10-Q 1 form10q_24019.txt QUARTERLY 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 September 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 (IRS 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. BANKERS TRUST CORPORATION September 30, 2000 FORM 10-Q TABLE OF CONTENTS PART 1. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Consolidated Statement of Income Three Months Ended September 30, 2000 and 1999 2 Nine Months Ended September 30, 2000 and 1999 3 Consolidated Statement of Comprehensive Income Three Months Ended September 30, 2000 and 1999 4 Nine Months Ended September 30, 2000 and 1999 Consolidated Balance Sheet At September 30, 2000 and December 31, 1999 5 Consolidated Statement of Changes in Stockholder's Equity Nine Months Ended September 30, 2000 and 1999 6 Consolidated Statement of Cash Flows Nine Months Ended September 30, 2000 and 1999 7 Consolidated Schedule of Net Interest Revenue Three Months and Nine Months Ended September 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 nine months ended September 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 and second 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 37 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 38 SIGNATURE 39 2 PART I. FINANCIAL INFORMATION BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (in millions) (unaudited)
Increase THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 (Decrease) ----------------------------------------------------------------------------------------------- NET INTEREST REVENUE Interest revenue $ 954 $ 818 $ 136 Interest expense 822 664 158 ----------------------------------------------------------------------------------------------- Net interest revenue 132 154 (22) Provision for credit losses-loans (4) (49) 45 ----------------------------------------------------------------------------------------------- Net interest revenue after provision for credit losses-loans 136 203 (67) ----------------------------------------------------------------------------------------------- NONINTEREST REVENUE Trading 33 12 21 Fiduciary and funds management 182 250 (68) Corporate finance fees 25 46 (21) Other fees and commissions 73 92 (19) Securities available for sale gains (losses) 9 (7) 16 Other 546 1,035 (489) ----------------------------------------------------------------------------------------------- Total noninterest revenue 868 1,428 (560) ----------------------------------------------------------------------------------------------- NONINTEREST EXPENSES Salaries and commissions 117 193 (76) Incentive compensation and employee benefits 103 230 (127) Agency and other professional service fees 58 93 (35) Communication and data services 19 40 (21) Occupancy, net 26 45 (19) Furniture and equipment 30 51 (21) Travel and entertainment 10 14 (4) Other 59 144 (85) ----------------------------------------------------------------------------------------------- Total noninterest expenses 422 810 (388) ----------------------------------------------------------------------------------------------- Income before income taxes 582 821 (239) Income taxes 291 559 (268) ----------------------------------------------------------------------------------------------- NET INCOME $ 291 $ 262 $ 29 ===============================================================================================
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 NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 (Decrease) ---------------------------------------------------------------------------------------------- NET INTEREST REVENUE Interest revenue $ 2,659 $ 3,622 $ (963) Interest expense 2,271 2,971 (700) ---------------------------------------------------------------------------------------------- Net interest revenue 388 651 (263) Provision for credit losses - loans (44) (74) 30 ---------------------------------------------------------------------------------------------- Net interest revenue after provision for credit losses - loans 432 725 (293) ---------------------------------------------------------------------------------------------- NONINTEREST REVENUE Trading 127 (55) 182 Fiduciary and funds management 595 805 (210) Corporate finance fees 107 488 (381) Other fees and commissions 235 456 (221) Securities available for sale gains (losses) 40 (150) 190 Insurance premiums -- 86 (86) Other 697 1,055 (358) ---------------------------------------------------------------------------------------------- Total noninterest revenue 1,801 2,685 (884) ---------------------------------------------------------------------------------------------- NONINTEREST EXPENSES Salaries and commissions 361 903 (542) Incentive compensation and employee benefits 321 945 (624) Change in control related incentive compensation and employee benefits -- 1,101 (1,101) Agency and other professional service fees 155 343 (188) Communication and data services 65 172 (107) Occupancy, net 77 165 (88) Furniture and equipment 91 189 (98) Travel and entertainment 31 98 (67) Provision for policyholder benefits -- 114 (114) Other 469 424 45 Restructuring charge (46) 459 (505) ---------------------------------------------------------------------------------------------- Total noninterest expenses 1,524 4,913 (3,389) ---------------------------------------------------------------------------------------------- Income (loss) before income taxes 709 (1,503) 2,212 Income taxes 410 43 367 ---------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 299 $(1,546) $ 1,845 ==============================================================================================
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 Nine Months Ended September 30, September 30, ---------------------------------------- 2000 1999 2000 1999 ------------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) $ 291 $ 262 $ 299 $(1,546) ------------------------------------------------------------------------------------------------------------ Other comprehensive income (loss), net of tax: Foreign currency translation adjustments: Unrealized foreign currency translation gains (losses) arising during period, net of tax(a) (38) 12 (91) 9 Reclassification adjustment for realized foreign currency translation (gains) losses, net of tax(b) 4 130 8 302 Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period, net of tax(c) (78) (3) 5 (27) Reclassification adjustment for realized (gains) losses, net of tax(d) (5) 4 (23) 121 ------------------------------------------------------------------------------------------------------------ Total other comprehensive income (loss) (117) 143 (101) 405 ------------------------------------------------------------------------------------------------------------ COMPREHENSIVE INCOME (LOSS) $ 174 $ 405 $ 198 $(1,141) ============================================================================================================
(a) Amounts are net of income tax expense (benefit) of $(22) million and $9 million for the three months ended September 30, 2000 and September 30, 1999, respectively, and $(52) million and $(10) million for the nine months ended September 30, 2000 and September 30, 1999, respectively. (b) Amounts are net of income tax expense (benefit) of $(3) million and $(43) million for the three months ended September 30, 2000 and September 30, 1999, respectively, and $(1) million and $(34) million for the nine months ended September 30, 2000 and September 30, 1999, respectively. (c) Amounts are net of income tax expense (benefit) of $(55) million and $(3) million for the three months ended September 30, 2000 and September 30, 1999, respectively, and $(42) million and $5 million for the nine months ended September 30, 2000 and September 30, 1999, respectively. (d) Amounts are net of income tax expense (benefit) of $4 million and $(3) million for the three months ended September 30, 2000 and September 30, 1999, respectively, and $17 million and $(29) million for the nine months ended September 30, 2000 and September 30, 1999, respectively. 5 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ($ in millions, except par value)
September 30, December 31, 2000* 1999 --------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 1,596 $ 3,212 Interest-bearing deposits with banks 4,706 4,693 Federal funds sold 7 2,472 Securities purchased under resale agreements 1,616 6,764 Trading assets: Government securities 103 2,296 Corporate debt securities 594 1,367 Equity securities 10,359 7,144 Swaps, options and other derivatives 2,693 4,807 Other trading assets 1,634 3,403 --------------------------------------------------------------------------------------------------- Total trading assets 15,383 19,017 Securities available for sale 282 3,252 Loans, net of allowance for credit losses of $405 at September 30, 2000 and $491 at December 31, 1999 26,208 19,471 Customer receivables 288 306 Accounts receivable and accrued interest 2,590 2,307 Other assets 4,662 6,663 --------------------------------------------------------------------------------------------------- Total $ 57,338 $ 68,157 =================================================================================================== LIABILITIES Noninterest-bearing deposits Domestic offices $ 2,971 $ 2,690 Foreign offices 899 2,299 Interest-bearing deposits Domestic offices 9,200 12,118 Foreign offices 3,903 6,362 --------------------------------------------------------------------------------------------------- Total deposits 16,973 23,469 Trading liabilities: Securities sold, not yet purchased Government securities 54 53 Equity securities -- 21 Other trading liabilities 1,132 9 Swaps, options and other derivatives 2,562 5,183 --------------------------------------------------------------------------------------------------- Total trading liabilities 3,748 5,266 Securities loaned and securities sold under repurchase agreements 88 56 Other short-term borrowings 13,864 11,540 Accounts payable and accrued expenses 2,160 3,314 Other liabilities, including allowance for credit losses of $12 at September 30, 2000 and $24 at December 31, 1999 4,008 3,728 Long-term debt not included in risk-based capital 8,945 12,582 Long-term debt included in risk-based capital 2,077 2,424 Mandatorily redeemable capital securities of subsidiary trusts holding solely junior subordinated deferrable interest debentures included in risk-based capital 1,321 1,428 --------------------------------------------------------------------------------------------------- Total liabilities 53,184 63,807 =================================================================================================== STOCKHOLDER'S EQUITY Preferred stock -- 376 Common stock, $1 par value Authorized, 200 shares; Issued, 1 share -- -- Capital surplus 2,319 2,318 Retained earnings 1,966 1,686 Accumulated other comprehensive income: Net unrealized gains (losses) on securities available for sale, net of taxes (2) 16 Foreign currency translation, net of taxes (129) (46) --------------------------------------------------------------------------------------------------- Total stockholder's equity 4,154 4,350 --------------------------------------------------------------------------------------------------- Total $ 57,338 $ 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 STOCKHOLDER'S EQUITY (in millions, except par value) (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 ---------------------------------------------------------------------------------- PREFERRED STOCK Balance, January 1 $ 376 $ 394 Preferred stock repurchased (12) -- Preferred stock redeemed (364) -- ---------------------------------------------------------------------------------- Balance, September 30 -- 394 ---------------------------------------------------------------------------------- COMMON STOCK Balance, January 1 -* 105 Retirement of common stock -- (105) Issuance of common stock -- -* ---------------------------------------------------------------------------------- Balance, September 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 -- (699) Capital contribution from parent -- 1,400 ---------------------------------------------------------------------------------- Balance, September 30 2,319 2,318 ---------------------------------------------------------------------------------- RETAINED EARNINGS Balance, January 1 1,686 3,504 Net income (loss) 299 (1,546) Cash dividends declared Preferred stock (19) (16) Common stock -- (98) Treasury stock distributed under employee benefit plans -- (95) ---------------------------------------------------------------------------------- Balance, September 30 1,966 1,749 ---------------------------------------------------------------------------------- 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, September 30 -- -- ---------------------------------------------------------------------------------- OTHER STOCKHOLDER'S 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, September 30 -- -- ---------------------------------------------------------------------------------- CUMULATIVE TRANSLATION ADJUSTMENTS Balance, January 1 (46) (398) Translation adjustments/entity transfers and sales (134) 335 Income taxes 51 (24) ---------------------------------------------------------------------------------- Balance, September 30 (129) (87) ---------------------------------------------------------------------------------- SECURITIES VALUATION ALLOWANCE Balance, January 1 16 (65) Change in unrealized net gains, after applicable income taxes and minority interest (18) 94 ---------------------------------------------------------------------------------- Balance, September 30 (2) 29 ---------------------------------------------------------------------------------- TOTAL STOCKHOLDER'S EQUITY, SEPTEMBER 30 $ 4,154 $ 4,403 ==================================================================================
* 1 share, $1 par value. 7 BANKERS TRUST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 --------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 299 $ (1,546) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Provision for credit losses - loans (44) (74) Provision for credit losses - other (12) 12 Provision for policyholder benefits -- 114 Restructuring charge (release) (46) 459 Deferred income taxes, net 36 (70) Depreciation and other amortization and accretion 28 881 Other, net (18) 128 Gain on transfer of BTH (567) -- Gain on sale of BTAL -- (779) --------------------------------------------------------------------------------- Earnings adjusted for noncash charges and credits (324) (875) Net change in: Trading assets (4,491) (11,264) Trading liabilities (457) 21,839 Receivables and payables from securities transactions (43) 861 Customer receivables 18 (1,276) Other operating assets and liabilities, net (1,414) (2,592) Securities available for sale (gains) losses (40) 150 --------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (6,751) 6,843 --------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Net change in: Interest-bearing deposits with banks 106 (2,351) Federal funds sold 2,464 1,315 Securities purchased under resale agreements 5,149 (6,392) Securities borrowed -- (8,955) Loans 593 1,778 Securities available for sale: Purchases (260) (6,103) Maturities and other redemptions 2,241 1,015 Sales 576 8,351 Acquisitions of premises and equipment (130) (80) Other, net 6 (474) Proceeds from transfer of legal entities and sale of BTAL 71 4,323 --------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 10,816 (7,573) --------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in: Deposits (6,845) (5,459) Securities loaned and securities sold under repurchase agreements 32 12,565 Other short-term borrowings 1,267 (6,711) Issuances of long-term debt 2,374 2,167 Repayments of long-term debt (2,069) (4,188) Redemptions and repurchases of preferred stock (375) -- Purchases of treasury stock -- (71) Cash dividends paid (19) (210) Capital contribution from parent -- 1,400 Other, net (29) 25 --------------------------------------------------------------------------------- Net cash used in financing activities (5,664) (482) --------------------------------------------------------------------------------- Net effect of exchange rate changes on cash (17) 17 --------------------------------------------------------------------------------- Net decrease in cash and due from banks (1,616) (1,195) Cash and due from banks, beginning of period 3,212 2,837 --------------------------------------------------------------------------------- Cash and due from banks, end of period $ 1,596 $ 1,642 ================================================================================= Interest paid $ 3,387 $ 3,951 ================================================================================= Income taxes paid, net $ 6 $ 28 ================================================================================= Noncash investing activities: Transfer of legal entity in exchange for shares in affiliate $ 1,122 $ 852 Other 27 24 --------------------------------------------------------------------------------- Total noncash investing activities $ 1,149 $ 876 =================================================================================
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 Nine months ended September 30, September 30, --------------------------------------- 2000 1999 2000 1999 ------------------------------------------------------------------------------------- INTEREST REVENUE Interest-bearing deposits with banks $ 196 $ 100 $ 434 $ 232 Federal funds sold 18 34 70 111 Securities purchased under resale agreements 24 83 108 600 Securities borrowed -- 14 -- 383 Trading assets 260 158 705 770 Securities available for sale Taxable 11 54 55 308 Exempt from federal income taxes 2 -- 6 18 Loans 437 368 1,260 1,135 Customer receivables 6 7 21 65 ------------------------------------------------------------------------------------- Total interest revenue 954 818 2,659 3,622 ------------------------------------------------------------------------------------- INTEREST EXPENSE Interest-bearing deposits Domestic offices 134 162 419 550 Foreign offices 108 156 374 583 Trading liabilities -- 9 -- 131 Securities loaned and securities sold under repurchase agreements 13 10 15 536 Other short-term borrowings 263 157 657 642 Long-term debt 275 142 720 444 Trust preferred capital securities 29 28 86 85 ------------------------------------------------------------------------------------- Total interest expense 822 664 2,271 2,971 ------------------------------------------------------------------------------------- NET INTEREST REVENUE $ 132 $ 154 $ 388 $ 651 =====================================================================================
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. For further discussion of the Acquisition and the BTAB, BTI and BTAL transactions, see pages 3 and 29 of Bankers Trust's 1999 Annual Report on Form 10-K. On September 29, 2000, Bankers Trust transferred its wholly-owned subsidiary BT Holdings (New York), Inc. ("BTH") to DB U.S. Financial Markets Holding Corporation ("DBUSH"), a subsidiary of Deutsche Bank Americas Holding Corp. ("DBAH") and Taunus Corporation ("Taunus"), which are an indirect and direct subsidiary, respectively, of Deutsche Bank. The transfer of BTH to DBUSH took the form of an exchange of stock pursuant to which BTH became a wholly-owned subsidiary of DBUSH. The Corporation received shares of DBUSH equal to the fair market value of BTH's net assets on the date of transfer. The Corporation recognized an after-tax gain of approximately $301 million in the third quarter of 2000. Refer to the Corporation's report on Form 8-K dated September 29, 2000. In contemplation of the transfer of BTH, a valuation of certain underlying positions owned by BTH was prepared. The results of this valuation contributed to the overall after-tax gain of $301 million which was realized upon such transfer. 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. The Corporation anticipates further curtailment of certain of its activities as a result of its ongoing reorganization and integration into Deutsche Bank. 10 RESULTS OF OPERATIONS The Corporation reported income of $291 million for the three months ended September 30, 2000, and income of $299 million for the first nine months of 2000. The third quarter of 2000 included the aforementioned gain on the transfer of BTH. The Corporation reported income of $262 million for the three months ended September 30, 1999, and a loss of $1,546 million for the first nine months of 1999. The third quarter of 1999 included a pre-tax gain of approximately $779 million on the sale of BTAL. 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. 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 previously mentioned, the Corporation's historical financial statements are not fully comparable for all periods presented. 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:
Three months ended September 30, 2000 ---------------------------------------------------- Total Net Total Noninterest Pretax (in millions) Revenue* Expenses Income/(Loss) --------------------------------------------------------------------------------------------- Retail and Private Banking $ 40 $ 33 $ 7 Asset Management 69 87 (18) Global Corporates and Institutions 107 158 (51) Global Technology and Services 224 183 41 --------------------------------------------------------------------------------------------- Total Business Segments 440 461 (21) --------------------------------------------------------------------------------------------- Corporate Items 564 (39) 603 --------------------------------------------------------------------------------------------- Total $1,004 $ 422 $ 582 =============================================================================================
* There were no material intersegment revenues among the business segments. 11 BUSINESS SEGMENT RESULTS (continued)
Three months ended September 30, 1999 ---------------------------------------------------- Total Net Total Noninterest Pretax (in millions) Revenue* Expenses Income/(Loss) --------------------------------------------------------------------------------------------- Retail and Private Banking $ 36 $ 42 $ (6) Asset Management 60 47 13 Global Corporates and Institutions 343 255 88 Global Technology and Services 227 226 1 --------------------------------------------------------------------------------------------- Total Business Segments 666 570 96 --------------------------------------------------------------------------------------------- Corporate Items** 965 240 725 --------------------------------------------------------------------------------------------- Total $1,631 $ 810 $ 821 =============================================================================================
* 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 the pre-tax gain on the sale of BTAL of $779 million.
Nine months ended September 30, 2000 ---------------------------------------------------- Total Net Total Noninterest Pretax (in millions) Revenue* Expenses Income/(Loss) --------------------------------------------------------------------------------------------- Retail and Private Banking $ 114 $ 111 $ 3 Asset Management 222 216 6 Global Corporates and Institutions 682 615 67 Global Technology and Services 696 699 (3) --------------------------------------------------------------------------------------------- Total Business Segments 1,714 1,641 73 --------------------------------------------------------------------------------------------- Corporate Items 519 (117) 636 --------------------------------------------------------------------------------------------- Total $ 2,233 $ 1,524 $ 709 =============================================================================================
* There were no material intersegment revenues among the business segments.
Nine months ended September 30, 1999 ---------------------------------------------------- Total Net Total Noninterest Pretax (in millions) Revenue* Expenses Income/(Loss) --------------------------------------------------------------------------------------------- Retail and Private Banking $ 129 $ 152 $ (23) Asset Management 156 119 37 Global Corporates and Institutions 831 2,466 (1,635) Global Technology and Services 715 771 (56) --------------------------------------------------------------------------------------------- Total Business Segments 1,831 3,508 (1,677) --------------------------------------------------------------------------------------------- Corporate Items** 1,579 1,405 174 --------------------------------------------------------------------------------------------- Total $ 3,410 $ 4,913 $(1,503) =============================================================================================
* 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 and the pre-tax gain on sale of BTAL of $779 million. 12 BUSINESS SEGMENT RESULTS (continued) The Retail and Private Banking business recorded pre-tax income of $7 million in the third quarter of 2000, compared to a pre-tax loss of $6 million in the prior year quarter. The increase in pre-tax income from the prior year period was mainly attributable to a decline in personnel related expenses. For the first nine months of 2000, this business recorded pre-tax income of $3 million as compared to a pre-tax loss of $23 million in the prior year period. The 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, largely offset by lower personnel related expenses. The prior year-to-date results contain pre-tax COC related costs of approximately $21 million. Asset Management recorded a pre-tax loss of $18 million in the third quarter of 2000, compared to pre-tax income of $13 million in the 1999 third quarter. Pre-tax income was $6 million for the first nine months of 2000 versus $37 million for the first nine months of 1999. The decrease in pre-tax income from the prior year periods is primarily attributable to increased personnel related expenses and revisions to internal allocations of certain expenses. The 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 $51 million in the third quarter of 2000, compared to pre-tax income of $88 million in the 1999 third quarter. The decrease in pre-tax income from the prior year period was mainly attributable to lower revenue from private equity investments, partially offset by the positive effects of revisions to internal allocations of certain expenses. For the first nine months of 2000, pre-tax income was $67 million versus a pre-tax loss of $1,635 million for the first nine months of 1999. Total revenue and total expense declined from the prior year-to-date results primarily due to the transfer of BTAB and BTI to Deutsche Bank related entities in the second quarter of 1999. In addition, trading losses in the first half of 1999 negatively impacted the year-to-date results. Total prior year-to-date 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 prior year-to-date results contain pre-tax COC related costs of approximately $848 million. The Corporation's Global Technology and Services business recorded pre-tax income of $41 million for the current quarter compared to income of $1 million in the prior year quarter. The current quarter results included credits related to revisions to internal expense allocation processes. Pre-tax loss was $3 million for the first nine months of 2000 and $56 million for the first nine 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-to-date results 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 nine months ended September 30, 1999. The 13 current period includes the gain on transfer of BTH to a Deutsche Bank entity. The current year-to-date results include a $46 million release of restructuring reserves as more fully discussed on page 19. The prior year-to-date period includes restructuring charges of approximately $459 million. 14 BUSINESS SEGMENT RESULTS (continued) The following table reconciles total pre-tax income (loss) for business segments to consolidated pre-tax income (loss) (in millions): NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 -------------------------------------------------------------------------------- Total pre-tax income (loss) reported for business segments $ 73 $(1,677) Pre-tax income (loss) of entities sold -- (72) Gain on transfer of BTH* 567 -- Gain on sale of BTAL* -- 779 Restructuring releases (charges) 46 (459) Realized foreign currency translation losses** -- (191) Earnings associated with unassigned capital 215 181 Credit quality adjustment -- 139 Other unallocated amounts (192) (203) -------------------------------------------------------------------------------- Consolidated pre-tax income(loss) $ 709 $(1,503) ================================================================================ * Gain is net of foreign currency translation losses realized. ** Excluding realized foreign currency translation losses related to BTAL and BTH. 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 Nine Months Ended September 30, September 30, ------------------------------------------- 2000 1999 2000 1999 -------------------------------------------------------------------------------------------------- NET INTEREST REVENUE (in millions) Book basis $ 132 $ 154 $ 388 $ 651 Tax equivalent adjustment 1 -- 3 13 -------------------------------------------------------------------------------------------------- Fully taxable basis $ 133 $ 154 $ 391 $ 664 ================================================================================================== Average balances (in millions) Interest-earning assets $55,638 $ 48,759 $50,198 $78,003 Interest-bearing liabilities 52,660 49,725 47,143 76,114 -------------------------------------------------------------------------------------------------- Earning assets financed by noninterest-bearing funds $ 2,978 $ (966) $ 3,055 $ 1,889 ================================================================================================== AVERAGE RATES (fully taxable basis) Yield on interest-earning assets 6.83% 6.65% 7.08% 6.21% Cost of interest-bearing liabilities 6.21 5.30 6.43 5.22 -------------------------------------------------------------------------------------------------- Interest rate spread .62 1.35 .65 0.99 Contribution of noninterest-bearing funds .33 (.10) .39 .13 -------------------------------------------------------------------------------------------------- Net interest margin 0.95% 1.25% 1.04% 1.12% ==================================================================================================
Net interest revenue for the third quarter of 2000 totaled $132 million, down $22 million, or 14 percent, from the third quarter of 1999. The $22 million decrease in net interest revenue was primarily due to a $24 million decrease in trading-related net interest revenue, which was $17 million for the third quarter of 2000. Non-trading-related net interest revenue totaled $115 million for the third quarter of 2000 versus $113 million for the comparable period in 1999. 15 REVENUE (continued) Net interest revenue for the first nine months of 2000 totaled $388 million, down $263 million, or 40 percent, from the first nine months of 1999. The $263 million decrease in net interest revenue was primarily due to a $194 million decrease in trading-related net interest revenue which was $32 million for the first nine months of 2000. Non-trading-related net interest revenue totaled $356 million for the first nine months of 2000 versus $425 million for the comparable period in 1999. In the third quarter of 2000, the interest rate spread was 0.62 percent compared to 1.35 percent in the prior year period. Net interest margin decreased to 0.95 percent from 1.25 percent. The yield on interest-earning assets increased by 18 basis points and the cost of interest-bearing liabilities increased by 91 basis points. Average interest-earning assets totaled $55.6 billion for the third quarter of 2000, up $6.9 billion from the same period in 1999. The increase was primarily attributable to increases in interest earning deposits with banks. Average interest-bearing liabilities totaled $52.7 billion for the third quarter of 2000, up $2.9 billion from the same period in 1999. The increase was primarily attributable to an increase in long-term debt. In the first nine months of 2000, the interest rate spread was 0.65 percent compared to 0.99 percent in the prior period. Net interest margin decreased from 1.12 percent to 1.04 percent. The yield on interest-earning assets increased by 87 basis points and the cost of interest bearing liabilities increased by 121 basis points. Trading Revenue Combined trading revenue and trading-related net interest revenue for the third quarter of 2000 totaled $50 million, down $3 million from the third quarter of 1999. Combined trading revenue and trading-related net interest revenue for the first nine months of 2000 totaled $159 million, down $12 million from the first nine months of 1999. Trading losses for the first nine 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 third quarter 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. 16 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. Three months ended September 30, -------------------------------- (in millions) 2000 1999 -------------------------------------------------------------------------------- Interest rate risk $ 15 $ 6 Foreign exchange risk 5 (10) Equity and commodity risk 13 16 -------------------------------------------------------------------------------- Total trading revenue 33 12 Trading-related net interest revenue 17 41 -------------------------------------------------------------------------------- Combined total $ 50 $ 53 ================================================================================ Nine months ended September 30, -------------------------------- (in millions) 2000 1999 -------------------------------------------------------------------------------- Interest rate risk $ 53 $(237) Foreign exchange risk 7 144 Equity and commodity risk 67 38 -------------------------------------------------------------------------------- Total trading revenue 127 (55) Trading-related net interest revenue 32 226 -------------------------------------------------------------------------------- Combined total $ 159 $ 171 ================================================================================ Interest rate risk - Trading revenue related to interest rate risk for the third quarter of 2000 increased from the third quarter of 1999 as a result of multiple trading related gains and losses. Trading revenue related to interest rate risk for the first nine months of 2000 increased from the first nine months of 1999. 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 increase in trading revenue related to foreign exchange risk for the third quarter of 2000 as compared to the prior year period is attributable to the marking to market of cross currency swaps related to certain structured transactions. The decrease in trading revenue related to foreign exchange risk for the first nine months of 2000 as compared to the prior year period 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 for the third quarter of 2000 decreased from the third quarter of 1999. This decrease is reflective of gains recorded in the prior year quarter on the marking to market of secondary LBO funds purchased at a discount. The increase in trading revenue related to equity and commodity risk for the first nine months of 2000 as compared to the first nine months of 1999 is reflective of prior year risk reduction initiatives consistent with the Corporation's overall curtailment of trading related activities. 17 REVENUE (continued) Noninterest Revenue (Excluding Trading) Third Quarter 2000 vs. Third Quarter 1999 Fiduciary and funds management revenue was down $68 million, or 27 percent, from the third quarter of 1999. The decrease is due primarily to the sale of BTAL in the third quarter of 1999. Corporate finance fees of $25 million decreased $21 million from the $46 million earned in the third quarter of 1999. The decline is primarily attributable to lower revenue from financial advisory activities. Other fees and commissions of $73 million decreased $19 million from the prior year quarter primarily due to lower revenue for fees in lieu of compensating balances, guarantee fees and deposit account service charges. Other noninterest revenue totaled $546 million compared to $1,035 million in the prior year period. The prior year period included the gain on the sale of BTAL. The current period includes the gain on the transfer of BTH to a Deutsche Bank entity offset by mark-to-market losses on venture capital equity securities. Nine Months 2000 vs. Nine Months 1999 Fiduciary and funds management revenue was down $210 million, or 26 percent, from the first nine months of 1999. The decrease is due primarily to the sale of BTAL in the third quarter of 1999. Corporate Finance fees of $107 million decreased $381 million from the $488 million earned in the first nine months 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 $235 million decreased $221 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. Securities available for sale gains totaled $40 million for the first nine months of 2000 compared to securities available for sale losses of $150 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. 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. 18 REVENUE (continued) Other noninterest revenue totaled $697 million compared to $1,055 million in the prior year period. The current year-to-date period reflects the gain on the transfer of BTH to a Deutsche Bank entity while the prior year-to-date period reflects the sale of BTAL. 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. 19 The provisions for credit losses and the other changes in the allowances for credit losses are shown below (in millions).
Quarter Ended Nine Months Ended September 30, September 30, ------------------------------------------------------- Total allowance for credit losses 2000 1999 2000 1999 -------------------------------------------------------------------------------------------------------------------- LOANS Balance, beginning of period $ 419 $ 532 $ 491 $ 652 Provision for credit losses (4) (49) (44) (74) Allowance related to BTAL and transferred entities* (6) (10) (6) (39) Net charge-offs Charge-offs 5 2 48 86 Recoveries 1 5 12 23 -------------------------------------------------------------------------------------------------------------------- Total net charge-offs (recoveries) 4 (3) 36 63 -------------------------------------------------------------------------------------------------------------------- Balance, end of period $ 405 $ 476 $ 405** $ 476** ==================================================================================================================== OTHER LIABILITIES Balance, beginning of period $ 4 $ 14 $ 24 $ 18 Provision for credit losses 8 16 (12) 12 -------------------------------------------------------------------------------------------------------------------- Balance, end of period $ 12 $ 30 $ 12 $ 30 ====================================================================================================================
* Reflects the allowance for credit losses of certain legal entities transferred to Deutsche Bank on the date of transfer and the allowance for credit losses of BTAL on the date of sale. ** Comprised of the following components: Specific allowance $ 315 $ 171 Country risk 6 122 Expected loss 84 183 ----------------------- $ 405 $ 476 =======================
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 September 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 was 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 was reflected in the Consolidated Statement of Income for the three months and six months ended June 30, 2000. At September 30, 2000, the remaining Plan 2 reserve balance was $56 million. Plan 2 severance and other restructuring-related activities are expected to be substantially completed during the remainder of 2000. 20 EXPENSES Third Quarter 2000 vs. Third Quarter 1999 As compared to the third quarter of 1999, salaries and commissions expense decreased $76 million, or 39 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 $127 million, or 55 percent from the prior year quarter, resulting from the previously mentioned decrease in the average number of employees. Other noninterest expense decreased $85 million from the prior year quarter due primarily to lower corporate technology cost allocations. Deutsche Bank's policy is to allocate corporate technology cost to subsidiaries based on a methodology of usage. In the normal course of business, management reevaluates its methodology of this allocation. During the third quarter there was an $85 million benefit to Bankers Trust on a year-to-date basis, resulting from the continuing realignment of businesses within Bankers Trust to various Deutsche Bank legal vehicles. This adjustment has no impact to the Deutsche Bank group level since it is strictly a reallocation of cost between its legal vehicles. Nine Months 2000 vs. Nine Months 1999 As compared to the first nine months of 1999, salaries and commissions expense decreased $542 million, or 60 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 $624 million, or 66 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. 21 INCOME TAXES Income tax expense for the third quarter of 2000 amounted to $291 million, compared to income tax expense of $559 million in the third quarter of 1999. For the first nine months of 2000, income tax expense was $410 million, compared to income tax expense of $43 million in the first nine months of 1999. The effective tax rate was 50 percent for the current quarter and 58 percent for the nine months ended September 30, 2000, respectively, and 68 percent for the prior year quarter and 3 percent for the nine months ended September 30, 1999, respectively. The tax expense and the effective tax rate for the nine months ended September 30, 2000 are not comparable to the prior year period. The Corporation recorded a pre-tax loss of $1,503 million in the prior year period primarily due to significant charges incurred in conjunction with the Acquisition. In addition, tax expense for the nine months ended September 30, 1999 included a $200 million increase in the valuation allowance related to deferred tax assets. 22 BALANCE SHEET ANALYSIS The following table highlights the changes in the balance sheet. Since quarter-end balances can be distorted by one-day fluctuations, an analysis of changes in the quarterly averages is provided to give a better indication of balance sheet trends.
CONDENSED AVERAGE BALANCE SHEETS ----------------------------------------------- (in millions) 3rd Qtr. 2000 2nd Qtr. 2000 4th Qtr. 1999 ------------------------------------------------------------------------------------------------------------ ASSETS Interest-earning Interest-bearing deposits with banks $ 12,200 $ 6,915 $ 3,867 Federal funds sold 1,090 1,222 3,608 Securities purchased under resale agreements 1,293 2,160 5,478 Trading assets 16,225 15,714 6,221 Securities available for sale Taxable 522 699 3,412 Exempt from federal income taxes 16 16 16 ------------------------------------------------------------------------------------------------------------ Total securities available for sale 538 715 3,428 Loans Domestic offices 22,796 17,867 16,132 Foreign offices 1,143 2,858 4,613 ------------------------------------------------------------------------------------------------------------ Total loans 23,939 20,725 20,745 Customer receivables 353 326 569 ------------------------------------------------------------------------------------------------------------ Total interest-earning assets 55,638 47,777 43,916 Noninterest-earning Cash and due from banks 1,934 1,606 1,745 Noninterest-earning trading assets 3,911 5,748 8,541 All other assets 9,130 9,857 8,774 Less: Allowance for credit losses-loans (418) (421) (508) ------------------------------------------------------------------------------------------------------------ Total $ 70,195 $ 64,567 $ 62,468 ============================================================================================================ LIABILITIES Interest-bearing Interest-bearing deposits Domestic offices $ 9,437 $ 9,670 $ 12,200 Foreign offices 5,376 6,178 7,659 ------------------------------------------------------------------------------------------------------------ Total interest-bearing deposits 14,813 15,848 19,859 Trading liabilities 55 53 39 Securities loaned and securities sold under repurchase agreements 55 66 210 Other short-term borrowings 13,600 10,996 7,691 Long-term debt 22,787 16,416 13,915 Trust preferred capital securities 1,350 1,417 1,427 ------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 52,660 44,796 43,141 Noninterest-bearing Noninterest-bearing deposits 3,557 3,539 4,724 Noninterest-bearing trading liabilities 3,763 5,126 4,516 All other liabilities 5,803 6,784 5,542 ------------------------------------------------------------------------------------------------------------ Total liabilities 65,783 60,245 57,923 ------------------------------------------------------------------------------------------------------------ STOCKHOLDER'S EQUITY Preferred stock 353 364 392 Common stockholder's equity 4,059 3,958 4,153 ------------------------------------------------------------------------------------------------------------ Total stockholder's equity 4,412 4,322 4,545 ------------------------------------------------------------------------------------------------------------ Total $ 70,195 $ 64,567 $ 62,468 ============================================================================================================
23 BALANCE SHEET ANALYSIS (continued) Securities Available for Sale The fair value, amortized cost and gross unrealized holding gains and losses for the Corporation's securities available for sale are as follows:
($ in millions) September 30, 2000 June 30, 2000 December 31, 1999 ------------------------------------------------------------------------------------------------- Fair value $ 282 $ 597 $ 3,252 Amortized cost 281 498 3,227 ------------------------------------------------------------------------------------------------- Excess of fair value over amortized cost* $ 1 $ 99 $ 25 ================================================================================================= * Components: Unrealized gains 3 $ 107 $ 45 Unrealized losses (2) (8) (20) ------------------------------------------------------------------------------------------------- $ 1 $ 99 $ 25 =================================================================================================
Other Liabilities As a result of the transfer of BTH to DBUSH, certain equity positions of subsidiaries of the Corporation that were issued to subsidiaries of BTH amounting to approximately $1.5 billion, previously eliminated in the consolidation process, are now classified in other liabilities as minority interest, including $500 million of preferred stock of subsidiary. These amounts are included in the related party balances as further discussed on page 35. Preferred Stock On September 28, 2000, the Corporation redeemed all 55,739 shares, 40,022 shares and 50,000 shares of its Adjustable Rate Cumulative Preferred Stock, Series Q, Adjustable Rate Cumulative Preferred Stock, Series R, and 7.75% Cumulative Preferred Stock, Series S, respectively. All shares were redeemed at a redemption price of $2,500 per share plus accrued and unpaid dividends to the redemption date. 24 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 September 30, 2000 Average During 3rd Qtr. 2000 ---------------------------------------------------------------------- (in millions) Assets (Liabilities) Assets (Liabilities) --------------------------------------------------------------------------------------------------------------------- OTC FINANCIAL INSTRUMENTS Interest Rate and Currency Swap contracts $ 1,363 $(1,325) $ 2,999 $(3,379) Interest Rate Contracts Forwards -- -- -- -- Options purchased 107 108 Options written (80) (86) Foreign Exchange Rate Contracts Spot and forwards -- (2) 18 (1) Options purchased 5 5 Options written (5) (5) Equity-related contracts 1,345 (1,277) 1,257 (1,267) Commodity-related and other contracts 924 (924) 924 (924) --------------------------------------------------------------------------------------------------------------------- Total Gross Fair Values 3,744 (3,613) 5,311 (5,662) Impact of Netting Agreements (1,051) 1,051 (1,235) 1,235 --------------------------------------------------------------------------------------------------------------------- $ 2,693(a) $(2,562)(a) $ 4,076 $(4,427) ======= ======== ======= =======
(a) As reflected on the balance sheet in "Trading Assets" and "Trading Liabilities." 25 TRADING DERIVATIVES (continued)
At December 31, 1999 Average During 4th Qtr. 1999 ---------------------------------------------------------------------- (in millions) Assets (Liabilities) Assets (Liabilities) --------------------------------------------------------------------------------------------------------------------- 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, and investments in non-marketable equity instruments. 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 $25 million at September 30, 2000 compared with unrealized losses of $145 million at December 31, 1999. The $120 million decrease was primarily due to an increase in interest rates. 26 END-USER DERIVATIVES (continued) The following tables provide the gross unrealized gains and losses for end-user derivatives. Gross unrealized gains and losses for hedges of securities available for sale are recognized in the financial statements with the offset as an adjustment to securities valuation allowance in stockholder's equity. Gross unrealized gains and losses for hedges of loans, other assets, interest-bearing deposits, other short-term borrowings, and long-term debt are not yet recognized in the financial statements.
(in millions) Securities Interest- Other available bearing short-term Long-term September 30, 2000 for sale deposits borrowings debt(a) Total ------------------------------------------------------------------------------------------- Interest Rate Swaps(b) Pay Variable Unrealized Gain $ -- $ 116 $ 1 $ 155 $ 272 Unrealized (Loss) (1) (91) (1) (237) (330) ------------------------------------------------------------------------------------------- Pay Variable Net (1) 25 -- (82) (58) ------------------------------------------------------------------------------------------- Pay Fixed Unrealized Gain 1 29 -- 6 36 Unrealized (Loss) -- (2) -- (1) (3) ------------------------------------------------------------------------------------------- Pay Fixed Net 1 27 -- 5 33 ------------------------------------------------------------------------------------------- Total Unrealized Gain 1 145 1 161 308 Total Unrealized (Loss) (1) (93) (1) (238) (333) ------------------------------------------------------------------------------------------- Total Net $ -- $ 52 $ -- $ (77) $ (25) =========================================================================================== Currency Swaps and Forwards Unrealized Gain $ -- $ -- $ -- 15 15 Unrealized (Loss) -- -- -- (15) (15) ------------------------------------------------------------------------------------------- Net $ -- $ -- $ -- $ -- $ -- =========================================================================================== Total Unrealized Gain $ 1 $ 145 $ 1 $ 176 $ 323 Total Unrealized (Loss) (1) (93) (1) (253) $(348) ------------------------------------------------------------------------------------------- Total Net $ -- $ 52 $ -- $ (77) $ (25) ===========================================================================================
(a) Includes trust preferred capital securities. (b) Includes swaps with embedded options to cancel. 27 END-USER DERIVATIVES (continued)
(in millions) Securities Interest- Other Long- available Other bearing short-term term December 31, 1999 for sale Loans assets deposits borrowings 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 =========================================================================================================== Total Unrealized Gain $ 138 $ -- $ -- $ 102 $ 3 $ 86 $ 329 Total Unrealized (Loss) -- (3) -- (273) (3) (195) (474) ----------------------------------------------------------------------------------------------------------- Total Net $ 138 $ (3) $ -- $(171) $ -- $(109) $(145) ===========================================================================================================
(a) Includes trust preferred capital securities. (b) Includes swaps with embedded options to cancel. 28 END-USER DERIVATIVES (continued) For pay variable and pay fixed interest rate swaps entered into as an end-user, the weighted average receive rate and pay rate (interest rates were based on the weighted averages of both U.S. and non-U.S. currencies) by maturity and corresponding notional amounts were as follows ($ in millions):
Paying variable Paying fixed -------------------------- ------------------------ At September 30, 2000 Notional Receive Pay Notional Receive Pay Total Notional amount maturing in: Amount Rate Rate Amount Rate Rate Notional ---------------------------------------------------------------------------------------------------- 2000 $ 4,134 6.55% 6.58% $ 67 6.68% 6.18% $ 4,201 2001-2002 3,302 6.81 6.75 762 6.72 6.85 4,064 2003-2004 1,186 6.51 6.70 131 5.49 6.28 1,317 2005 and thereafter 6,168 6.85 6.69 474 6.46 6.52 6,642 ---------------------------------------------------------------------------------------------------- Total $14,790 $ 1,434 $16,224 ====================================================================================================
All rates were those in effect at September 30, 2000. Variable rates are primarily based on LIBOR or Federal funds rate and may change significantly, affecting future cash flows.
Paying variable Paying fixed -------------------------- ------------------------ At December 31, 1999 Notional Receive Pay Notional Receive Pay Total Notional amount maturing 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. 29 REGULATORY CAPITAL The Corporation and its banking subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. The Federal Reserve Board's ("FRB") risk-based capital guidelines address the capital adequacy of bank holding companies and banks (collectively, "banking organizations"). These guidelines include a definition of capital, a framework for calculating risk-weighted assets, and minimum risk-based capital ratios to be maintained by banking organizations. A banking organization's risk-based capital ratios are calculated by dividing its 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 September 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 To Be Well Actual as of Actual as of Minimum for Capitalized Under September 30, December 31, Capital Adequacy Regulatory 2000 1999 Purposes Guidelines ------------------------------------------------------------------------------------------------ Corporation Risk-based capital ratios Tier 1 capital 10.5% 10.4% 4.0% 6.0% Total capital 15.9% 18.4% 8.0% 10.0% Leverage ratio 7.0% 7.3% 3.0% N/A BTCo Risk-based capital ratios Tier 1 capital 22.4% 16.5% 4.0% 6.0% Total capital 24.9% 18.9% 8.0% 10.0% Leverage ratio 15.8% 12.3% 3.0% 5.0% N/A Not applicable
30 REGULATORY CAPITAL (continued) The following are the essential components used in calculating the Corporation's and BTCo's risk-based capital ratios: Actual as of Actual as of (in millions) September 30, 2000 December 31, 1999 -------------------------------------------------------------------------------- Corporation Tier 1 Capital $ 4,878 $ 4,462 Tier 2 Capital 2,482 3,399 -------------------------------------------------------------------------------- Total Capital $ 7,360 $ 7,861 ================================================================================ Total risk-weighted assets $46,286 $42,823 ================================================================================ BTCo Tier 1 Capital $ 5,982 $ 5,710 Tier 2 Capital 664 851 -------------------------------------------------------------------------------- Total Capital $ 6,646 $ 6,561 ================================================================================ Total risk-weighted assets $26,698 $34,657 ================================================================================ Comparing September 30, 2000 to December 31, 1999, the Corporation's Tier 1 Capital ratio increased 10 basis points due primarily to the increase to Tier 1 capital arising from the sale of BTH to DBUSH during the third quarter of 2000, partially offset by an increase in risk-weighted assets. The Total Capital ratio decreased by 250 basis points, due to the redemption of Tier 2 qualifying securities and an increase in risk-weighted assets. The increase in risk-weighted assets was due to the increase in balances with affiliates resulting from the sale of BTH. The Leverage ratio decreased by 30 basis points due to the increase in quarterly average assets. The sale of BTH did not impact quarterly average assets since the sale occurred on September 29, 2000. BTCo's Tier 1 Capital ratio increased 590 basis points due to a reduction in risk-weighted assets of $8 billion and an increase in Tier 1 capital of $272 million. The decrease in risk-weighted assets is due principally to the liquidation or transfer of positions to other Deutsche Bank affiliates. Total Capital ratio increased 600 basis points which was also due to the reduction in risk-weighted assets. The Leverage ratio increased 350 basis points primarily due to the significant reduction of $8.7 billion in quarterly average assets. 31 RISK MANAGEMENT Market risk is the risk of losses in the value of the Corporation's portfolio due to movements in market prices and rates. Market risk arises from the Corporation's investment, trading, and client activities. This section discusses changes in the Corporation's market-risk profile as characterized by the quantitative information presented on pages 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 nine 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)
1999 Nine Months December 31, September 30, Risk class Average 2000 Average 1999 2000 -------------------------------------------------------------------------------- Interest rate $18.0 $ 4.1 $ 5.1 $ 2.0 Currency 2.5 1.4 0.6 0.2 Equity 22.6 46.9 11.7 0.8 Commodity 0.6 -- -- -- Diversification (12.4) (5.8) (4.6) (0.8) -------------------------------------------------------------------------------- Overall Portfolio $31.3 $46.6 $12.8 $ 2.2 ================================================================================
Table 1 shows that the Corporation's Total Risk levels decreased by 83 percent from $12.8 million on December 31, 1999 to $2.2 million on September 30, 2000. This decrease is mainly due to the transfer of BTH to Deutsche Bank. The primary risk remaining at September 30, 2000 is interest rate risk largely from the loan trading, syndication and loan securitization businesses. 32 RISK MANAGEMENT (continued) Table 2 BT Corporation Total Value at Risk (in millions)
1999 Nine Months December 31, September 30, Risk class Average 2000 Average 1999 2000 -------------------------------------------------------------------------------- Interest rate $11.1 $ 4.1 $ 5.0 $ 1.9 Currency 2.3 1.4 0.6 0.2 Equity 8.7 5.7 5.8 0.8 Commodity 0.6 -- -- -- Diversification (7.0) (3.5) (3.7) (0.8) -------------------------------------------------------------------------------- Overall Portfolio $15.7 $ 7.7 $ 7.7 $ 2.1 ================================================================================
Table 2 shows that the Corporation's September 30th risk levels from Trading Assets decreased by 73 percent on a spot basis from December 31, 1999. LIQUIDITY Liquidity is the ability to have funds available at all times to meet the commitments of the Corporation. The Corporation's liquidity process has become an integral part of Deutsche Bank's global liquidity process. Management's policy is designed to maintain Deutsche Bank's ability to fund assets and meet any contractual financial obligations on a timely basis at a fair market cost under any market conditions. While Deutsche Bank and the Corporation manage their liquidity positions on a day-to-day basis to meet ongoing funding needs, 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 September 30, 2000, this credit line totaled approximately $4 billion. Of this amount, approximately $3 billion was drawn. In addition, the Corporation has received unsecured financing from Deutsche Bank via its indirect subsidiaries in the amount of approximately $2 billion. 33 NONPERFORMING ASSETS The components of cash basis loans, renegotiated loans, other real estate and other nonperforming assets are shown below ($ in millions).
September 30, December 31, 2000 1999 -------------------------------------------------------------------------------- CASH BASIS LOANS Domestic Commercial and industrial $667 $495 Secured by real estate 28 67 Financial institutions 9 11 -------------------------------------------------------------------------------- Total domestic 704 573 -------------------------------------------------------------------------------- International Commercial and industrial 38 132 Secured by real estate 10 10 Other 16 22 -------------------------------------------------------------------------------- Total international 64 164 -------------------------------------------------------------------------------- Total cash basis loans $768 $737 ================================================================================ Ratio of cash basis loans to total gross loans 2.9% 3.7% ================================================================================ Ratio of allowance for credit losses-loans to cash basis loans 53% 67% ================================================================================ RENEGOTIATED LOANS $ -- $ 11 ================================================================================ OTHER REAL ESTATE $109 $ 88 ================================================================================ OTHER NONPERFORMING ASSETS $ -- $ 8 ================================================================================
There were no loans 90 days or more past due and still accruing interest at September 30, 2000 and December 31, 1999. 34 NONPERFORMING ASSETS (continued) An analysis of the changes in the Corporation's total cash basis loans during the first nine months of 2000 follows (in millions):
Balance, December 31, 1999 $ 737 Net transfers to cash basis loans 293 Net transfers to other real estate (27) Net paydowns (126) Charge-offs (48) Other (15) Loan sales (4) Transfer to Deutsche Bank* (42) -------------------------------------------------------------------------------- Balance, September 30, 2000 $ 768 ================================================================================
* Reflects the cash basis loans of certain legal entities transferred to Deutsche Bank and loans novated to Deutsche Bank entities. The Corporation's total cash basis loans amounted to $768 million at September 30, 2000, up $31 million, or 4 percent, from December 31, 1999. Impaired loans under SFAS 114, were $750 million and $889 million at September 30, 2000 and December 31, 1999, respectively. Included in these amounts were $713 million and $718 million of loans that required a specific allowance of $315 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 September 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.
Nine Months Ended September 30, ------------------------------- (in millions) 2000 1999 -------------------------------------------------------------------------------- Domestic Loans Gross amount of interest that would have been recorded at original rate $51 $10 Less, interest, net of reversals, recognized in interest revenue 34 5 -------------------------------------------------------------------------------- Reduction of interest revenue 17 5 -------------------------------------------------------------------------------- International Loans Gross amount of interest that would have been recorded at original rate 3 3 Less, interest, net of reversals, recognized in interest revenue -- 1 -------------------------------------------------------------------------------- Reduction of interest revenue 3 2 -------------------------------------------------------------------------------- Total reduction of interest revenue $20 $ 7 ================================================================================
35 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. At September 30, 2000, the related party balances reflect the transfer of BTH to Deutsche Bank. 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) September 30, 2000 December 31, 1999 -------------------------------------------------------------------------------- Interest-earning assets $14,872 $10,843 Noninterest-earning assets 2,696 1,147 Interest-bearing liabilities 12,625 6,568 Noninterest-bearing liabilities 3,889 139
ACCOUNTING DEVELOPMENTS In September 2000, the FASB issued SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125." SFAS 140 is effective for transfers occurring after March 31, 2001 and for disclosures relating to securitization transactions, retained interests in securitizations, and collateral received in reverse repurchase agreements and collateral pledged for fiscal years ending after December 15, 2000. SFAS 140 carries forward most of the provisions of SFAS 125 without change. New criteria for qualifying special purpose entities will be effective in 2001 and therefore do not impact previously reported transactions. The primary impact at December 31, 2000 relates to the collateral provisions. The new Statement eliminates the prior requirement to record collateral received under certain securities financing transactions and requires reclassification in the balance sheet of assets pledged under certain conditions. The adoption of SFAS 140 will not have a material impact on the Corporation's net income, stockholder's equity or total assets. 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. The Corporation engages in derivative activities both for trading purposes and for hedging purposes. The adoption of SFAS 133, as amended by SFAS 138, will not impact 36 those derivatives used for trading purposes, as these derivatives are already reported at fair value with changes in fair value recognized in the income statement. The adoption of SFAS 133 will require that derivatives used for hedging purposes (i.e., end-user derivatives) be accounted for at fair value effective January 1, 2001. SFAS 133 also requires that certain embedded derivatives, which had previously not been recognized separately from their host instruments, be separated and reported on the balance sheet at fair value. The Corporation does not expect that the adoption of SFAS 133 on January 1, 2001 will have a material impact on its results of operations or financial position. LITIGATION On September 25, 2000, litigation was commenced in the District Court in Geneva, Switzerland (Torras Hostench London Limited and Grupo Torras S.A. v. Bonsai Investment S.A. (formerly Bankers Trust AG) and Bankers Trust Corporation), against the Corporation and one of its subsidiaries. The litigation alleges the Corporation and its subsidiary are liable to the plaintiffs for breach of contract, breach of fiduciary duty and fraud in connection with a number of financial transactions occurring during 1990 and 1991. The plaintiffs seek damages of approximately $1 billion. The Corporation believes it and its subsidiary have meritorious defenses and intends to vigorously defend this matter. 37 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management" on page 31 for Quantitative and Qualitative Disclosures About Market Risk. FORWARD-LOOKING STATEMENTS Certain sections of this report contain forward-looking statements and can be identified by the use of such words as "anticipates," "expects," and "estimates," and similar expressions. 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. 38 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 (99) Additional Exhibits (b) Reports on Form 8-K - Bankers Trust Corporation filed one report on Form 8-K for the quarter ended September 30, 2000. The report dated September 29, 2000 and filed October 16, 2000 reported: under Item 2 thereof that the Corporation transferred BT Holdings (New York), Inc., a wholly-owned subsidiary, to DB U.S. Financial Markets Holding Corporation and Taunus Corporation, which are an indirect and direct subsidiary, respectively, of Deutsche Bank AG.; under Item 7 thereof unaudited pro forma financial information. 39 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 November 14, 2000. Bankers Trust Corporation By:/s/ RONALD HASSEN ------------- RONALD HASSEN Senior Vice President, Controller and Principal Accounting Officer 40 BANKERS TRUST CORPORATION FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 EXHIBIT INDEX (4) Instruments Defining the Rights of Security Holders, Including Indentures (v) - Long-term Debt Indentures (a) (12) Statement re computation of ratios (a) - Computation of Consolidated Ratios of Earnings to Fixed Charges (b) - Computation of Consolidated Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements (27) Financial Data Schedule (99) (i) Additional Exhibits (1) Unaudited Pro Forma Condensed Financial Statements for the nine months ended September 30, 2000 and September 30, 1999. (a) The Corporation hereby agrees to furnish to the Commission, upon request, a copy of any instruments defining the rights of holders of long-term debt issued by Bankers Trust Corporation or its subsidiaries.