- (216) Amortization of deferred compensation, net -- 749 Capital transactions related to change in control -- (1,158) Other -- 25 - ----------------------------------------------------------------------------------------------------- Balance, June 30 -- -- - ----------------------------------------------------------------------------------------------------- CUMULATIVE TRANSLATION ADJUSTMENTS Balance, January 1 (46) (398) Translation adjustments/entity transfers and sales (81) 141 Income taxes 32 28 - ----------------------------------------------------------------------------------------------------- Balance, June 30 (95) (229) - ----------------------------------------------------------------------------------------------------- SECURITIES VALUATION ALLOWANCE Balance, January 1 16 (65) Change in unrealized net gains, after applicable income taxes and minority interest 65 93 - ----------------------------------------------------------------------------------------------------- Balance, June 30 81 28 - ----------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY, JUNE 30 $4,352 $4,003 =====================================================================================================
* 1 share, $1 par value. 7 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited)
SIX MONTHS ENDED JUNE 30, 2000 1999 - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 8 $(1,808) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Provision for credit losses - loans (40) (25) Provision for credit losses-other (20) (4) Provision for policyholder benefits -- 114 Restructuring charge (release) (46) 459 Deferred income taxes, net 51 (228) Depreciation and other amortization and accretion 18 869 Other, net 6 121 - ------------------------------------------------------------------------------------------------- Earnings adjusted for noncash charges and credits (23) (502) Net change in: Trading assets (2,437) (16,407) Trading liabilities (1,502) 26,708 Receivables and payables from securities transactions 87 1,080 Customer receivables 24 (808) Other operating assets and liabilities, net (606) (209) Securities available for sale (gains) losses (31) 143 - ------------------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (4,488) 10,005 - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Net change in: Interest-bearing deposits with banks (6,122) (6,197) Federal funds sold 2,469 1,776 Securities purchased under resale agreements 2,417 (13,898) Securities borrowed -- (8,763) Loans (1,874) (1,617) Securities available for sale: Purchases (260) (4,052) Maturities and other redemptions 2,238 991 Sales 500 7,986 Acquisitions of premises and equipment (69) (68) Other, net 10 (465) Proceeds from transfer of legal entities 71 1,828 - ------------------------------------------------------------------------------------------------- Net cash used in investing activities (620) (22,479) - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in: Deposits (4,208) 1,231 Securities loaned and securities sold under repurchase agreements (2) 13,588 Other short-term borrowings 2,344 (3,138) Issuances of long-term debt 7,383 1,841 Repayments of long-term debt (1,245) (2,883) Redemptions and repurchases of preferred stock (11) -- Purchases of treasury stock -- (71) Cash dividends paid (11) (204) Capital contribution from parent -- 1,400 Other, net (30) 25 - ------------------------------------------------------------------------------------------------- Net cash provided by financing activities 4,220 11,789 - ------------------------------------------------------------------------------------------------- Net effect of exchange rate changes on cash (15) -- - ------------------------------------------------------------------------------------------------- Net decrease in cash and due from banks (903) (685) Cash and due from banks, beginning of period 3,212 2,837 - ------------------------------------------------------------------------------------------------- Cash and due from banks, end of period $2,309 $ 2,152 ================================================================================================= Interest paid $2,128 $ 2,761 ================================================================================================= Income taxes paid, net $ 4 $31 ================================================================================================= Noncash investing activities: Transfer of legal entity in exchange for shares in affiliate $ -- $ 792 Other 27 24 - ------------------------------------------------------------------------------------------------- Total noncash investing activities $ 27 $ 816 =================================================================================================
Certain prior period amounts have been reclassified to conform to the current presentation. 8 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF NET INTEREST REVENUE (in millions) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ------------------ 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------ INTEREST REVENUE Interest-bearing deposits with banks $183 $ 72 $ 238 $ 132 Federal funds sold 19 51 52 77 Securities purchased under resale agreements 41 223 84 517 Securities borrowed -- 146 -- 369 Trading assets 253 283 445 612 Securities available for sale Taxable 11 112 44 254 Exempt from federal income taxes 2 6 4 18 Loans 374 373 823 767 Customer receivables 6 27 15 58 - ------------------------------------------------------------------------------------------------------------ Total interest revenue 889 1,293 1,705 2,804 - ------------------------------------------------------------------------------------------------------------ INTEREST EXPENSE Interest-bearing deposits Domestic offices 138 195 285 388 Foreign offices 129 198 266 427 Trading liabilities -- 54 -- 122 Securities loaned and securities sold under repurchase agreements 1 183 2 526 Other short-term borrowings 210 257 394 485 Long-term debt 243 141 445 302 Trust preferred capital securities 28 29 57 57 - ------------------------------------------------------------------------------------------------------------ Total interest expense 749 1,057 1,449 2,307 - ------------------------------------------------------------------------------------------------------------ NET INTEREST REVENUE $140 $ 236 $ 256 $ 497 ============================================================================================================
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS CHANGES On June 4 1999, Deutsche Bank AG ("Deutsche Bank"), through its U.S. holding corporation, Taunus Corporation, acquired all of the outstanding shares of common stock of Bankers Trust Corporation ("Bankers Trust") from its shareholders (the "Acquisition"). Prior to the Acquisition, Bankers Trust Corporation together with its subsidiaries (the "Corporation" or the "Firm") was a global financial institution, providing products and services to its clients worldwide. Subsequent to the Acquisition and associated reorganization activities, the Corporation and its subsidiaries conduct their business primarily in the Americas, focusing their activities principally in the asset management, lending, institutional services, private equity, and private banking businesses. On June 5, 1999, Bankers Trust transferred its wholly-owned subsidiary BT Alex. Brown Incorporated ("BTAB") and substantially all of its interest in Bankers Trust International PLC ("BTI") to Deutsche Bank Securities Inc. ("DBSI") and Deutsche Holdings (BTI) Ltd., respectively, which are wholly-owned subsidiaries of Deutsche Bank. On August 31, 1999, Bankers Trust Corporation completed the sale of Bankers Trust Australia Limited ("BTAL"), a wholly-owned subsidiary, to the Principal Financial Group. In connection with the Acquisition, and in addition to the foregoing transactions, the Corporation has and will continue to transfer certain entities/businesses and financial assets and liabilities to Deutsche Bank related entities. The consideration received and to be received for such transactions was and will be fair market value of the financial assets and liabilities at and on the date of transfer. For further discussion of these transactions, see pages 3 and 29 of Bankers Trust's 1999 Annual Report on Form 10-K. The Corporation anticipates further curtailment of certain of its activities as a result of its ongoing reorganization and integration into Deutsche Bank. RESULTS OF OPERATIONS The Corporation reported a loss of $17 million for the three months ended June 30, 2000 and income of $8 million for the first six months of 2000. The Corporation reported a loss of $1,948 million for the three months ended June 30, 1999 and a loss of $1,808 million for the first six months of 1999. In conjunction with the Acquisition, in the second quarter of 1999 the Corporation incurred pre-tax charges of approximately $1.1 billion in change of control-related costs and a pre-tax restructuring charge of $459 million. Also, in connection with the Acquisition, the Corporation incurred other charges reflecting a change in management's intention regarding certain assets as a result of integrating the Corporation into Deutsche Bank, a change in certain pricing methodologies in order to conform to those of Deutsche Bank, and the transfer of certain available for sale securities to Deutsche Bank related entities based on changes in management responsibility. Because of the significant business changes as discussed above, the Corporation's historical financial statements are not fully comparable for all periods presented. 10 BUSINESS SEGMENT RESULTS Business segment results, which are presented in accordance with U.S. generally accepted accounting principles, are derived from internal management reports. In conjunction with the Acquisition, the Corporation realigned its business activities to conform to Deutsche Bank's management structure. In this regard, Retail and Private Banking focuses on the Corporation's private banking activities. The Asset Management division combines the Corporation's institutional asset management and retail investment fund businesses. Global Corporates and Institutions includes the Corporation's commercial banking and investment banking activities as well as trading activities. This business segment also includes credit business, trade finance, structured finance and cash management in addition to the Corporation's private equity business. Global Technology and Services includes four product groups: payments, securities processing, custody services and electronic banking services. Prior period results have been restated for changes in management structure. The following tables present results by Business Segment:
Total Non- Pretax Three Months Ended June 30, 2000 Total Net interest Income/ (in millions) Revenue* Expenses (Loss) - -------------------------------------------------------------------------------------- Retail and Private Banking $ 38 $ 38 $-- Asset Management 72 66 6 Global Corporates and Institutions 188 189 (1) Global Technology and Services 235 254 (19) - ---------------------------------------------------------------------------------- Total Business Segments 533 547 (14) - ---------------------------------------------------------------------------------- Corporate Items (34) (67) 33 - ---------------------------------------------------------------------------------- Total $499 $480 $19 ==================================================================================
* There were no material intersegment revenues among the business segments.
Total Non- Pretax Three Months Ended June 30, 1999 Total Net interest Income/ (in millions) Revenue* Expenses (Loss) - --------------------------------------------------------------------------------------- Retail and Private Banking $ 46 $ 65 $ (19) Asset Management 38 37 1 Global Corporates and Institutions (354) 1,426 (1,780) Global Technology and Services 258 336 (78) - ------------------------------------------------------------------------------------ Total Business Segments (12) 1,864 (1,876) - ------------------------------------------------------------------------------------ Corporate Items** 281 938 (657) - ------------------------------------------------------------------------------------ Total $269 $2,802 $(2,533) ====================================================================================
* There were no material intersegment revenues among the business segments. ** Due to the sale of BTAL in the third quarter of 1999, its results are included in Corporate Items. Corporate Items also includes restructuring charges of $459 million. 11 BUSINESS SEGMENT RESULTS (continued)
Total Non- Pretax Six Months Ended June 30, 2000 Total Net interest Income/ (in millions) Revenue* Expenses (Loss) - ------------------------------------------------------------------------------------ Retail and Private Banking $ 74 $ 77 $ (3) Asset Management 153 128 25 Global Corporates and Institutions 574 453 121 Global Technology and Services 468 528 (60) - ------------------------------------------------------------------------------------ Total Business Segments 1,269 1,186 83 - ------------------------------------------------------------------------------------ Corporate Items (40) (84) 44 - ------------------------------------------------------------------------------------ Total $1,229 $1,102 $127 ====================================================================================
* There were no material intersegment revenues among the business segments.
Total Non- Pretax Six Months Ended June 30, 1999 Total Net interest Income/ (in millions) Revenue* Expenses (Loss) - --------------------------------------------------------------------------------------- Retail and Private Banking $ 93 $ 110 $ (17) Asset Management 96 72 24 Global Corporates and Institutions 487 2,216 (1,729) Global Technology and Services 489 539 (50) - --------------------------------------------------------------------------------------- Total Business Segments 1,165 2,937 (1,772) - --------------------------------------------------------------------------------------- Corporate Items** 614 1,166 (552) - --------------------------------------------------------------------------------------- Total $1,779 $4,103 $(2,324) =======================================================================================
* 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. Includes restructuring charges of $459 million. 12 BUSINESS SEGMENT RESULTS (continued) The Retail and Private Banking business recorded flat pre-tax results in the second quarter of 2000, compared to a pre-tax loss of $19 million in the prior year quarter. For the first six months of 2000, this business recorded a pre-tax loss of $3 million as compared to a pre-tax loss of $17 million in the prior year period. The current quarter and year-to-date results reflect lower revenue from fiduciary and funds management activities resulting from certain foreign activities transferred to a Deutsche Bank related entity in July 1999. The prior year quarter and prior year-to-date results contain pre-tax COC related costs of approximately $21 million. Asset Management recorded pre-tax income of $6 million in the second quarter of 2000, compared to pre-tax income of $1 million in the 1999 second quarter. The increase in pre-tax income from the prior year period was mainly attributable to higher fiduciary and funds management revenue. Pre-tax income was $25 million for the first six months of 2000 versus $24 million for the first six months of 1999. The prior year quarter and prior year-to-date results contain pre-tax COC related costs of approximately $18 million. The Global Corporates and Institutions business recorded a pre-tax loss of $1 million in the second quarter of 2000, compared to a pre-tax loss of $1,780 million in the 1999 second quarter. For the first six months of 2000, pre-tax income was $121 million versus a pre-tax loss of $1,729 million for the first six months of 1999. The prior year quarter and prior year-to-date results contain pre-tax COC related costs of approximately $848 million. Trading losses for the second quarter of 1999 negatively impacted both the quarter and year-to-date results. Total prior period net revenue also includes the impact of a change in management's intention regarding certain assets as a result of integrating the Corporation into Deutsche Bank, as well as the transfer of certain securities available for sale to Deutsche Bank related entities. The Corporation's Global Technology and Services business recorded a pre-tax loss of $19 million for the current quarter compared to a pre-tax loss of $78 million in the prior year quarter. Pre-tax loss was $60 million for the first six months of 2000 and $50 million for the first six months of 1999. The current year-to-date results included severance expenses related to certain senior management changes in the Global Institutional Services business. The prior year periods reflected pre-tax COC related costs of approximately $86 million. Corporate Items generally include revenue and expenses that have not been allocated to business segments and the results of smaller businesses that are not included in the main business segments. Due to the sale of BTAL and Consorcio in the third quarter of 1999 and second quarter of 1999, respectively, their results are included within Corporate Items for the three months and six months ended June 30, 1999. The current year includes a $46 million release of restructuring reserves as more fully discussed on page 18. The prior year periods include restructuring charges of approximately $459 million. 13 BUSINESS SEGMENT RESULTS (continued)
The following table reconciles total pre-tax income (loss) for business segments to consolidated pre-tax income (loss) (in millions): SIX MONTHS ENDED JUNE 30, 2000 1999 - --------------------------------------------------------------------------------------- Total pre-tax income (loss) reported for business segments $ 83 $(1,772) Restructuring releases (charges) 46 (459) Realized foreign currency translation losses -- (168) Earnings associated with unassigned capital 140 123 Credit quality adjustment -- 94 Other unallocated amounts (142) (142) - --------------------------------------------------------------------------------------- Consolidated pre-tax income(loss) $ 127 $(2,324) =======================================================================================
REVENUE Net Interest Revenue The table below presents net interest revenue, average balances and average rates. The tax equivalent adjustment is made to present the revenue and yields on certain assets, primarily tax-exempt securities and loans, as if such revenue were taxable.
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------- NET INTEREST REVENUE (in millions) Book basis $ 140 $ 236 $ 256 $ 497 Tax equivalent adjustment 1 4 2 13 - ---------------------------------------------------------------------------------------------------- Fully taxable basis $ 141 $ 240 $ 258 $510 ==================================================================================================== AVERAGE BALANCES (in millions) Interest-earning assets $47,777 $84,745 $47,448 $92,410 Interest-bearing liabilities 44,796 82,120 44,355 89,527 - ---------------------------------------------------------------------------------------------------- Earning assets financed by noninterest-bearing funds $ 2,981 $ 2,625 $ 3,093 $2,883 ==================================================================================================== AVERAGE RATES (fully taxable basis) Yield on interest-earning assets 7.49 6.14% 7.23 6.15% Cost of interest-bearing liabilities 6.72 5.16 6.57 5.20 - ---------------------------------------------------------------------------------------------------- Interest rate spread 0.77 0.98 0.66 0.95 Contribution of noninterest-bearing funds 0.42 0.16 0.43 0.16 - ---------------------------------------------------------------------------------------------------- Net interest margin 1.19% 1.14% 1.09% 1.11% ====================================================================================================
Net interest revenue for the second quarter of 2000 totaled $140 million, down $96 million, or 41 percent, from the second quarter of 1999. The $96 million decrease in net interest revenue was primarily due to a $77 million decrease in trading-related net interest revenue, which was $15 for the second quarter of 2000. Nontrading-related net interest revenue totaled $125 million for the second quarter of 2000 versus $144 million for the comparable period in 1999. 14 REVENUE (continued) Net interest revenue for the first half of 2000 totaled $256 million, down $241 million, or 48 percent, from the first half of 1999. The $241 million decrease in net interest revenue was primarily due to a $170 million decrease in trading-related net interest revenue which was $15 million for the first half of 2000. Non trading-related net interest revenue totaled $241 million for the first half of 2000 versus $312 million for the comparable period in 1999. In the second quarter of 2000, the interest rate spread was 0.77 percent compared to 0.98 percent in the prior year period. Net interest margin increased to 1.19 percent from 1.14 percent. The yield on interest-earning assets increased by 135 basis points and the cost of interest-bearing liabilities increased by 156 basis points. Average interest-earning assets totaled $47.8 billion for the second quarter of 2000, down $37.0 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 $44.8 billion for the second quarter of 2000, down $37.3 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. In the first six months of 2000, the interest rate spread was 0.66 percent compared to 0.95 percent in the prior period. Net interest margin declined from 1.11 percent to 1.09 percent. The yield on interest-earning assets increased by 108 basis points and the cost of interest bearing liabilities increased by 137 basis points. Trading Revenue Combined trading revenue and trading-related net interest revenue for the second quarter of 2000 totaled $46 million, up $361 million from the second quarter of 1999. Combined trading revenue and trading-related net interest revenue for the first six months of 2000 totaled $109 million, down $9 million from the first six months of 1999. Trading losses for the prior year quarter and first six months of 1999 reflect the impact of a change in management's intention regarding certain assets as a result of integrating the Corporation into Deutsche Bank and other risk reduction efforts. 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 its ongoing reorganization and integration into Deutsche Bank. 15 REVENUE (continued) The table below presents the Corporation's trading revenue by major category of market risk. These categories are based on management's view of the predominant underlying risk exposure of each of the Firm's trading positions.
(in millions) Three months ended June 30, 2000 1999 - -------------------------------------------------------------------------------------- Interest rate risk $ 22 $(378) Foreign exchange risk (9) 48 Equity and commodity risk 18 (77) - -------------------------------------------------------------------------------------- Total trading revenue 31 (407) Trading-related net interest revenue 15 92 - -------------------------------------------------------------------------------------- Combined total $ 46 $(315) ====================================================================================== (in millions) Six months ended June 30, 2000 1999 - -------------------------------------------------------------------------------------- Interest rate risk $ 38 $(243) Foreign exchange risk 2 154 Equity and commodity risk 54 22 - ------------------------------------------------------------------------------------- Total trading revenue 94 (67) Trading-related net interest revenue 15 185 - -------------------------------------------------------------------------------------- Combined total $109 $ 118 ======================================================================================
Second Quarter 2000 vs. Second Quarter 1999 Interest Rate Risk - Trading revenue related to interest rate risk increased from the prior year quarter. The prior year quarter reflected the integration of Bankers Trust trading assets into Deutsche Bank. The prior period also included post merger risk reduction initiatives and the impact of a change in management's intention regarding certain trading and trading related assets. Foreign Exchange Risk - The decrease is primarily attributable to the sale of BTAL in the third quarter of 1999 as well as the overall reduction of the trading portfolio. Equity and Commodity Risk - The increase is due to losses incurred in the prior year quarter related to the Corporation's overall reduction of trading related activities. Six Months 2000 vs. Six Months 1999 Interest Rate Risk - Trading revenue related to interest rate risk increased from the prior period. The prior year period reflected the integration of Bankers Trust trading assets into Deutsche Bank. The prior period also included post merger risk reduction initiatives and the impact of a change in management's intention regarding certain trading and trading related assets. Foreign Exchange Risk - The 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 was responsible for a significant portion of foreign exchange trading revenue. Equity and Commodity Risk - Trading revenue related to equity and commodity risk increased from the prior year. The increase is reflective of prior year risk reduction initiatives consistent with the Corporation's overall curtailment of trading related activities. 16 REVENUE (continued) Noninterest Revenue (Excluding Trading) Second Quarter 2000 vs. Second Quarter 1999 Fiduciary and funds management revenue was down $76 million, or 27 percent, from the second quarter of 1999. The decrease is due primarily to the sale of BTAL in the third quarter of 1999. Corporate finance fees of $45 million decreased $200 million from the $245 million earned in the second 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 $82 million decreased $71 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 $38 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. Securities available for sale gains totaled $31 million in the current quarter compared to securities available for sale losses of $139 million in the prior year quarter. The prior period reflected third-party sale activity and the transfer of Latin American debt securities to related Deutsche Bank entities based on changes in management responsibility related to such securities. Other noninterest revenue totaled $(40) million compared to $(166) million in the prior year period. The prior year period included the recognition of cumulative translation adjustments for certain legal entities transferred to affiliated Deutsche Bank entities. Six Months 2000 vs. Six Months 1999 Fiduciary and funds management revenue was down $142 million, or 26 percent, from the first half of 1999. The decrease is due primarily to the sale of BTAL in the third quarter of 1999. Corporate Finance fees of $82 million decreased $360 million from the $442 million earned in the first half 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 $162 million decreased $202 million from the prior year period primarily due to lower fees for brokerage services resulting from the transfer of BTAB to DBSI in June 1999. Insurance premium revenue decreased $86 million from the prior year period. The Corporation exited the insurance business with the sale of its remaining stake in Consorcio in the second quarter of 1999. Securities available for sale gains totaled $31 million for the first half of 2000 compared to securities available for sale losses of $143 million in the prior year period. The prior period reflected third-party sale activity and the transfer of Latin American debt securities to related Deutsche Bank entities based on changes in management responsibility related to such securities. Other noninterest revenue totaled $151 million compared to $20 million in the prior year period. The current year-to-date period reflected higher revenue from mark-to-market adjustments on venture capital equity securities. 17 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).
Quarter Ended Six Months Ended June 30, June 30, -------------------- ------------------- Total allowance for credit losses 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------- Loans Balance, beginning of period $422 $603 $491 $652 Provision for credit losses (2) (25) (40) (25) Transfer to Deutsche Bank - (29)* - (29)* Net charge-offs Charge-offs 3 24 43 84 Recoveries 2 7 11 18 - ------------------------------------------------------------------------------------------------------- Total net charge-offs 1 17 32 66 - ------------------------------------------------------------------------------------------------------- Balance, end of period $419** $532 $419** $532 ======================================================================================================= Other liabilities Balance, beginning of period $ 18 $ 18 $ 24 $ 18 Provision for credit losses (14) (4) (20) (4) - ------------------------------------------------------------------------------------------------------- Balance, end of period $ 4 $ 14 $4 $ 14 =======================================================================================================
* Reflects the allowance for credit losses of BTI on the date of transfer. ** Comprised of a specific allowance component of $299 million, a country risk component of $10 million and an expected loss component of $110 million at June 30, 2000. Not comparable to the prior year periods 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 component of $268 million, a country risk component of $56 million and an expected loss component of $167 million. 18 RESTRUCTURING AND OTHER RELATED ACTIVITIES During the second and fourth quarters of 1999, the Corporation recorded pre-tax charges for restructuring and other related activities totaling $459 million ("Plan 1") and $174 million ("Plan 2"), respectively. For a further discussion of these charges, refer to page 43 of the Corporation's Annual Report on Form 10-K. As of June 30, 2000, all significant restructuring initiatives contemplated in Plan 1 have been completed. The remaining reserve balance of $21 million was reversed in the second quarter of 2000 and is reflected in the Consolidated Statement of Income for the three months and six months ended June 30, 2000. In addition, management believes the cost to complete Plan 2 will be reduced by $25 million resulting from certain management changes in the Global Institutional Services business and a higher than anticipated level of employee attrition. Such amount has been reversed in the second quarter of 2000 and is reflected in the Consolidated Statement of Income for the three months and six months ended June 30, 2000. At June 30, 2000, the remaining Plan 2 reserve balance was $68 million. Plan 2 severance and other restructuring-related activities are expected to be substantially completed during the remainder of 2000. 19 EXPENSES Second Quarter 2000 vs. Second Quarter 1999 As compared to the second quarter of 1999, salaries and commissions expense decreased $216 million, or 64 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 $183 million, or 65 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 prior year quarter included $1.1 billion of change in control (COC) related incentive compensation and employee benefits, primarily as a result of accelerated amortization of deferred compensation amounts as of the COC date. The provision for policyholder benefits decreased $51 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. Six Months 2000 vs. Six Months 1999 As compared to the first half of 1999, salaries and commissions expense decreased $466 million, or 66 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 $497 million, or 70 percent from the prior year-to-date period, resulting from the previously mentioned decrease in the average number of employees. In addition, the prior year-to-date period included amortization expense for deferred compensation plans. The prior year-to-date period included $1.1 billion of change in control related incentive compensation and employee benefits, primarily as a result of accelerated amortization of deferred compensation amounts as of the COC date. The provision for policyholder benefits decreased $114 million from the prior year period. The Corporation exited the insurance business with the sale of its remaining stake in Consorcio in the second quarter of 1999. Other noninterest expenses increased $130 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 second quarter of 2000 amounted to $36 million, compared to a tax benefit of $585 million in the second quarter of 1999. For the first six months of 2000, the income tax expense was $119 million, compared with an income tax benefit of $516 million in the first half of 1999. The effective tax rate was 189 percent for the current quarter and 94 percent for the six months ended June 30, 2000, and 23 percent for the prior year quarter and 22 percent for six months ended June 30, 1999. The primary reason for the effective tax rate in 2000 is state and local taxes and an increase in the deferred tax valuation allowance. 20 BALANCE SHEET ANALYSIS The following table highlights the changes in the balance sheet. Since quarter-end balances can be distorted by one-day fluctuations, an analysis of changes in the quarterly averages is provided to give a better indication of balance sheet trends.
CONDENSED AVERAGE BALANCE SHEETS --------------------------------- (in millions) 2nd Qtr 1st Qtr 4th Qtr 2000 2000 1999 - ------------------------------------------------------------------------------------------ ASSETS Interest-earning Interest-bearing deposits with banks $ 6,915 $ 5,147 $ 3,867 Federal funds sold 1,222 2,263 3,608 Securities purchased under resale agreements 2,160 2,940 5,478 Trading assets 15,714 13,885 6,221 Securities available for sale Taxable 699 2,528 3,412 Exempt from federal income taxes 16 16 16 - ------------------------------------------------------------------------------------------- Total securities available for sale 715 2,544 3,428 Loans Domestic offices 17,867 17,143 16,132 Foreign offices 2,858 3,642 4,613 - ------------------------------------------------------------------------------------------- Total loans 20,725 20,785 20,745 Customer receivables 326 633 569 - ------------------------------------------------------------------------------------------- Total interest-earning assets 47,777 48,197 43,916 Noninterest-earning Cash and due from banks 1,606 2,354 1,745 Noninterest-earning trading assets 5,748 3,915 8,541 All other assets 9,857 9,279 8,774 Less: Allowance for credit losses-loans (421) (424) (508) - ------------------------------------------------------------------------------------------- Total $64,567 $63,321 $62,468 =========================================================================================== LIABILITIES Interest-bearing Interest-bearing deposits Domestic offices $ 9,670 $10,879 $12,200 Foreign offices 6,178 6,955 7,659 - ------------------------------------------------------------------------------------------- Total interest-bearing deposits 15,848 17,834 19,859 Trading liabilities 53 53 39 Securities loaned and securities sold under repurchase agreements 66 61 210 Other short-term borrowings 10,996 9,340 7,691 Long-term debt 16,416 15,197 13,915 Trust preferred capital securities 1,417 1,429 1,427 - ------------------------------------------------------------------------------------------- Total interest-bearing liabilities 44,796 43,914 43,141 Noninterest-bearing Noninterest-bearing deposits 3,539 4,503 4,724 Noninterest-bearing trading liabilities 5,126 4,153 4,516 All other liabilities 6,784 6,421 5,542 - ------------------------------------------------------------------------------------------- Total liabilities 60,245 58,991 57,923 - ------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Preferred stock 364 368 392 Common stockholder's equity 3,958 3,962 4,153 - ------------------------------------------------------------------------------------------- Total stockholders' equity 4,322 4,330 4,545 - ------------------------------------------------------------------------------------------- Total $64,567 $63,321 $62,468 ===========================================================================================
21 BALANCE SHEET ANALYSIS (continued) Securities Available for Sale The fair value, amortized cost and gross unrealized holding gains and losses for the Corporation's securities available for sale are as follows:
June 30, March 31, December 31, (in millions) 2000 2000 1999 - ------------------------------------------------------------------------------------------------------ Fair value $597 $1,210 $3,252 Amortized cost 498 1,156 3,227 - ------------------------------------------------------------------------------------------------------ Excess of fair value over amortized cost* $99 $ 54 $ 25 ====================================================================================================== * Components: Unrealized gains $107 $ 67 $ 45 Unrealized losses (8) (13) (20) - ------------------------------------------------------------------------------------------------------ $ 99 $ 54 $ 25 ======================================================================================================
22 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 June 30, Average During 2000 2nd Qtr. 2000 ------------------------ --------------------- (Liabi- (Liabi- (in millions) Assets lities) Assets lities) - ----------------------------------------------------------------------------------------------------------- OTC Financial Instruments Interest Rate and Currency Swap Contracts $ 3,519 $(3,911) $ 3,461 $(3,906) Interest Rate Contracts Forwards -- -- -- -- Options purchased 138 113 Options written (144) (91) Foreign Exchange Rate Contracts Spot and Forwards -- (5) 105 -- Options purchased 17 16 Options written (17) (16) Equity-related contracts 1,004 (1,009) 942 (1,014) Commodity-related and other contracts 2,244 (2,244) 2,244 (2,244) Exchange-Traded Options Interest Rate -- -- -- -- Foreign exchange -- -- -- -- Commodity -- -- -- -- Equity -- (66) -- (31) - ----------------------------------------------------------------------------------------------------------- Total Gross Fair Values 6,922 (7,396) 6,881 (7,302) Impact of Netting Agreements (3,728) 3,728 (3,982) 3,982 - ----------------------------------------------------------------------------------------------------------- $3,194 (a) ($3,668) (a) $ 2,899 $(3,320) ======= ======= ======= =======
(a) As reflected on the balance sheet in "Trading Assets" and "Trading Liabilities." 23 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(a) $ (5,183)(a) $ 4,122 $ (4,467) ======== ======== ======== ========
(a) As reflected on the balance sheet in "Trading Assets" and "Trading Liabilities." END-USER DERIVATIVES The Corporation, as an end user, utilizes various types of derivative products (principally interest rate and currency swaps) to manage the interest rate, currency and other market risks associated with certain liabilities and assets such as interest-bearing deposits, short-term borrowings and long-term debt, as well as securities available for sale, loans, 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 $379 million at June 30, 2000 compared with unrealized losses of $145 million at December 31, 1999. The $234 million increase was primarily due to the realization of $136 million in gains related to the sell off of securities available for sale positions and changes in interest rates. 24 END-USER DERIVATIVES (continued) The following tables provide the gross unrealized gains and losses for end-user derivatives. Gross unrealized gains and losses for hedges of securities available for sale are recognized in the financial statements with the offset as an adjustment to securities valuation allowance in stockholders' equity. Gross unrealized gains and losses for hedges of loans, other assets, interest-bearing deposits, other short-term borrowings, long-term debt, and net investments in foreign subsidiaries are not yet recognized in the financial statements.
Other short- Securities Interest- term Long- (in millions) available Other bearing borrow- term June 30, 2000 for sale Loans assets deposits ings debt(a) Total - --------------------------------------------------------------------------------------------------------------------- Interest Rate Swaps(b) Pay Variable Unrealized Gain $ -- $ -- $ -- $ 4 $ 2 $ 9 $ 15 Unrealized (Loss) (1) (1) (270) (6) (177) (455) - --------------------------------------------------------------------------------------------------------------------- Pay Variable Net (1) (1) -- (266) (4) (168) (440) - --------------------------------------------------------------------------------------------------------------------- Pay Fixed Unrealized Gain 2 -- -- 45 -- 3 50 Unrealized (Loss) -- -- -- (11) (1) -- (12) - ---------------------------------------------------------------------------------------------------------------------- Pay Fixed Net 2 -- -- 34 (1) 3 38 - ---------------------------------------------------------------------------------------------------------------------- Total Unrealized Gain 2 -- -- 49 2 12 65 - --------------------------------------------------------------------------------------------------------------------- Total Unrealized (Loss) (1) (1) -- (281) (7) (177) (467) - --------------------------------------------------------------------------------------------------------------------- Total Net $ 1 $ (1) $ -- $(232) $(5) $(165) $(402) ===================================================================================================================== Currency Swaps and Forwards Unrealized Gain $ -- $ -- $ -- $ -- $ -- $ 37 $ 37 Unrealized (Loss) -- -- -- -- -- (14) (14) - --------------------------------------------------------------------------------------------------------------------- Net $ -- $ -- $ -- $ -- $ -- $ 23 $ 23 ===================================================================================================================== Other Contracts Unrealized Gain $ -- $ -- $ -- $ -- $ -- $ -- $ -- Unrealized (Loss) -- -- -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------------- Net $ -- $ -- $ -- $ -- $ -- $ -- $ -- ===================================================================================================================== Total Unrealized Gain $ 2 $ -- $ -- $ 49 $ 2 $ 49 $ 102 Total Unrealized (Loss) (1) (1) -- (281) (7) (191) (481) - --------------------------------------------------------------------------------------------------------------------- Total Net $ 1 $ (1) $ -- $(232) $(5) $(142) $(379) =====================================================================================================================
(a) Includes trust preferred capital securities. (b) Includes swaps with embedded options to cancel. 25 END-USER DERIVATIVES (continued)
Other short- Securities Interest- term Long- (in millions) available Other bearing borrow- term Dec 31, 1999 for sale Loans assets deposits ings debt(a) Total - -------------------------------------------------------------------------------------------------------------- Interest Rate Swaps(b) Pay Variable Unrealized Gain $ -- $ -- $-- $ 44 $ 3 $ 25 $ 72 Unrealized (Loss) -- (2) -- (256) (3) (171) (432) - -------------------------------------------------------------------------------------------------------------- Pay Variable Net -- (2) -- (212) -- (146) (360) - -------------------------------------------------------------------------------------------------------------- Pay Fixed Unrealized Gain 1 -- -- 58 -- 7 66 Unrealized (Loss) -- -- -- (17) -- -- (17) - -------------------------------------------------------------------------------------------------------------- Pay Fixed Net 1 -- -- 41 -- 7 49 - -------------------------------------------------------------------------------------------------------------- Total Unrealized Gain 1 -- -- 102 3 32 138 - -------------------------------------------------------------------------------------------------------------- Total Unrealized (Loss) -- (2) -- (273) (3) (171) (449) - -------------------------------------------------------------------------------------------------------------- Total Net $ 1 $ (2) $-- $(171) $ -- $(139) $(311) ============================================================================================================== Forward Rate Agreements Unrealized Gain $ 1 $ -- $-- $ -- $ -- $ -- $ 1 Unrealized (Loss) -- -- -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------- Net $ 1 $ -- $-- $ -- $ -- $ -- $ 1 ============================================================================================================== Currency Swaps and Forwards Unrealized Gain $ 136 $ -- $-- $ -- $ -- $ 54 $ 190 Unrealized (Loss) -- (1) -- -- -- (24) (25) - -------------------------------------------------------------------------------------------------------------- Net $ 136 $ (1) $-- $ -- $ -- $ 30 $ 165 ============================================================================================================== 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) $(145) ==============================================================================================================
(a) Includes trust preferred capital securities. (b) Includes swaps with embedded options to cancel. 26 END-USER DERIVATIVES (continued) For pay variable and pay fixed interest rate swaps entered into as an end user, the weighted average receive rate and pay rate (interest rates were based on the weighted averages of both U.S. and non-U.S. currencies) by maturity and corresponding notional amounts were as follows ($ in millions):
At June 30, 2000 Notional Amount Paying Variable Paying Fixed ------------------------------------------ --------------------------------------- Maturing Notional Receive Pay Notional Receive Pay Total In: Amount Rate Rate Amount Rate Rate Notional - ------------------------------------------------------------------------------------------------------------------------------------ 2000 $ 5,511 6.58% 6.67% $ 242 6.77% 6.11% $ 5,753 2001-2002 3,191 6.77 6.46 441 6.67 6.55 3,632 2003-2004 1,206 6.45 6.52 166 5.94 6.71 1,372 2005 and thereafter 6,366 6.73 6.54 601 6.41 6.56 6,967 - ----------------------------------------------------------------------------------------------------------------------------------- Total $16,274 $ 1,450 $17,724 ====================================================================================================================================
All rates were those in effect at June 30, 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 Amount Paying Variable Paying Fixed ------------------------------------------ --------------------------------------- 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. 27 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 June 30, 2000, both the Corporation and Bankers Trust Company ("BTCo") are well capitalized, as defined in the applicable regulations. The Corporation's and BTCo's ratios are presented in the table below.
FRB Minimum To Be Well Actual Actual for Capitalized as of as of Capital Under June 30, December 31, Adequacy Regulatory 2000 1999 Purposes Guidelines - ----------------------------------------------------------------------------------------------------------------- Corporation Risk-Based Capital Ratios Tier 1 Capital 10.6% 10.4% 4.0% 6.0% Total Capital 17.9% 18.4% 8.0% 10.0% Leverage Ratio 7.0% 7.3% 3.0% N/A BTCo Risk-Based Capital Ratios Tier 1 Capital 19.6% 16.5% 4.0% 6.0% Total Capital 22.0% 18.9% 8.0% 10.0% Leverage Ratio 13.8% 12.3% 3.0% 5.0%
N/A Not Applicable 28 REGULATORY CAPITAL (continued) The following are the essential components used in calculating the Corporation's and BTCo's risk-based capital ratios:
Actual as of Actual as of June 30, December 31, (in millions) 2000 1999 - ----------------------------------------------------------------------------------------- Corporation Tier 1 Capital $ 4,445 $ 4,462 Tier 2 Capital 3,048 3,399 - ----------------------------------------------------------------------------------------- Total Capital $ 7,493 $ 7,861 ========================================================================================= Total risk-weighted assets $41,819 $42,823 ========================================================================================= BTCo Tier 1 Capital $ 5,852 $ 5,710 Tier 2 Capital 705 851 - ----------------------------------------------------------------------------------------- Total Capital $ 6,557 $ 6,561 ========================================================================================= Total risk-weighted assets $29,811 $34,657 =========================================================================================
Comparing June 30, 2000 to December 31, 1999, the Corporation's Tier 1 Capital ratio increased 20 basis points due primarily to the decrease in risk-weighted assets of $1.0 billion. Risk-weighted assets decreased principally because positions were liquidated or transferred to other Deutsche Bank affiliates. The Total Capital ratio decreased 50 basis points due to the decline of $368 million in Total Capital. The leverage ratio decreased 30 basis points due to the increase of $2.1 billion in quarterly average assets in the non-bank subsidiaries of the Corporation. The increase was comprised of low risk-weighted assets such as deposits with banks and trading assets. BTCo's Tier 1 Capital ratio increased 310 basis points due to a reduction in risk-weighted assets of $4.8 billion and an increase in Tier 1 Capital of $142 million. Total Capital ratio increased 310 basis points due to the reduction in risk-weighted assets. The Leverage ratio increased 150 basis points primarily due to the significant reduction of $4 billion in quarterly average assets. 29 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 six 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)
Six Months 1999 2000 December 31, June 30, Risk Class Average Average 1999 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Interest Rate $18.0 $4.3 $ 5.1 $5.2 Currency 2.5 1.5 0.6 1.3 Equity 22.6 33.4 11.7 72.9 Commodity 0.6 -- -- -- Diversification (12.4) (5.3) (4.6) (6.3) - ------------------------------------------------------------------------------------------------------------------------------------ Overall Portfolio $31.3 $33.9 $12.8 $73.1 - ------------------------------------------------------------------------------------------------------------------------------------
Table 1 shows that the Corporation's overall market-risk exposure increased on a spot basis by 471 percent from year-end, which was mainly driven by an increase in equity risk. The primary risks at June 30, 2000 are equity risk and interest rate risk. The equity risk is primarily from private equity investments held by the Corporation. This equity risk increased sharply in the second quarter, mainly due to market movements in the Corporation's private equity investments. The interest rate risk stems mainly from the loan trading, loan syndication and loan securitization businesses. 30 RISK MANAGEMENT (continued) Table 2 BT Corporation Trading Value at Risk (in millions)
Six Months 1999 2000 December 31, June 30, Risk Class Average Average 1999 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Interest Rate $11.1 $4.2 $5.0 $5.1 Currency 2.3 1.5 0.6 1.3 Equity 8.7 7.2 5.8 2.5 Commodity 0.6 -- -- -- Diversification (7.0) (3.8) (3.7) (3.0) - ------------------------------------------------------------------------------------------------------------------------------------ Overall Portfolio $15.7 $9.1 $7.7 $5.9 - ------------------------------------------------------------------------------------------------------------------------------------
Table 2 shows that the Corporation's June 30th risk levels from Trading Assets decreased by 23 percent on a spot basis from December 31, 1999 due to the ongoing reorganization and integration into Deutsche Bank. LIQUIDITY Liquidity is the ability to have funds available at all times to meet the commitments of the Corporation. The Corporation's liquidity process has become an integral part of Deutsche Bank's global liquidity process. Management's policy is designed to maintain Deutsche Bank's ability to fund assets and meet any contractual financial obligations on a timely basis at a fair market cost under any market conditions. While Deutsche Bank and the Corporation manage their liquidity positions on a day-to-day basis to meet ongoing funding needs, the planning and management process also encompasses contingency planning to address even the most severe liquidity events. Short-term unsecured financing for the Corporation is available under an uncommitted credit line with its parent, Deutsche Bank. At June 30, 2000, this credit line totaled approximately $5 billion. Of this amount, approximately $4 billion was drawn. 31 NONPERFORMING ASSETS The components of cash basis loans, renegotiated loans, other real estate and other nonperforming assets are shown below ($ in millions).
June 30, December 31, 2000 1999 - ----------------------------------------------------------------------------------- CASH BASIS LOANS Domestic Commercial and industrial $661 $495 Secured by real estate 33 67 Financial institutions 10 11 - ----------------------------------------------------------------------------------- Total domestic 704 573 - ----------------------------------------------------------------------------------- International Commercial and industrial 68 132 Secured by real estate 10 10 Other 19 22 - ----------------------------------------------------------------------------------- Total international 97 164 - ----------------------------------------------------------------------------------- Total cash basis loans $801 $737 =================================================================================== Ratio of cash basis loans to total gross loans 3.7% 3.7% =================================================================================== Ratio of allowance for credit losses-loans to cash basis loans 52% 67% =================================================================================== RENEGOTIATED LOANS $-- $11 =================================================================================== OTHER REAL ESTATE $108 $88 =================================================================================== OTHER NONPERFORMING ASSETS $4 $8 ===================================================================================
There were no loans 90 days or more past due and still accruing interest at June 30, 2000 and December 31, 1999. 32 NONPERFORMING ASSETS (continued) An analysis of the changes in the Corporation's total cash basis loans during the first six months of 2000 follows (in millions):
Balance, December 31, 1999 $737 Net transfers to cash basis loans 243 Net transfers to other real estate (27) Net paydowns (88) Charge-offs (43) Other (21) - ------------------------------------------------------------------------------- Balance, June 30, 2000 $801 ===============================================================================
The Corporation's total cash basis loans amounted to $801 million at June 30, 2000, up $64 million, or 9 percent, from December 31, 1999. Impaired loans under SFAS 114, were $809 million and $889 million at June 30, 2000 and December 31, 1999, respectively. Included in these amounts were $752 million and $718 million of loans that required a specific allowance of $299 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 June 30 of each year. The rates used in determining the gross amount of interest which would have been recorded at the original rate were not necessarily representative of current market rates.
Six Months Ended June 30, -------------------------- (in millions) 2000 1999 - --------------------------------------------------------------------------------- Domestic Loans Gross amount of interest that would have been recorded at original rate $35 $5 Less, interest, net of reversals, recognized in interest revenue 20 2 - --------------------------------------------------------------------------------- Reduction of interest revenue 15 3 - --------------------------------------------------------------------------------- International Loans Gross amount of interest that would have been recorded at original rate 2 11 Less, interest, net of reversals, recognized in interest revenue -- 8 - --------------------------------------------------------------------------------- Reduction of interest revenue 2 3 - --------------------------------------------------------------------------------- Total reduction of interest revenue $17 $6 =================================================================================
33 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) June 30, 2000 December 31, 1999 - ------------------------------------------------------------------------------------------ Interest-earning assets $16,137 $10,843 Noninterest-earning assets 1,482 1,147 Interest-bearing liabilities 15,610 6,568 Noninterest-bearing liabilities 1,508 139
ACCOUNTING DEVELOPMENTS In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133, as further amended by SFAS 138 in June 2000, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires companies to recognize all derivatives on the balance sheet as assets or liabilities measured at fair value. SFAS 137 deferred the effective date of SFAS 133 until January 1, 2001 for calendar year companies. 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. 34 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 29 for Quantitative and Qualitative Disclosures About Market Risk. OTHER DEVELOPMENTS Michael Dobson resigned as director of the Corporation and Bankers Trust Company effective April 27, 2000. Dr. Ronaldo H. Schmitz resigned as director of the Corporation and Bankers Trust Company effective June 30, 2000. Robert B. Allardice III was elected a director of the Corporation and Bankers Trust Company effective July 1, 2000. 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. 35 PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (4) Instruments Defining the Rights of Security Holders, Including Indentures (v) - The Corporation hereby agrees to furnish to the Commission, upon request, a copy of any instruments defining the rights of security holders issued by Bankers Trust Corporation or its subsidiaries. (12) Statement re Computation of Ratios (27) Financial Data Schedule (b) Reports on Form 8-K - Bankers Trust Corporation did not file any reports on Form 8-K during the quarter ended June 30, 2000. 36 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, on August 14, 2000. BANKERS TRUST CORPORATION BY: /S/ RONALD HASSEN --------------------------- RONALD HASSEN Senior Vice President, Controller and Principal Accounting Officer 37 BANKERS TRUST CORPORATION FORM 10-Q FOR THE QUARTER ENDED June 30, 2000 EXHIBIT INDEX (4) Instruments Defining the Rights of Security Holders, Including Indentures (v) - Long-Term Debt Indentures (1) (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 [FN] (1) 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-12.A 2 0002.txt COMPUTATION -- EARNINGS TO FIXED CHARGES EXHIBIT 12(a) BANKERS TRUST CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES (dollars in millions)
Six Months Year Ended December 31, Ended -------------------------------------------------------------------- June 30, 1995 1996 1997 1998 1999 2000 ---------------------------------------------------------------------------------- Earnings: 1. Income (loss) before income taxes $469 $1,131 $1,239 $(77) $(1,415) $127 2. Add: Fixed charges excluding capitalized interest (Line 10) 5,138 5,483 5,959 6,954 3,654 1,468 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 28 30 (117) 15 75 29 ---------------------------------------------------------------------------------- 4. Earnings including interest on deposits 5,579 6,584 7,315 6,862 2,164 1,566 5. Less: Interest on deposits 1,360 1,355 2,076 2,195 1,424 551 ---------------------------------------------------------------------------------- 6. Earnings excluding interest on deposits $4,219 $5,229 $5,239 $4,667 $740 $1,015 ================================================================================== Fixed Charges: 7. Interest Expense $5,105 $5,451 $5,926 $6,919 $3,612 $1,449 8. Estimated interest component of net rental expense 33 32 33 35 42 19 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 1,468 11. Add: Capitalized interest -- -- -- -- -- -- ---------------------------------------------------------------------------------- 12. Total fixed charges 5,138 5,483 5,959 6,954 3,654 1,468 13. Less: Interest on deposits (Line 5) 1,360 1,355 2,076 2,195 1,424 551 ---------------------------------------------------------------------------------- 14. Fixed charges excluding interest on deposits $3,778 $4,128 $3,883 $4,759 $2,230 $917 ================================================================================== Consolidated Ratios of Earnings to Fixed Charges: Including interest on deposits (Line 4/Line 12) 1.09 1.20 1.23 .99 N/A 1.07 ================================================================================= Excluding interest on deposits (Line 6/Line 14) 1.12 1.27 1.35 .98 N/A 1.11 ================================================================================= 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.B 3 0003.txt EARNINGS TO COMBINED FIXED CHARGES 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)
Six Months Year Ended December 31, Ended ----------------------------------------------------------------------- June 30, 1995 1996 1997 1998 1999 2000 ---------------------------------------------------------------------------------- Earnings: 1. Income (loss) before income taxes $469 $1,131 $1,239 $(77) $(1,415) $127 2. Add: Fixed charges excluding capitalized interest (Line 13) 5,138 5,483 5,959 6,954 3,654 1,468 3. Less: Equity in undistri- buted income of unconsolidated subsidiaries and affiliates 28 30 (117) 15 75 29 ---------------------------------------------------------------------------------- 4. Earnings including interest on deposits 5,579 6,584 7,315 6,862 2,164 1,566 5. Less: Interest on deposits 1,360 1,355 2,076 2,195 1,424 551 ---------------------------------------------------------------------------------- 6. Earnings excluding interest on deposits $4,219 $5,229 $5,239 $4,667 $740 $1,015 ================================================================================== Preferred Stock Dividend Requirements: 7. Preferred stock dividend requirements $51 $51 $49 $32 $23 $11 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% 1588% --------------------------------------------------------------------------------- 9. Preferred stock dividend requirements on a pretax basis $77 $75 $70 $34 $20 $175 ================================================================================= Fixed Charges: 10. Interest Expense $5,105 $5,451 $5,926 $6,919 $3,612 $1,449 11. Estimated interest component of net rental expense 33 32 33 35 42 19 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 1,468 14. Add: Capitalized interest -- -- -- -- -- -- ---------------------------------------------------------------------------------- 15. Total fixed charges 5,138 5,483 5,959 6,954 3,654 1,468 16. Add: Preferred stock dividend require- ments - pretax (Line 9) 77 75 70 34 20 175 ---------------------------------------------------------------------------------- 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 1,643 18. Less: Interest on deposits (Line 5) 1,360 1,355 2,076 2,195 1,424 551 ---------------------------------------------------------------------------------- 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 $1,092 ================================================================================== 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 0.95 ================================================================================== Excluding interest on deposits (Line 6/Line 19) 1.09 1.24 1.32 .97 N/A 0.93 ================================================================================== 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. For the six months ended June 30, 2000, earnings, as defined, did not cover fixed charges, and preferred stock dividend requirements, including and excluding interest on deposits by $77 million. N/A - Not Applicable.
EX-27 4 0004.txt FDS
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLDIATED STATEMENT OF CONDITION AT JUNE 30, 2000 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-2000 JAN-01-2000 JUN-30-2000 2,309 10,783 4,350 21,050 597 0 0 21,729 419 70,828 19,221 14,380 7,241 21,882 0 364 0 3,988 70,828 823 48 834 1,705 551 1,449 256 (40) 31 1,102 127 127 0 0 8 0 0 1.09 801 0 0 0 491 43 11 419 372 47 0 Short-term borrowings include the following: Securities loaned and securities sold under repurchase agreements 54 Other short-term borrowings 14,326 Total 14,380 Other liabilities include the following: Accounts payable and accrued expenses 3,484 Other liabilities 3,757 Total 7,241 Amount pertains to the allowance related to loans
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