-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V7F4rexxD3u3R1dlH23MCO1/9S4KsRL+n3luDU9VYClviJWuowP8nHgM4JLfzT4E xpxiHmfC7GjCsIjuVOCRlw== 0001005477-02-001475.txt : 20020415 0001005477-02-001475.hdr.sgml : 20020415 ACCESSION NUMBER: 0001005477-02-001475 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANKERS TRUST CORP CENTRAL INDEX KEY: 0000009749 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 136180473 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05920 FILM NUMBER: 02596504 BUSINESS ADDRESS: STREET 1: 130 LIBERTY ST CITY: NEW YORK STATE: NY ZIP: 10006 BUSINESS PHONE: 2122502500 MAIL ADDRESS: STREET 1: 130 LIBERTY STREET CITY: NEW YORK STATE: NY ZIP: 10006 FORMER COMPANY: FORMER CONFORMED NAME: BT NEW YORK CORP DATE OF NAME CHANGE: 19671107 FORMER COMPANY: FORMER CONFORMED NAME: BANKERS TRUST NEW YORK CORP DATE OF NAME CHANGE: 19920703 10-K 1 d02-37002.txt FORM 10-K United States Securities and Exchange Commission Washington, D.C. 20549 Form 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 or | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-5920 Bankers Trust Corporation (Exact Name of Registrant as Specified in its Charter) New York 13-6180473 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 130 Liberty Street New York, NY 10006 (currently operating out of an alternate location at (Zip Code) 31 W 52nd Street, New York, NY 10019) (Address of Principal Executive Offices) (212) 250-2500 (Registrant's Telephone Number, Including Area Code) Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No | | Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. | | The registrant meets the conditions set forth in General Instruction I (1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format. Because the registrant is a wholly-owned subsidiary of Deutsche Bank AG, none of the registrant's outstanding voting stock is held by non-affiliates of the registrant. As of the date hereof, 1 share of the registrant's common stock, $1 par value, was issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE None Form 10-K Cross-Reference Index Part I
Item No. Pages 1. Business Description of Business 52 Supplemental Financial Data International Operations 6, 38 Distribution of Assets, Liabilities and Stockholder's Equity; Interest Rates and Interest Differential 48-50 Investment Portfolio 25-26 Loan Portfolio 13-15, 24, 26-27 Summary of Credit Loss Experience 10-12, 24, 28 Deposits 51 Return on Equity and Assets 51 Short-Term Borrowings 28 2. Properties 55 3. Legal Proceedings 55 4. Submission of Matters to a Vote of Security Holders * Part II 5. Market for Registrant's Common Equity and Related Stockholder Matters 31 6. Selected Financial Data * 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 2 7a. Quantitative and Qualitative Disclosures About Market Risk 7-8 8. Financial Statements and Supplementary Data Bankers Trust Corporation and Subsidiaries (Consolidated) 17-21 Notes to Financial Statements 22-46 Independent Auditors' Report 47 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure * Part III 10. Directors and Executive Officers of the Registrant Directors * Executive Officers * Section 16(a) Beneficial Ownership Reporting Compliance * 11. Executive Compensation * 12. Security Ownership of Certain Beneficial Owners and Management * 13. Certain Relationships and Related Transactions * Part IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) (1) Financial Statements--See Item 8. (2) Financial Statement Schedules All schedules normally required by Form 10-K are omitted since they are either not applicable or the required information is shown in the financial statements or the notes thereto. (3) Exhibits 3. Articles of Incorporation and By-laws, as amended ** 4. Instruments Defining the Rights of Security Holders, Including Indentures (i) Long-Term Debt Indentures *** 10. Material Contracts (i) Contracts not made in the ordinary course of business ** (ii) (C) Acquisition or Sale of any Property, Plant or Equipment ** (ii) (D) Leases for Principal Premises described on page 55 ** (iii) (A) Management Contracts and Compensation Plans ** 12. Statements Re Computation of Ratios ** 21. Subsidiaries of the Registrant * 23. Consent of Experts ** 24. Power of Attorney ** (b) Reports on Form 8-K--The Corporation did not file any reports on Form 8-K during the quarter ended December 31, 2001.
* Not applicable or not required because this Form 10-K is filed with the reduced disclosure format. ** A copy of any exhibit not contained herein may be obtained by writing to James T. Byrne, Jr., Office of the Secretary, Bankers Trust Corporation, 31 West 52nd Street, Mail Stop NYC09-0810, New York, NY 10019. *** 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. This report on Form 10-K has not been approved or disapproved by the Securities and Exchange Commission nor has the Commission passed upon the accuracy or adequacy of this report. Bankers Trust Corporation and its Subsidiaries 1 FINANCIAL REVIEW Management's discussion and analysis of Bankers Trust Corporation's ("Bankers Trust" or the "Corporation") results of operations and financial condition appears on pages 2 through 16. The discussion and analysis should be read in conjunction with the financial statements and supplemental financial data, which begin on page 17. Critical Accounting Policies The Corporation makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. The Corporation has identified the following accounting policies as critical to the understanding of the results of operations, since the application of these policies requires significant management assumptions and estimates that could result in materially different amounts to be reported if conditions or underlying circumstances were to change. For a detailed discussion on the application of these and other accounting policies, see Note 2 to the consolidated financial statements. Allowance for Loan Losses The Corporation maintains an allowance for loan losses for exposures in the portfolio that represents the estimate of probable losses in the loan portfolio. Determining the allowance for loan losses requires significant management judgments and estimates including, among others, the ongoing risk assessment of customers' ability to pay and/or the fair value of underlying collateral. If actual events prove the estimates and assumptions used in determining the allowance for loan losses to have been incorrect, the Corporation may need to make additional provisions for loan losses. For further discussion on the allowance for loan losses, see pages 10 through 12 and Note 2 to the consolidated financial statements. Impairment of Assets other than Loans Certain assets, including direct investments (including venture capital companies and nonmarketable securities), securities available for sale, and premises and equipment, are subject to an impairment review. The Corporation records asset impairment charges when it believes an asset has experienced an other than temporary decline in value, or its cost may not be recoverable. Future impairment charges may be required if triggering events occur, such as adverse market conditions, suggesting deterioration in an asset's recoverability or fair value. Assessment of the timing of when such declines become other than temporary and/or the amount of such impairment is a matter of significant judgment. Deferred Tax Asset Valuation Allowances The Corporation recognizes deferred tax assets and liabilities for the estimated future tax effects of temporary differences, net operating loss carryforwards and tax credits. Deferred tax assets are subject to management's judgment based on available evidence that realization is more likely than not and they are reduced, if necessary, by a valuation reserve. In the event that the Corporation would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income tax expense in the period such determination was made. Fair Value Estimates Quoted market prices in active markets are the most reliable measure of fair value. However, quoted market prices for certain instruments, investments and activities, such as non-exchange traded contracts and venture capital companies, are not available. In these cases, the determination of fair value requires the Corporation to make estimates and certain assumptions. These may not produce a fair value determination that reflects net realizable value. Acquisition by Deutsche Bank AG Change in Control On June 4, 1999, the change-in-control ("COC") date, pursuant to an agreement dated as of November 30, 1998, between Deutsche Bank AG ("Deutsche Bank") and Bankers Trust, Deutsche Bank, through its U.S. holding corporation, Taunus Corporation ("Taunus"), acquired all of the outstanding shares of common stock of Bankers Trust from its shareholders at a price of $93.00 per share (the "Acquisition"). Deutsche Bank accounted for the Acquisition as a purchase. No purchase accounting adjustments were pushed down to Bankers Trust. Prior to the Acquisition, the Corporation 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, and private banking businesses. Disposition of Assets On June 5, 1999, Bankers Trust transferred its wholly-owned subsidiary BT Alex. Brown Incorporated ("BTAB") and substantially all of its interest in Bankers Trust International PLC ("BTI") to Deutsche Bank Securities Inc. ("DBSI") and Deutsche Holdings (BTI) Ltd., respectively, which are wholly-owned subsidiaries of Deutsche Bank. On August 31, 1999, the Corporation completed the sale of Bankers Trust Australia Limited ("BTAL"), a wholly-owned subsidiary, to the Principal Financial Group for a price of approximately $1.3 billion. In 2001, a final payment was received under the sales agreement and as a result, the Corporation recorded revenue of $24 million. 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") and Taunus. The transfer of BTH to DBUSH took the form of an exchange of stock pursuant to which BTH became a wholly-owned 2 Bankers Trust Corporation and its Subsidiaries subsidiary of DBUSH. The Corporation received shares of DBUSH equal to the fair market value of BTH's net assets, substantially all of which were financial assets, on the date of transfer. The Corporation recognized a pretax gain of approximately $561 million for the year ended December 31, 2000. In connection with the Acquisition, and in addition to the foregoing transactions, the Corporation has transferred 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. Capital Contribution In conjunction with the Acquisition and to strengthen the Corporation's capital base, Deutsche Bank made a capital contribution of $1.4 billion in the second quarter of 1999. Terrorist Attacks in The United States As a result of the terrorist attacks in the United States on September 11, 2001, the Corporation's office buildings located at 130 Liberty Street and 4 Albany Street in New York were damaged. The Corporation's employees located at these office buildings, in addition to employees located in leased properties at 4 World Trade Center and 14-16 Wall Street were relocated to contingency premises. The global financial and certain other industries were immediately adversely impacted which in turn had an adverse impact on the results of operations of the Corporation. The Corporation is currently evaluating the future plans for the building located at 130 Liberty Street, which was severely damaged due to the destruction of the World Trade Center. The Corporation's building at 4 Albany Street, which was less severely damaged, is being renovated, although no timetable for reoccupation has been established. Employees based at 14-16 Wall Street have returned to their offices. The Corporation accelerated its occupation of a 47-story building at 60 Wall Street, which Deutsche Bank acquired in November 2001. The leased property and all leasehold improvements at 4 World Trade Center were destroyed. The Corporation continues to evaluate the costs that it will incur and the adverse impact of the terrorist attacks on its results of operations. Such costs will include, but are not limited to, write-offs of fixed assets, costs to repair the buildings, expenses incurred to replace fixed assets that were damaged, relocation expenses, and the abatement of the contamination of its buildings adjacent to the World Trade Center site. The Corporation expects to make a claim for these costs, including those related to business interruption, through its insurance policies. The Corporation believes that it will recover substantially all of these costs under its insurance policies, but there can be no assurance that all of the costs incurred, losses from business interruption, losses from service interruption or extra expenses will be paid by the insurance carriers, as they may dispute portions of the Corporation's claims. At December 31, 2001, no losses have been recorded by the Corporation. Results of Operations Summary of 2001 Results For the year 2001, the Corporation reported net income of $275 million, compared to net income of $512 million in 2000. For the year, total net revenue (net interest revenue after provision for credit losses-loans plus noninterest revenue) of $2.020 billion was down $832 million, from 2000 revenue of $2.852 billion. The decrease in revenue is partially due to the pretax gain of approximately $561 million on the transfer of BTH recorded in 2000. Total noninterest expenses for the year decreased $265 million, or 14 percent, from 2000. The prior year included higher charges payable to Deutsche Bank affiliated companies relating to compensation expense. The provision for credit losses--loans increased by $315 million. Due to the current economic conditions, the Corporation has seen a decline in the credit quality of its portfolio and anticipates this trend to continue into 2002. At December 31, 2001, total cash basis loans amounted to $1,584 million, up from $840 million at December 31, 2000. Because of the significant business changes previously mentioned, the Corporation's historical financial statements are not fully comparable for all periods presented. Business Segments Business segments results, which are presented in accordance with accounting principles generally accepted in the United States of America, are derived from internal management reports. The Corporation realigned its businesses into two client-focused group divisions: the Corporate and Investment Bank Group and the Private Clients and Asset Management Group to correspond to the reorganization implemented by Deutsche Bank during the first quarter of 2001. In addition, the reorganization involved the transfer of its principal investing business to the group division Corporate Investments. Corporate and Investment Bank Group includes Corporate Banking and Securities and Global Transaction Banking. Corporate Banking and Securities includes sales, trading and corporate finance activities. Global Transaction Banking consists of trade services, cash management, custody and corporate trust and agency services. Private Clients and Asset Management Group includes Private Banking and Asset Management. Private Banking consists of banking services to private clients, self-employed individuals as well as to smaller business clients, and offers a wide variety of banking products to these clients including financial planning services and market research and investment strategies for high net-worth individuals. Bankers Trust Corporation and its Subsidiaries 3 Asset Management consists of the institutional asset management and retail investment fund businesses. Corporate Investments includes venture capital and private equity investments prior to the transfer of BTH at the end of the third quarter of 2000 and the corresponding cessation of most principal investment activities by the Corporation. Prior period results have been restated for the changes in management structure discussed above. The information presented below reflects the results by business segment (in millions): Total Pretax Year Ended Total Net Noninterest Income December 31, 2001 Revenue Expenses (Loss) - -------------------------------------------------------------------------------- Corporate and Investment Bank Corporate Banking and Securities $ 413 $ 156 $ 257 Global Transaction Banking 761 823 (62) - -------------------------------------------------------------------------------- Total Corporate and Investment Bank 1,174 979 195 Private Clients and Asset Management Private Banking 172 172 -- Asset Management 240 314 (74) - -------------------------------------------------------------------------------- Total Private Clients and Asset Management 412 486 (74) Corporate Investments -- 17 (17) - -------------------------------------------------------------------------------- Total Business Segments 1,586 1,482 104 - -------------------------------------------------------------------------------- Other 434 205 229 - -------------------------------------------------------------------------------- Total $ 2,020 $ 1,687 $ 333 ================================================================================ Total Pretax Year Ended Total Net Noninterest Income December 31, 2000 Revenue Expenses (Loss) - -------------------------------------------------------------------------------- Corporate and Investment Bank Corporate Banking and Securities $ 706 $ 637 $ 69 Global Transaction Banking 922 886 36 - -------------------------------------------------------------------------------- Total Corporate and Investment Bank 1,628 1,523 105 Private Clients and Asset Management Private Banking 171 159 12 Asset Management 334 283 51 - -------------------------------------------------------------------------------- Total Private Clients and Asset Management 505 442 63 - -------------------------------------------------------------------------------- Corporate Investments 38 71 (33) - -------------------------------------------------------------------------------- Total Business Segments 2,171 2,036 135 - -------------------------------------------------------------------------------- Other 681 (84) 765 - -------------------------------------------------------------------------------- Total $ 2,852 $ 1,952 $ 900 ================================================================================ The Corporate and Investment Bank Group recorded pretax income of $195 million in 2001, compared to pretax income of $105 million in 2000. Included in 2001 results is a restructuring charge of $18 million. Corporate Banking and Securities recorded pretax income of $257 million in 2001, compared to pretax income of $69 million in 2000. The decrease in total net revenue from the prior year is mainly due to higher provisions for credit losses. The decrease in total noninterest expenses is mainly due to lower accruals for performance-based pay in the current year due to the decline in results from the prior year. Global Transaction Banking recorded a pretax loss of $62 million in 2001, compared to pretax income of $36 million in 2000. The current year included lower revenue from fiduciary and funds management activities, as well as lower net interest revenue. The decrease in total noninterest expenses is mainly due to lower personnel-related costs. The Private Clients and Asset Management Group recorded a pretax loss of $74 million in 2001, compared to pretax income of $63 million in 2000. Included in 2001 results is a restructuring charge of $17 million. Private Banking recorded zero pretax income in 2001, compared to pretax income of $12 million in 2000. The decrease in pretax income from the prior year period is mainly due to higher personnel-related costs. Asset Management recorded a pretax loss of $74 million in 2001, compared to pretax income of $51 million in 2000. The decrease in pretax income from the prior year period is mainly due to lower performance and management fees due to the recent market weakness, as well as higher personnel-related costs. Corporate Investments recorded a pretax loss of $17 million in 2001, compared to a pretax loss of $33 million in 2000. The reduction in the pretax loss from the prior year period is due to the transfer of BTH at the end of the third quarter 2000 and the corresponding cessation of most principal investment activities by the Corporation. Other generally includes 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. Financial Reporting Matters As used throughout this Annual Report, the term "International" signifies information based on the domicile of the customer, whereas the term "Foreign Office" refers to the location in which the transaction is recorded. Statement of Income Analysis Net Interest Revenue Net interest revenue for 2001 was $605 million, down $42 million from 2000. Net interest revenue for 2000 was $647 million, down $160 million from 1999. In 2001, the interest rate spread was 0.93 percent compared to 0.81 percent in 2000. Net interest margin decreased to 1.31 percent from 1.32 percent in 2000. The yield on interest-earning assets decreased by 197 basis points. The cost of interest-bearing liabilities decreased by 209 basis points. Average interest-earning assets totaled $46.5 billion at December 31, 2001, down $2.7 billion from December 31, 2000. The decrease was primarily attributable to a decrease in trading assets. Average interest-bearing liabilities totaled $42.6 billion at December 31, 2001, down $2.9 billion from December 31, 2000. The decrease was primarily attributable to a decrease in long-term debt. In 2000, the interest rate spread was 0.81 percent compared to 1.06 percent in 1999. Net interest margin increased to 1.32 percent from 1.18 percent in 1999. The yield on interest-earning assets increased by 100 basis points. The cost of interest-bearing liabilities increased by 125 basis points. Average interest-earning assets totaled $49.2 billion at December 31, 2000, down $20.2 billion from December 31, 1999. The decrease was primarily attributable to the decrease in securities available for sale and securities borrowed and securities purchased under resale agreements. Average interest-bearing liabilities totaled $45.4 billion at December 31, 2000, down $22.4 billion from December 31, 1999. The decrease was primarily attributable to the decrease in securities sold under repurchase agreements and interest-bearing deposits. 4 Bankers Trust Corporation and its Subsidiaries Table 1 Net Interest Revenue Analysis The table below presents the Corporation's trend of net interest revenue, average balances and rates. For further details on these statistics, see pages 48 through 50.
- --------------------------------------------------------------------------------------- ($ in millions) Year Ended December 31, 2001 2000 1999 - --------------------------------------------------------------------------------------- Net interest revenue Book basis $ 605 $ 647 $ 807 Tax equivalent adjustment* 2 3 15 - --------------------------------------------------------------------------------------- Fully taxable basis $ 607 $ 650 $ 822 ======================================================================================= Average balances Interest-earning assets $ 46,495 $ 49,236 $ 69,411 Interest-bearing liabilities 42,556 45,407 67,803 - --------------------------------------------------------------------------------------- Earning assets financed by noninterest-bearing funds $ 3,939 $ 3,829 $ 1,608 ======================================================================================= Average rates (fully taxable basis) Yield on interest-earning assets 5.42% 7.39% 6.39% Cost of interest-bearing liabilities 4.49 6.58 5.33 - --------------------------------------------------------------------------------------- Interest rate spread 0.93 0.81 1.06 Contribution of noninterest-bearing funds 0.38 0.51 0.12 - --------------------------------------------------------------------------------------- Net interest margin 1.31% 1.32% 1.18% =======================================================================================
* The applicable combined federal, state and local incremental tax rate used to determine the amounts of the tax equivalent adjustments (which recognize the income tax savings on tax-exempt assets) was 44 percent for 2001 and 2000 and 41 percent for 1999. Provision for Credit Losses--Loans The Corporation recorded a provision for credit losses--loans of $296 million for the year ended December 31, 2001 as compared to a negative provision for credit losses--loans of $19 million in 2000. A discussion of the Corporation's allowance for credit losses--loans appears on page 10. Noninterest Revenue The following table presents noninterest revenue (in millions): Year Ended December 31, 2001 2000 - -------------------------------------------------------------------------------- Trading $ 45 $ 136 Fiduciary and funds management 644 798 Corporate finance fees 93 142 Other fees and commissions 253 306 Securities available for sale gains -- 45 Other 676 759 - -------------------------------------------------------------------------------- Total $1,711 $2,186 ================================================================================ Trading revenue was down $91 million, or 67 percent, from 2000. The decrease in 2001 was primarily attributable to the transfer of BTH in the third quarter of 2000. Fiduciary and funds management revenue was down $154 million, or 19 percent, from 2000. The decrease in 2001 was primarily attributable to lower revenues from custodian fees, employee benefit plan fees and incentive performance fees due principally to declining asset prices and reduced levels of market activity. Corporate finance fees were down $49 million, or 35 percent, from 2000. The decrease in 2001 was primarily attributable to lower revenues for syndication and commitment fees, reflecting lower levels of market activity. Other fees and commissions were down $53 million, or 17 percent, from 2000. The decrease in 2001 was primarily attributable to lower revenues from fees related to brokers commissions and deposit account service charges. Other noninterest revenue was $676 million in 2001, a decrease of $83 million from 2000. The decrease was primarily attributable to the prior year period including the gain on the transfer of BTH. In addition, the decrease is also due to lower revenue from both realized and unrealized equity securities due to the transfer of BTH in the third quarter of 2000. Prior to May 2001, the Corporation accounted for servicing agreements with its affiliates on a net basis and included the net amount in other noninterest expenses in the consolidated statement of income. Beginning in May 2001, revenues from services provided to affiliates are included in other noninterest revenue while expenses incurred from services provided by affiliates are included in other noninterest expenses. Business segment results, as discussed on pages 3 to 4 will continue to reflect charges for servicing agreements on a net basis. As a result, the aforementioned decreases were partially offset by increased revenue from these servicing agreements. Noninterest Expenses The following table presents noninterest expenses (in millions): Year Ended December 31, 2001 2000 - ------------------------------------------------------------------------------- Salaries and commissions $ 434 $ 459 Incentive compensation and employee benefits 307 415 Agency and other professional service fees 201 220 Communication and data services 60 84 Occupancy, net 106 106 Furniture and equipment 131 136 Travel and entertainment 33 45 Other 380 525 Restructuring and other related activities 35 (38) - ------------------------------------------------------------------------------- Total $ 1,687 $ 1,952 =============================================================================== Bankers Trust Corporation and its Subsidiaries 5 Total noninterest expenses for 2001 decreased $265 million, or 14 percent, from 2000. Incentive compensation and employee benefits decreased $108 million, or 26 percent, from 2000, resulting from a decrease in the average number of employees. The number of full-time staff at December 31, 2001 was 5,782 compared to 6,168 at December 31, 2000. In addition, there was a decrease in outplacement and counseling expense resulting from termination of employees. Other noninterest expense decreased $145 million from the prior year. The prior year included higher charges payable to Deutsche Bank affiliated companies relating to compensation arrangements. Prior to May 2001, the Corporation accounted for servicing agreements with its affiliates on a net basis and included the net amount in other noninterest expenses in the consolidated statement of income. Beginning in May 2001, revenue from services provided to affiliates are included in other noninterest revenue while expenses incurred from services provided by affiliates are included in other noninterest expenses. Business segment results, as discussed on pages 3 to 4 will continue to reflect charges for servicing agreements on a net basis. As a result, the aforementioned decreases were partially offset by increased expenses from these servicing agreements. Taxes Income tax expense for 2001 amounted to $58 million, compared to income tax expense of $388 million in 2000. The effective tax rate for 2001 was 17 percent, while the 2000 effective tax rate was 43 percent. International Operations The Corporation's assets and results of operations for 2001, 2000 and 1999 have been allocated between domestic and international operations in Note 19 of Notes to Financial Statements. This analysis, which is based on the domicile of the customer, incorporates numerous subjective assumptions and, as a result, is different from legal entity and segment results shown elsewhere in this report. Management views the operation of the Corporation on a segment basis, as disclosed on page 3. International net loss for 2001, 2000 and 1999 totaled $85 million, $19 million, and $1,134 million, respectively. Net income from domestic operations was $360 million, $531 million, and a loss of $469 million for 2001, 2000, and 1999, respectively. The ratio of international to total net income is not meaningful. The net loss from international operations in 1999 was primarily due to the allocation of a significant portion of the COC-related and restructuring charges to international operations. International total assets were $5.1 billion, $11.0 billion, and $18.6 billion at December 31, 2001, 2000, and 1999, respectively. This represented 9 percent, 17 percent and 27 percent of total consolidated assets for these same periods, respectively. The $5.9 billion and the $7.6 billion decrease in 2001 and 2000, respectively, was primarily due to the continuing transfer of the Corporation's international operations of Deutsche Bank. The reduction of total international assets in 1999 was due to the transfer of international assets to Deutsche Bank which began after COC. Liquidity and Capital Resources Management believes that the Corporation has sufficient liquidity and capital resources to meet the needs of its business operations. 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 December 31, 2001, this credit line totaled approximately $4.4 billion. Of this amount, approximately $3.8 billion was drawn. In addition, the Corporation has received unsecured financing from Deutsche Bank via its indirect subsidiaries in the amount of $4.5 billion. The Corporation's consolidated long-term debt and trust preferred securities at December 31, 2001 totaled $10.8 billion, all of which was unsecured, and consisted of $6.9 billion in senior borrowings, $2.6 billion of subordinated debt, and $1.3 billion of trust preferred securities. These liabilities mature between 2002 and 2037, as detailed in Notes 8 and 9 of Notes to Financial Statements. Capital Resources The Corporation pursues capital management with the objective of enhancing its ability to execute its global strategic business plans while retaining financial flexibility. Management believes that a strong capital base is critical to achieving these objectives. Consolidated total stockholder's equity was $4.622 billion on December 31, 2001, up $240 million from year-end 2000. The current year's increase was primarily due to net income partially offset by the decrease in cumulative translation adjustment. The Corporation actively monitors compliance with bank regulatory capital requirements, focusing primarily on the risk-based capital guidelines. The Corporation manages its capital base and on- and off-balance sheet items to ensure that it remains strongly capitalized. The Federal Reserve Board's 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 Federal Reserve Board ("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. 6 Bankers Trust Corporation and its Subsidiaries The Corporation's banking subsidiaries had previously adopted the market risk amendment to the risk-based capital guidelines issued by the Federal Reserve, which requires the use of internal models to measure market risk in the calculation of the risk-weighted assets for trading accounts. This amendment is consistent with the amendment to the Basle Capital Accord adopted by the Basle Committee on Banking Supervision at the Bank for International Settlements ("the BIS"). The following discussion of the risk-based capital and leverage ratios should be read in conjunction with Note 13 of the Notes to Financial Statements, which defines the components of Tier 1 and Tier 2 Capital, as well as the regulatory guidelines for well-capitalized banks and bank holding companies. As permitted by the FRB's Supervisory Letter SR 01-1, the Corporation is no longer required to comply with the FRB's capital adequacy guidelines since it is owned and controlled by a foreign bank that is a financial holding company which has been determined by the FRB to be well-capitalized and well-managed. During 2001, BTCo's Tier 1 Capital ratio increased 310 basis points due to the increase in Tier 1 Capital of $91 million along with a reduction of $2.6 billion in risk-weighted assets. Total Capital ratio increased 300 basis points due also to the effects of income and the reduction in assets. The Leverage ratio decreased 120 basis points due primarily to the increase of $4.0 billion in quarterly average assets. Table 2 presents the regulatory capital ratios of BTCo at December 31, 2001 and 2000 and the well-capitalized guidelines. Table 2 BTCo Regulatory Capital Ratios Well December 31, December 31, Capitalized 2001 2000 Guidelines - ------------------------------------------------------------------------------- Risk-Based Ratios Tier 1 Capital 27.1% 24.0% 6.0% Total Capital 29.5% 26.5% 10.0% Leverage Ratio 14.8% 16.0% 5.0% =============================================================================== The following were the essential components used in calculating BTCo's risk-based capital ratios: (in millions) December 31, 2001 2000 - -------------------------------------------------------------------------------- Tier 1 Capital $ 6,252 $ 6,161 Tier 2 Capital 556 651 - -------------------------------------------------------------------------------- Total Capital $ 6,808 $ 6,812 - -------------------------------------------------------------------------------- Total Risk-Weighted Assets $ 23,096 $ 25,683 ================================================================================ Risk Management Market Risk 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 trading and client activities. One summary measure of market risk is Value at Risk ("VaR"). The VaR is a risk measure for the potential loss for the Corporation's trading portfolio value in fair value for a 99 percent confidence interval if that portfolio were held unchanged for one day. The Corporation's VaR is calculated using proprietary simulation and risk modeling techniques. Tables 3 and 4 provide information on the Value at Risk associated with the Corporation's market risk positions that are reported as trading assets and liabilities. Data presented for 2001 are not comparable to those presented for 2000 due to the significant business and net financial asset transfers to Deutsche Bank entities. Tables 3 and 4 show that the Corporation's trading account market risk as measured by VaR declined in 2001 on an average and spot basis by 70 percent and 56 percent, respectively. These reductions reflect the continuing effects of integrating the Corporation into the Deutsche Bank Group. The significant reduction in average equity risk is primarily related to private equity investments held by BTH which were transferred to DBUSH effective September 29, 2000. As a result of this transfer and other factors, the market risk in the non-trading portfolios is immaterial at December 31, 2001. The primary trading account market risks remaining at December 31, 2001 are interest rate risk and equity risk. The interest rate risk stems primarily from the loan trading, loan syndication and loan securitization businesses. The equity risk is primarily from high yield distressed debt positions. Table 3 Trading Intention Value at Risk Statistics for 2001 (in millions) Average Minimum Maximum December 31, Risk Class 2001 2001 2001 2001 - ------------------------------------------------------------------------------- Interest Rate $ 1.3 $ 0.5 $ 5.5 $ 0.7 Currency 0.0 0.0 0.2 0.2 Equity 1.3 0.7 2.5 2.3 Diversification (0.6) -- -- (0.8) - ------------------------------------------------------------------------------- Overall Portfolio $ 2.0 $ * $ * $ 2.4 =============================================================================== * The minimum (maximum) for each risk category occurred on different days so it is not meaningful to sum the risk class amounts presented above. For example, during 2001 the overall portfolio minimum VaR was $1.3 million and the maximum VaR was $5.6 million. Bankers Trust Corporation and its Subsidiaries 7 Table 4 Trading Intention Value at Risk Statistics for 2000 (in millions) - ------------------------------------------------------------------------------- Average Minimum Maximum December 31, Risk Class 2000 2000 2000 2000 - ------------------------------------------------------------------------------- Interest Rate $ 3.9 $ 1.9 $ 6.1 $ 5.3 Currency 1.1 0.2 3.1 0.2 Equity 4.4 0.7 23.6 0.8 Diversification (2.8) -- -- (0.9) - ------------------------------------------------------------------------------- Overall Portfolio $ 6.6 $ * $ * $ 5.4 =============================================================================== * The minimum (maximum) for each risk category occurred on different days so it is not meaningful to sum the risk class amounts presented above. Credit Risk Management In conformity with Deutsche Bank policies, the Credit Risk Management Department, headed by the Chief Credit Officer, is responsible for developing credit policies, as well as for monitoring and managing overall credit risk. The department evaluates the creditworthiness of each borrower/issuer/counterparty and assigns a rating for each. Credit limits are established at the portfolio level by borrower/issuer/counterparty and by other categories. A credit officer is responsible for reviewing the entire credit risk portfolio of a borrower/issuer/counterparty regardless of the nature of the exposure (e.g., loans, securities, and derivatives). Credit officers also monitor the usage of credit risk by entity versus the limits at the product and business activity level. The Credit Risk Management Department monitors country exposures and industry, borrower/issuer/counterparty, product and regional risk concentrations in order to evaluate the degree of diversification in the portfolio. Derivatives Derivatives are swaps, futures, forwards, options and other similar types of contracts based on interest rates, foreign exchange rates and the prices of equities and commodities (or related indices). Derivatives are generally either privately-negotiated over-the-counter ("OTC") contracts or standard contracts transacted through regulated exchanges. OTC contracts generally consist of swaps, forwards and options. In the normal course of business, with the agreement of the original customer, OTC derivatives may be terminated or assigned to another customer. Exchange-traded derivatives include futures and options. Derivatives may be used for either trading or non-trading purposes. Trading Derivatives The Corporation holds derivatives in connection with its activities as a dealer acting as principal for particular transactions with clients, as a market maker quoting bid and offer prices to provide liquidity and regular availability of derivatives for clients and as a risk manager of its own trading positions resulting from these client-driven transactions. The risks of derivative positions are managed in accordance with Deutsche Bank's risk management policies. Gains and losses from trading derivatives are included in trading revenue as they occur. Contracts with positive fair values are recorded as assets and contracts with negative fair values are recorded as liabilities, after application of qualifying master netting agreements. These positions may vary in size from period to period, similar to the positions in cash instruments also carried in the Corporation's trading account. Average trading assets and trading liabilities related to derivatives during 2001 were $1.9 billion and $1.2 billion, respectively. Non-Trading Derivatives The Corporation utilizes non-trading derivatives to manage exposures to interest rate and foreign currency risks associated with certain liabilities such as interest-bearing deposits, short-term borrowings and long-term debt. For example, the majority of the Corporation's non-trading derivatives involve certain instruments (principally interest rate and currency swaps) used to transform fixed-rate-paying liabilities into variable-rate-paying liabilities. Market Risk The market risk of derivatives arises principally from the potential for changes in interest rates, foreign exchange rates, and equity and commodity prices and is generally similar to the market risk of the cash instruments underlying the contracts. The market risk to the Corporation is not measured by the price sensitivity of the individual contracts, but by the net price sensitivity of the relevant portfolio, including cash instruments. Exposures are generally managed by taking risk-offsetting positions. Therefore, the Corporation believes it is not meaningful to view the market risk of derivatives in isolation. Market exposures arising from derivatives are monitored and are included in the Trading Intention Value at Risk amounts discussed in the preceding Risk Management section. Liquidity Risk In times of stress, sharp price movements or volatility shocks may reduce liquidity in certain derivatives positions, as well as in cash instruments. The liquidity risk of derivatives is substantially based on the liquidity of the underlying cash instrument, which affects the ability of the Corporation to alter the risk profile of its positions rapidly and at a reasonable cost. The Corporation's mark-to-market practices for derivatives include adjustments in consideration of liquidity risks, when appropriate. These practices are consistent with those applied to the Corporation's trading positions in cash instruments. Derivatives-Related Credit Risk Derivative transactions create dynamic credit exposure which changes as markets move. The credit risk of derivatives arises from the potential for a customer to default on its contractual obligations. Accordingly, credit risk related to derivatives depends on the following: the current 8 Bankers Trust Corporation and its Subsidiaries fair value of the contracts with the customer; the potential credit exposure over time; the extent to which legally enforceable netting arrangements allow the fair value of offsetting contracts with that customer to be netted against each other; the extent to which collateral held against the contracts reduces credit risk exposure; and the likelihood of default by the customer. The Corporation monitors and manages the credit risk associated with derivatives by applying a uniform credit process for all credit exposures. The credit risk of derivatives is included in Deutsche Bank's credit risk management systems. In order to reduce derivatives-related credit risk, the Corporation enters into master netting agreements that provide for offsetting of all contracts under each such agreement and obtains collateral where appropriate. Such master netting agreements contemplate payment netting as well as the net settlement of all covered contracts through a single payment in a single currency with the same counterparty in the event that a default (including insolvency) under the agreement occurs. Credit risk exposure is monitored on a gross and a net basis and on a collateralized and an uncollateralized basis, as appropriate. Current credit risk is calculated based on the current replacement cost of outstanding positions with customers in OTC derivative financial instruments. The gross replacement cost of a derivative portfolio with a customer is the positive mark-to-market value of all transactions with that customer without the effects of netting or collateral arrangements. The replacement costs, after netting, of $2.3 billion more accurately portray the credit risk associated with the Corporation's derivatives activities at December 31, 2001 than do the gross replacement costs. The Corporation applies netting based upon the criteria prescribed by Financial Accounting Standards Board ("FASB") Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts," ("FIN 39") which provides that offsetting is appropriate where the available evidence indicates that there are reasonable assurances that the right of setoff contained in a master netting agreement governing derivatives contracts would be upheld after default, including in the event of the customer's bankruptcy. Collateral also reduces credit risk. The Corporation generally accepts collateral in the form of cash, U.S. Treasuries, and other approved securities (generally, only liquid, marketable, publicly-traded securities are acceptable). The international bank regulatory standards for risk-based capital consider the credit risk arising from derivatives in the assessment of capital adequacy. These standards were issued under the Basle Capital Accord of July 1988 and adopted in 1989 by the U.S. bank regulators, including the Federal Reserve Board. These standards use a formula-based assessment of customer credit risk which, as amended at year-end 1995, reflect the credit-risk-reducing impact of legally enforceable master netting agreements. These standards include a calculation for estimating the potential future credit exposure caused by potential price volatility (the "add-on"). At December 31, 2001, the risk-weighted amounts (reflecting both current and potential future credit exposure) that were calculated based on these international standards for derivative financial instruments aggregated to $1.468 billion after application of risk weightings. Off-balance Sheet Arrangements with Unconsolidated Special Purpose Entities Special purpose entities ("SPEs") are legal entities created for a particular purpose and are used in structuring a wide range of capital markets products. The Corporation currently does not have any commitments arising from off-balance sheet arrangements with unconsolidated SPEs. Most of the SPEs in which the Corporation is involved are consolidated. From time to time, the Corporation may act as an investor, servicer or administrator in SPE transactions. The effects of these transactions are fully reflected in the Corporation's consolidated financial statements. Contractual Financial Obligations and Commercial Commitments The following table shows the maturity breakdown of the indicated financial obligations outstanding at December 31, 2001:
Due in - ------------------------------------------------------------------------------------------------------------------ 2007 (in millions) 2002 2003 2004 2005 2006 or later Total - ------------------------------------------------------------------------------------------------------------------ Long-term debt(1) $ 6,064 $ 793 $ 51 $ 468 $ 180 $ 1,931 $ 9,487 Operating lease obligations 45 45 47 35 34 121 327 - ------------------------------------------------------------------------------------------------------------------ Total $ 6,109 $ 838 $ 98 $ 503 $ 214 $ 2,052 $ 9,814 ==================================================================================================================
(1) Excludes $1.3 billion of trust preferred securities. The following table shows the maturity breakdown of the indicated commercial commitments outstanding at December 31, 2001:
Due in - ------------------------------------------------------------------------------------------------------------------ 2007 (in millions) 2002 2003 2004 2005 2006 or later Total - ------------------------------------------------------------------------------------------------------------------ Commitments to extend credit $ 7,681 $ 1,307 $ 1,157 $ 1,074 $ 743 $ 590 $ 12,552 Standby letters of credit and similar arrangements(1) 3,387 1,211 27 41 100 16 4,782 Securities lending indemnifications 37,197 -- -- -- -- -- 37,197 - ------------------------------------------------------------------------------------------------------------------ Total $ 48,265 $ 2,518 $ 1,184 $ 1,115 $ 843 $ 606 $ 54,531 ==================================================================================================================
(1) Consists of issued letters of credit ($2.6 billion) and guarantees ($2.2 billion). Bankers Trust Corporation and its Subsidiaries 9 The significant obligations in the above tables of contractual financial obligations and commercial commitments are included in our overall assessment of liquidity risk. Allowance for Credit Losses--Loans Overview The Corporation's loan portfolio primarily consists of commercial lending transactions to a diverse customer and geographic base. As such, the Corporation's commercial loans tend to be individually large in size and are non-homogeneous. As part of the Corporation's overall management and control process, the Asset Quality Review Department is responsible for performing an ongoing independent examination of the loan portfolio. The review program is designed to identify, at the earliest possible stage, counterparties who might be facing financial difficulties. All significant counterparty relationships are reviewed on a periodic basis, meaning that individual loans to a particular counterparty are grouped together in evaluating the credit risk to such counterparty. Loans under special supervision, such as cash basis and renegotiated loans, as well as loans criticized by the Asset Quality Review Department under regulatory guidelines (i.e., those loans classified as Special Mention, Substandard and Doubtful) are also reviewed on a periodic basis. In addition, all levels of management are required to bring to the attention of the Asset Quality Review Department any credit risk where an additional review of the counterparty's financial position is believed to be warranted. The Asset Quality Review Department reports at least quarterly on the portfolio to the Audit and Fiduciary Committee of the Board of Directors. In addition to the above procedures, Federal Reserve and State of New York bank examiners (the "Bank regulatory authorities") perform periodic examinations of the Corporation's credit risks, including the loan portfolio. The reports on these examinations are also reviewed by the Asset Quality Review Department with the Audit and Fiduciary Committee of the Board of Directors. Credit Loss Experience and Allowance for Loan Losses The Corporation establishes an allowance for loan losses that represents management's estimate of probable losses in the loan portfolio. The components of the allowance are: Specific Loss Component--Allowances are established for those exposures that are considered impaired, that is, where it has been determined that it is probable the Corporation will be unable to collect all interest and principal due under the loan agreement. The amount, if any, of the specific allowance that should be made, takes into account the present value of expected future cash flows, the fair value of the underlying collateral or the market price of the loan. As large a proportion as possible of the Corporation's exposures are evaluated on an individual basis, which results in the largest portion of the Corporation's allowance being accounted for by the specific loss component. Periodically, all credit exposures which have already been specifically provided for are re-evaluated, as well as all credit exposures that appear on the Corporation's watchlist. Inherent Loss Component--The inherent loss component is for all other loans not individually provided for, but which are believed to have some inherent loss on a portfolio basis. The inherent loss component includes an allowance for country risk and an allowance for other inherent losses. Country risk allowances are established for loan exposures in countries where there are serious doubts about the ability of the Corporation's counterparties to comply with the repayment terms due to the economic or political situation prevailing in the respective countries of domicile, that is, for transfer and currency convertibility risk. The percentage rates for the country risk allowance are determined by Deutsche Bank on the basis of a comprehensive matrix that encompasses both historical loss experience and market data, such as economic, political and other relevant factors affecting a country's financial condition. The Corporation's primary focus in making its decision is on the Country Transfer Risk Rating assigned the country and the amount and type of collateral available. The other inherent loss allowance represents the Corporation's estimate of inherent losses resulting from the imprecisions and uncertainties in determining credit losses. This estimate of inherent losses excludes those exposures already included in the specific loan loss provisioning. This component is calculated by applying loss factors to the corresponding period-end loan categories. The loss factors are derived as a ratio of historical average loan losses (net of recoveries) to an historical average of its loan exposures, the result of which is adjusted for relevant current environmental factors. The Corporation believes that this component of the allowance is necessary to establish an allowance at a level sufficient to absorb probable losses not otherwise provided for. Charge-offs are taken when the Corporation has determined that the loans underlying the allowances are uncollectable. Determining when a loan is uncollectable is a question of judgment. Generally, a loan is charged off when all economically sensible means of recovery have been exhausted. This determination considers information such as the occurrence of significant changes in the borrower's financial position such that the borrower can no longer pay the obligation, or that the proceeds from collateral will not be sufficient to pay the loan. Bank regulatory authorities also assess and issue reports on the quality of the portfolio and on the adequacy of the allowance and related provision activity. Further, as part of their annual audit, the Corporation's independent auditors review the process surrounding the determination of the allowance for credit losses--loans and the level thereof. Their procedures include discussions with management, a review of selected credit files and an evaluation of the periodic reports issued by the Asset Quality Review Department and regulatory examiners. In the opinion of management, the allowance for credit losses--loans is fairly stated in accordance with generally accepted accounting principles. 10 Bankers Trust Corporation and its Subsidiaries The tables below provide the components of the allowance for credit losses--loans by category. This breakdown of the allowance at each year-end reflects management's best estimate of probable credit losses and may not necessarily be indicative of actual future charge-offs. (in millions) December 31, 2001* 2000* 1999* - ------------------------------------------------------------------------------- Domestic Specific Commercial and industrial $383 $320 $200 Financial institutions 12 11 -- Real estate and real-estate related 7 6 12 - ------------------------------------------------------------------------------- Total specific 402 337 212 Inherent loss 71 69 127 - ------------------------------------------------------------------------------- Total domestic 473 406 339 International Specific 51 7 56 Inherent loss 15 11 96 - ------------------------------------------------------------------------------- Total international 66 18 152 Total allowance for credit losses--loans $539 $424 $491 =============================================================================== * Not comparable to prior years. In 1999, the Corporation's policies and procedures were revised and improved to ensure a systematic and adequately documented process for the estimation of credit losses and related charge-offs. Also, during 1999, the population of loans that were individually evaluated for impairment under the SFAS 114 methodology was significantly broadened to include all loans rated Substandard and Doubtful in the Corporation's internal class system. (in millions) December 31, 1998 1997 - -------------------------------------------------------------------------------- Domestic Commercial and industrial $162 $117 Financial institutions 20 38 Real estate and real-estate related 84 89 - -------------------------------------------------------------------------------- Total domestic 266 244 International 380 391 - -------------------------------------------------------------------------------- Total allocated* 646 635 Unallocated portion 6 64 - -------------------------------------------------------------------------------- Total allowance for credit losses--loans $652 $699 ================================================================================ * The specific allowance component was $61 million and $13 million at December 31, 1998 and 1997, respectively. The inherent loss component was $585 million and $622 million at December 31, 1998 and 1997, respectively. The allowance for credit losses--loans increased to $539 million at December 31, 2001, from $424 million at year-end 2000 and $491 million at December 31, 1999. The 2001 increase of $115 million was primarily due to a provision for credit losses--loans of $296 million offset by net charge-offs of $158 million. The decrease of $67 million in 2000 from 1999 was primarily due to net charge-offs of $42 million and a negative provision for credit losses--loans of $19 million. The following table presents an analysis of the changes in the international component of the allowance for credit losses--loans:
(in millions) Year Ended December 31, 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------- Balance, beginning of year $18 $152 $380 $391 $212 - --------------------------------------------------------------------------------------- Net charge-offs Charge-offs -- 51 63 83 46 Recoveries -- 3 12 6 7 - --------------------------------------------------------------------------------------- Total net charge-offs to the allowance -- 48 51 77 39 Allowance related to acquisition -- -- -- -- 17 Provision and increases (decreases) in the international portion of allowance 48 (86) (138) 66 258 Allowance related to BTAL and transferred entities(1) -- -- (39) -- -- Reclassifications -- -- -- -- (57) - --------------------------------------------------------------------------------------- Balance, end of year $66 $18 $152 $380 $391 =======================================================================================
(1) Reflects the allowance for credit losses--loans of certain legal entities transferred to Deutsche Bank on the date of transfer and the allowance for credit losses--loans of BTAL on the date of sale. Bankers Trust Corporation and its Subsidiaries 11 Table 5 Analysis of the Allowances for Credit Losses
- ----------------------------------------------------------------------------------------------------------------- ($ in millions) Year Ended December 31, 2001 2000 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------- Loans Allowance, beginning of year $ 424 $ 491 $ 652 $ 699 $ 773 - ----------------------------------------------------------------------------------------------------------------- Charge-offs Domestic Commercial and industrial 153 2 28 24 19 Real estate Construction -- -- -- -- 11 Mortgage 7 1 -- -- 2 International -- 51 63 83 46 - ----------------------------------------------------------------------------------------------------------------- Total charge-offs 160 54 91 107 78 - ----------------------------------------------------------------------------------------------------------------- Recoveries Domestic Commercial and industrial 2 1 13 5 23 Real estate Construction -- -- -- 1 1 Mortgage -- -- 2 8 13 Other -- 8 -- -- -- International -- 3 12 6 7 - ----------------------------------------------------------------------------------------------------------------- Total recoveries 2 12 27 20 44 - ----------------------------------------------------------------------------------------------------------------- Total net charge-offs(1) 158 42 64 87 34 Allowance related to acquisition -- -- -- -- 17 Provision for credit losses 296 (19) (58) 40 -- Allowance related to entities transferred/sold(2) (23) (6) (39) -- -- Reclassification -- -- -- -- (57) - ----------------------------------------------------------------------------------------------------------------- Allowance, end of year $ 539 $ 424 $ 491 $ 652 $ 699 ================================================================================================================= Percentage of total net charge-offs to average loans for the year 0.71% 0.19% 0.30% 0.39% 0.19% ================================================================================================================= Other liabilities Allowance, beginning of year $ 22 $ 24 $ 18 $ 13 $ 10 Charge-off 1 -- -- -- -- Provision for credit losses (6) (2) 6 5 -- Reclassification -- -- -- -- 3 - ----------------------------------------------------------------------------------------------------------------- Allowance, end of year $ 15 $ 22 $ 24 $ 18 $ 13 ================================================================================================================= (1) Components: Secured by real estate $ 7 $ -- $ (8) $ (13) $ 5 Real estate related -- -- (4) 8 (2) Other 151 42 76 92 31 - ----------------------------------------------------------------------------------------------------------------- Total $ 158 $ 42 $ 64 $ 87 $ 34 =================================================================================================================
(2) Reflects the allowance for credit losses--loans of certain legal entities transferred to Deutsche Bank on the date of transfer and the allowance for credit losses--loans of entities sold on the date of sale. 12 Bankers Trust Corporation and its Subsidiaries Loans The following table summarizes the composition of the loan portfolio at the end of each of the last five years: (in millions) December 31, 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------- Domestic Commercial and industrial $ 6,880 $ 8,370 $ 8,125 $ 6,448 $ 4,244 Financial institutions 10,869 1,779 2,788 2,441 2,148 Real estate 1,000 1,233 1,471 1,449 2,196 Other 3,316 8,621 4,028 3,558 1,427 - -------------------------------------------------------------------------------- Total domestic 22,065 20,003 16,412 13,896 10,015 - -------------------------------------------------------------------------------- International Governments and official institutions 14 24 120 190 252 Banks and other financial institutions 916 1,746 690 3,599 3,175 Commercial and industrial 607 544 1,765 3,931 4,931 Real estate 4 2 31 166 195 Other 152 305 1,167 1,813 1,402 - -------------------------------------------------------------------------------- Total international 1,693 2,621 3,773 9,699 9,955 - -------------------------------------------------------------------------------- Gross loans 23,758 22,624 20,185 23,595 19,970 Less: unearned income 144 184 223 310 165 - -------------------------------------------------------------------------------- Total loans $23,614 $22,440 $19,962 $23,285 $19,805 ================================================================================ Total loans increased to $23.6 billion at December 31, 2001 up from $22.4 billion at year-end 2000. The 2001 increase of $1.2 billion primarily related to the domestic loan portfolio which increased $2.1 billion, or 10 percent, to $22.1 billion at December 31, 2001, offset by a decrease in the international component of the loan portfolio. This domestic increase is primarily due to an increase in loans to related parties. The decline in the international loan portfolio during 2001 and 2000 reflects the de-emphasizing of lending in certain emerging markets and the consolidation of business conducted by both Deutsche Bank and Bankers Trust into Deutsche Bank legal entities. During 2000, the loan portfolio increased to $22.4 billion at December 31, 2000 up from $20.0 billion at year-end 1999. The 2000 increase of $2.4 billion primarily related to the domestic loan portfolio that increased $3.6 billion, or 22 percent, to $20.0 billion at December 31, 2000, offset by a decrease in the international component of the loan portfolio. This domestic increase is primarily due to related party loans to BTH. Bankers Trust Corporation and its Subsidiaries 13 Nonperforming Assets Table 6 Nonperforming Assets
- -------------------------------------------------------------------------------------------------------- ($ in millions) December 31, 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------------------------------- Cash basis loans Domestic Commercial and industrial $1,408 $766 $495 $ 91 $ 49 Secured by real estate 27 28 67 86 92 Financial institutions 17 20 11 15 -- - -------------------------------------------------------------------------------------------------------- Total domestic 1,452 814 573 192 141 - -------------------------------------------------------------------------------------------------------- International Commercial and industrial 132 10 132 135 65 Secured by real estate -- 1 10 18 25 Foreign governments -- -- -- 23 -- Other -- 15 22 24 9 - -------------------------------------------------------------------------------------------------------- Total international 132 26 164 200 99 - -------------------------------------------------------------------------------------------------------- Total cash basis loans $1,584 $840 $737 $392 $240 ======================================================================================================== Ratio of cash basis loans to total gross loans 6.7% 3.7% 3.7% 1.7% 1.2% ======================================================================================================== Ratio of allowance for credit losses--loans to cash basis loans 34% 50% 67% 166% 291% ======================================================================================================== Renegotiated loans Secured by real estate $ -- $ -- $ -- $ 25 $ 25 Other -- -- 11 1 -- - -------------------------------------------------------------------------------------------------------- Total renegotiated loans $ -- $ -- $ 11 $ 26 $ 25 ======================================================================================================== Other real estate $ 99 $109 $ 88 $ 87 $194 ======================================================================================================== Other nonperforming assets $ -- $ -- $ 8 $ 8 $ 4 ========================================================================================================
All loans 90 days or more past due with respect to interest or principal are reclassified as cash basis loans for all years presented. The Corporation's credit review procedures are designed to promote early identification of counterparty, country, and industry exposures that require a higher-than normal degree of scrutiny. Each quarter a review is performed by the Asset Quality Review Department and senior credit management of cash basis loans and criticized assets (i.e., those assets internally classified as Special Mention, Substandard and Doubtful). Individual borrower balances are evaluated and a charge-off of amounts deemed uncollectible is recommended. Factors considered in this evaluation include the credit quality of the counterparties, the amount and duration of the exposure, collateral values, the Corporation's ability to reduce exposure in situations of deteriorating creditworthiness and loss probabilities. Once a charge-off is taken, the remaining portion, if any, is immediately placed on a cash basis. If the collection or liquidation in full is questionable, the asset is classified as doubtful and placed on a cash basis. In addition, it is generally the Corporation's policy that loans be immediately placed on a cash basis when they become 90 days past due with respect to interest or principal. The Corporation's total cash basis loans amounted to $1,584 million at December 31, 2001, an increase of $744 million, or 89 percent, from 2000, which had increased $103 million, or 14 percent, from 1999. The 2001 increase was significantly impacted by a rise in domestic commercial and industrial loans. New cash basis loans included borrowers in the marketing, telecommunications, and energy sectors. Cash basis loans increased $744 million during 2001, primarily due to impaired loans that were transferred to cash basis. The specific allowance related to impaired loans amounted to $453 million at December 31, 2001, an increase of $109 million from 2000 which had increased $76 million from 1999. 14 Bankers Trust Corporation and its Subsidiaries An analysis of the changes in the Corporation's total cash basis loans follows: (in millions)
Year Ended December 31, 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------- Balance, beginning of year $ 840 $ 737 $ 392 $ 240 $ 452 Net transfers to cash basis loans 1,201 411 622 365 111 Net paydowns (165) (142) (91) (64) (146) Charge-offs (160) (54) (91) (107) (78) Net transfers to other real estate (11) (27) (13) (2) (16) Loan sales (38) (4) (19) (24) (47) Transfers out of Bankers Trust Corporation* (37) (46) (15) -- -- Other (46) (35) (48) (16) (36) - -------------------------------------------------------------------------------- Balance, end of year $ 1,584 $ 840 $ 737 $ 392 $ 240 ================================================================================
* Reflects the cash basis loans of certain legal entities transferred to Deutsche Bank or sold. Cross-Border Outstandings The cross-border claims outstandings in Table 7 were compiled based upon category and domicile of ultimate risk and are comprised of balances with banks, trading account assets (including net revaluation gains on foreign exchange and derivative products), securities available for sale, securities purchased under resale agreements, loans, accrued interest receivable and acceptances outstanding. The Corporation's cross-border outstandings reflect certain additional economic and political risks beyond those associated with its domestic outstandings, such as risks arising from funds transfer restrictions and balance-of-payments issues, as well as risks arising from operating in different legal and regulatory jurisdictions. The following table presents the Corporation's cross-border outstandings at December 31, 2001, 2000 and 1999 for each foreign country where such outstandings exceeded 0.75 percent of the Corporation's total assets. The outstanding balances are presented in accordance with the reporting guidelines adopted by the Federal Financial Institutions Examination Council (FFIEC). Table 7 Cross-Border Outstandings
- ----------------------------------------------------------------------------------------------------------------- Governments Banks and % of and Other Commercial Total Total Official Financial and ($ in millions) Outstandings Assets Institutions Institutions Industrial Other - ----------------------------------------------------------------------------------------------------------------- At December 31, 2001 Germany $ 5,192 8.63% $ -- $ 5,192 $ -- $ -- United Kingdom 661 1.10 -- 290 354 17 All other cross-border outstandings 13,905 23.13 260 1,195 12,384 66 - ----------------------------------------------------------------------------------------------------------------- Total cross-border outstandings $ 19,758 32.86% $ 260 $ 6,677 $ 12,738 $ 83 ================================================================================================================= At December 31, 2000 Germany $ 15,750 25.09% $ 101 $ 15,169 $ 480 $ -- United Kingdom 1,210 1.93 -- 519 691 -- All other cross-border outstandings 3,402 5.42 44 1,445 1,896 17 - ----------------------------------------------------------------------------------------------------------------- Total cross-border outstandings $ 20,362 32.44% $ 145 $ 17,133 $ 3,067 $ 17 ================================================================================================================= At December 31, 1999 Germany $ 4,993 7.32% $ 1 $ 4,471 $ 521 $ -- International(1) 516 0.76 516 -- -- -- Cayman Islands 315 0.46 -- 271 44 -- All other cross-border outstandings 4,067 5.97 128 1,885 1,976 78 - ----------------------------------------------------------------------------------------------------------------- Total cross-border outstandings $ 9,891 14.51% $ 645 $ 6,627 $ 2,541 $ 78 =================================================================================================================
(1) The Corporation's cross-border outstandings with International primarily consisted of revaluation gains from the marking to market of interest rate and foreign exchange contracts held for trading purposes with multilateral development banks. Bankers Trust Corporation and its Subsidiaries 15 Governments and official institutions comprise foreign governments and their agencies; state, provincial and local governments and their agencies; and central banks. Banks and other financial institutions are comprised of commercial and savings banks and other similar institutions accepting short-term deposits, including government-owned banks which do not function as central banks, and nonbank credit and financial companies. The amounts outstanding for each country listed in Table 7 exclude local country claims. Local country claims, as defined by the FFIEC's reporting guidelines, include claims on residents of the same country in which the booking office is domiciled. Such claims are generally funded with borrowings that represent liabilities of that office or are hedged with foreign exchange and derivative products. At December 31, 2001, total cross-border commitments to borrowers or counterparties domiciled in the countries presented in Table 7 were: Germany $34 million and United Kingdom $1 million. There were no cash basis loans outstanding for the countries presented in Table 7 as of December 31, 2001, 2000 and 1999. There were no cross-border renegotiated loans for the years ended December 31, 2001, 2000 and 1999. Accounting Developments In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-lived Assets." This statement is effective for fiscal years beginning after December 15, 2001. SFAS 144 includes a requirement that all long-lived assets to be disposed of and discontinued operations are to be measured at the lower of carrying amount or fair value less cost to sell. The adoption of SFAS 144 did not have a material impact on the Corporation's consolidated financial statements. In July 2001, the FASB issued SFAS 141, "Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets." SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for by the purchase method and eliminates the use of the pooling-of-interests method. This requirement will have no impact on the Corporation since, as a subsidiary, it could not meet the requirements for the pooling-of-interests method. Other provisions of SFAS 141 and SFAS 142 require that, as of January 1, 2002, goodwill no longer be amortized, reclassifications between goodwill and other intangible assets be made based upon certain criteria, and that tests for impairment of goodwill be performed on an ongoing basis. Upon adoption of SFAS 142 in January 2002, the Corporation discontinued the amortization of goodwill with a net carrying amount of $64 million and annual amortization of $6 million that resulted from business combinations prior to the adoption of SFAS 141. The Corporation continues to evaluate the additional effects, if any, that the adoption of SFAS 141 and SFAS 142 will have on the Corporation's consolidated financial statements. 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"). SFAS 140 carries forward most of the provisions of SFAS 125. It includes provisions for additional disclosure requirements, which were effective for fiscal years ending after December 15, 2000, as well as new criteria to be applied prospectively, effective for the quarter commencing April 1, 2001, for nonconsolidation of qualifying special purpose entities. The adoption of SFAS 140 for financial assets transferred after March 31, 2001 does not impact previously reported transactions and did not have a material impact on the Corporation's net income, stockholder's equity or total assets in subsequent reporting periods in 2001. Effective January 1, 2001, the Corporation adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133, as further amended by SFAS 138, established 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. The transition adjustment related to SFAS 133 on January 1, 2001 resulted in an increase in net income of $8 million (net of tax of $5 million). This amount was due to the adjustment required to bring certain hedging derivatives to fair value at January 1, 2001, offset by the adjustment required to bring the related hedged items to fair value, pursuant to the SFAS 133 transition provisions for past hedging relationships characterized as fair value type hedges. 16 Bankers Trust Corporation and its Subsidiaries Consolidated Statement of Income (in millions, except per share data)
- ------------------------------------------------------------------------------------------------------- Year Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------------------------------- Net Interest Revenue Interest revenue $2,517 $ 3,635 $ 4,419 Interest expense 1,912 2,988 3,612 - ------------------------------------------------------------------------------------------------------- Net Interest Revenue 605 647 807 Provision for credit losses--loans 296 (19) (58) - ------------------------------------------------------------------------------------------------------- Net Interest Revenue after Provision for Credit Losses--Loans 309 666 865 - ------------------------------------------------------------------------------------------------------- Noninterest Revenue Trading 45 136 42 Fiduciary and funds management 644 798 1,017 Corporate finance fees 93 142 542 Other fees and commissions 253 306 538 Securities available for sale gains (losses) -- 45 (89) Insurance premiums -- -- 86 Other 676 759 1,364 - ------------------------------------------------------------------------------------------------------- Total noninterest revenue 1,711 2,186 3,500 - ------------------------------------------------------------------------------------------------------- Noninterest Expenses Salaries and commissions 434 459 1,039 Incentive compensation and employee benefits 307 415 1,088 Change in control related incentive compensation and employee benefits -- -- 1,101 Agency and other professional service fees 201 220 430 Communication and data services 60 84 206 Occupancy, net 106 106 198 Furniture and equipment 131 136 221 Travel and entertainment 33 45 114 Provision for policyholder benefits -- -- 114 Other 380 525 753 Restructuring and other related activities 35 (38) 516 - ------------------------------------------------------------------------------------------------------- Total noninterest expenses 1,687 1,952 5,780 - ------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 333 900 (1,415) Income taxes 58 388 188 - ------------------------------------------------------------------------------------------------------- Net Income (Loss) $ 275 $ 512 $(1,603) - ------------------------------------------------------------------------------------------------------- Cash dividends declared per common share $ * $ * $ 1.00* =======================================================================================================
* There were no cash dividends declared subsequent to June 4, 1999 due to Deutsche Bank AG acquiring all of the outstanding shares of common stock of Bankers Trust Corporation on June 4, 1999. The accompanying notes are an integral part of the financial statements. Bankers Trust Corporation and its Subsidiaries 17 Consolidated Statement of Comprehensive Income (in millions)
- ---------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2001 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Net Income (Loss) $ 275 $ 512 $(1,603) - ---------------------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss), net of tax: Foreign currency translation adjustments: Unrealized foreign currency translation losses arising during the year, net of tax(a) (49) (94) (17) Reclassification adjustment for realized foreign currency translation losses, net of tax(b) 10 24 369 Unrealized gains (losses) on securities available for sale: Unrealized holding gains (losses) arising during the year, net of tax(c) 4 10 (1) Reclassification adjustment for realized (gains) losses, net of tax(d) -- (26) 82 - ---------------------------------------------------------------------------------------------------------------------------- Total other comprehensive income (loss) (35) (86) 433 - ---------------------------------------------------------------------------------------------------------------------------- Comprehensive Income (Loss) $ 240 $ 426 $(1,170) ============================================================================================================================
(a) Amounts are net of income tax benefits of $33 million, $53 million and $13 million for the years ended December 31, 2001, 2000 and 1999, respectively. (b) Realized foreign currency translation losses result from the transfer of certain foreign subsidiaries to Deutsche Bank in 2001, 2000 and 1999 and the sale of BTAL in 1999. Amounts are net of income tax benefits of $19 million, $9 million and $54 million for the years ended December 31, 2001, 2000 and 1999, respectively. (c) Amounts are net of income tax expense of $2 million, $17 million and $21 million for the years ended December 31, 2001, 2000 and 1999, respectively. (d) Amounts are net of income tax expense (benefit) of $19 million and $(7) million for the years ended December 31, 2000 and 1999, respectively. The accompanying notes are an integral part of the financial statements. 18 Bankers Trust Corporation and its Subsidiaries Consolidated Balance Sheet ($ in millions, except par value)
- --------------------------------------------------------------------------------------------- December 31, 2001 2000 - --------------------------------------------------------------------------------------------- Assets Cash and due from banks $ 1,110 $ 1,921 Interest-bearing deposits with banks 4,667 8,905 Federal funds sold 2 -- Securities purchased under resale agreements 8,752 8,310 Trading assets: Government securities 112 135 Corporate debt securities 231 556 Equity securities 9,832 9,255 Swaps, options and other derivatives 2,288 1,995 Other trading assets 1,055 1,449 - --------------------------------------------------------------------------------------------- Total trading assets 13,518 13,390 Securities available for sale 256 252 Loans, net 23,075 22,016 Customer receivables 183 308 Due from customers on acceptances 81 254 Accounts receivable and accrued interest 1,174 2,954 Other assets 7,315 4,453 - --------------------------------------------------------------------------------------------- Total $ 60,133 $ 62,763 ============================================================================================= Liabilities Noninterest-bearing deposits Domestic offices $ 2,487 $ 3,263 Foreign offices 1,194 968 Interest-bearing deposits Domestic offices 10,350 8,649 Foreign offices 3,195 2,874 - --------------------------------------------------------------------------------------------- Total deposits 17,226 15,754 Trading liabilities: Securities sold, not yet purchased Government securities 47 56 Swaps, options and other derivatives 1,178 1,892 Other trading liabilities 1,125 1,133 - --------------------------------------------------------------------------------------------- Total trading liabilities 2,350 3,081 Securities loaned and securities sold under repurchase agreements 10 109 Other short-term borrowings 19,121 18,498 Acceptances outstanding 81 254 Accounts payable and accrued expenses 1,216 2,603 Other liabilities 4,731 5,432 Long-term debt not included in risk-based capital 8,161 9,270 Long-term debt included in risk-based capital 1,326 2,073 Trust preferred securities 1,289 1,307 - --------------------------------------------------------------------------------------------- Total liabilities 55,511 58,381 ============================================================================================= Commitments and contingent liabilities (Notes 6, 20 and 26) Stockholder's Equity Common stock, $1 par value Authorized: 200 shares; Issued: 1 share -- -- Capital surplus 2,319 2,319 Retained earnings 2,454 2,179 Accumulated other comprehensive income (loss): Net unrealized gains on securities available for sale, net of taxes 4 -- Foreign currency translation, net of taxes (155) (116) - --------------------------------------------------------------------------------------------- Total stockholder's equity 4,622 4,382 Total $ 60,133 $ 62,763 =============================================================================================
The accompanying notes are an integral part of the financial statements. Bankers Trust Corporation and its Subsidiaries 19 Consolidated Statement of Changes in Stockholder's Equity (in millions)
- ----------------------------------------------------------------------------------------- Year Ended December 31, 2001 2000 1999 - ----------------------------------------------------------------------------------------- Preferred Stock Balance, beginning of year $ -- $ 376 $ 394 Preferred stock repurchased -- (12) (18) Preferred stock redeemed -- (364) -- - ----------------------------------------------------------------------------------------- Balance, end of year -- -- 376 - ----------------------------------------------------------------------------------------- Common Stock Balance, beginning of year --* --* 105 Retirement of common stock -- -- (105) - ----------------------------------------------------------------------------------------- Balance, end of year --* --* --* - ----------------------------------------------------------------------------------------- Capital Surplus Balance, beginning of year 2,319 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, end of year 2,319 2,319 2,318 - ----------------------------------------------------------------------------------------- Retained Earnings Balance, beginning of year 2,179 1,686 3,504 Net income (loss) 275 512 (1,603) Cash dividends declared Preferred stock -- (19) (22) Common stock -- -- (98) Treasury stock distributed under employee benefit plans -- -- (95) - ----------------------------------------------------------------------------------------- Balance, end of year 2,454 2,179 1,686 - ----------------------------------------------------------------------------------------- Common Stock in Treasury, at cost Balance, beginning of year -- -- (1,056) Purchases of stock -- -- (71) Treasury stock distributed under employee benefit plans -- -- 322 Capital transactions related to change in control -- -- 805 - ----------------------------------------------------------------------------------------- Balance, end of year -- -- -- - ----------------------------------------------------------------------------------------- Common Stock Issuable -- Stock Awards Balance, beginning of year -- -- 817 Deferred stock awards granted, net -- -- 557 Deferred stock distributed -- -- (216) Capital transactions related to change in control -- -- (1,158) - ----------------------------------------------------------------------------------------- Balance, end of year -- -- -- - ----------------------------------------------------------------------------------------- Deferred Compensation -- Stock Awards Balance, beginning of year -- -- (218) Deferred stock awards granted, net -- -- (556) Amortization of deferred compensation, net -- -- 749 Other -- -- 25 - ----------------------------------------------------------------------------------------- Balance, end of year -- -- -- - ----------------------------------------------------------------------------------------- Cumulative Translation Adjustments Balance, beginning of year (116) (46) (398) Translation adjustments/entity transfers and sales (53) (114) 393 Income taxes 14 44 (41) - ----------------------------------------------------------------------------------------- Balance, end of year (155) (116) (46) - ----------------------------------------------------------------------------------------- Securities Valuation Allowance Balance, beginning of year -- 16 (65) Change in unrealized net gains (losses), after applicable income taxes and minority interest 4 (16) 81 - ----------------------------------------------------------------------------------------- Balance, end of year 4 -- 16 - ----------------------------------------------------------------------------------------- Total stockholder's equity, end of year $ 4,622 $ 4,382 $ 4,350 =========================================================================================
* 1 share, $1 par value. The accompanying notes are an integral part of the financial statements. 20 Bankers Trust Corporation and its Subsidiaries Consolidated Statement of Cash Flows (in millions) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities Net income (loss) $ 275 $ 512 $ (1,603) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision for credit losses--loans 296 (19) (58) Provision for credit losses--other (6) (2) 6 Provision for policyholder benefits -- -- 114 Restructuring and other related activities 35 (38) 516 Deferred income taxes, net 122 (27) (395) Depreciation and other amortization and accretion 48 42 879 Other, net (378) (1) 153 Gain on transfer of BT Holdings (New York), Inc. -- (561) -- Gain on sale of Bankers Trust Australia Limited -- -- (779) - ------------------------------------------------------------------------------------------------------------- Earnings adjusted for noncash charges, credits and other items 392 (94) (1,167) Net change in: Trading assets (414) (1,932) (14,995) Trading liabilities (730) (1,124) 20,602 Receivables and payables from securities transactions (524) 408 875 Customer receivables 124 (2) (1,110) Other operating assets and liabilities, net (2,205) (557) 159 Securities available for sale losses (gains) -- (45) 89 - ------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (3,357) (3,346) 4,453 - ------------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities Net change in: Interest-bearing deposits with banks 4,236 (4,093) (3,764) Federal funds sold (2) 2,472 (39) Securities purchased under resale agreements (442) (1,546) (4,268) Securities borrowed -- -- (8,716) Loans (1,437) 4,756 89 Securities available for sale: Purchases (36) (263) (6,190) Maturities and other redemptions 31 2,250 1,024 Sales and other transfers to affiliates 12 596 8,412 Acquisitions of premises and equipment (140) (165) (102) Other, net 17 19 (501) Proceeds from transfer of legal entities -- 71 3,062 Proceeds from sale of Bankers Trust Australia Limited -- -- 1,313 - ------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 2,239 4,097 (9,680) - ------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities Net change in: Deposits 1,461 (8,064) (6,284) Securities loaned and securities sold under repurchase agreements (99) 53 12,465 Other short-term borrowings 624 5,904 (1,886) Issuances of long-term debt 271 2,692 4,966 Repayments of long-term debt* (1,946) (2,187) (4,791) Redemptions and repurchases of preferred stock -- (375) (18) Purchases of treasury stock -- -- (71) Cash dividends paid -- (19) (216) Capital contribution from parent -- -- 1,400 Other, net (7) (29) 18 - ------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities 304 (2,025) 5,583 - ------------------------------------------------------------------------------------------------------------- Net effect of exchange rate changes on cash 3 (17) 19 - ------------------------------------------------------------------------------------------------------------- Net (Decrease) Increase in Cash and Due from Banks (811) (1,291) 375 Cash and due from banks, beginning of year 1,921 3,212 2,837 - ------------------------------------------------------------------------------------------------------------- Cash and due from banks, end of year $ 1,110 $ 1,921 $ 3,212 ============================================================================================================= Interest paid $ 2,679 $ 4,319 $ 4,730 ============================================================================================================= Income taxes paid, net $ 24 $ 7 $ 39 ============================================================================================================= Noncash investing activities: Transfer of legal entity in exchange for shares in affiliate $ -- $ 1,122 $ 852 Conversions of loans to other real estate 17 28 21 Exchanges of Chilean government bonds for annuity contracts -- -- 9 - ------------------------------------------------------------------------------------------------------------- Total noncash investing activities $ 17 $ 1,150 $ 882 =============================================================================================================
* Includes $14 million, $129 million and $0 million for the years ended December 31, 2001, 2000 and 1999, respectively, related to trust preferred securities included in risk-based capital. The accompanying notes are an integral part of the financial statements. Bankers Trust Corporation and its Subsidiaries 21 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 1--Acquisition by Deutsche Bank AG Change of Control On June 4, 1999, the change-of-control ("COC") date, pursuant to an agreement dated as of November 30, 1998, between Deutsche Bank AG ("Deutsche Bank") and Bankers Trust Corporation ("Bankers Trust"), Deutsche Bank, through its U.S. holding corporation, Taunus Corporation ("Taunus"), acquired all of the outstanding shares of common stock of Bankers Trust from its shareholders at a price of $93.00 per share (the "Acquisition"). Deutsche Bank accounted for the Acquisition as a purchase. No purchase accounting adjustments were pushed down to Bankers Trust. Prior to the Acquisition, the Corporation 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 and private banking businesses. The Corporation anticipates further reorganizations of its business as a result of the reorganization of Deutsche Bank. Disposition of Assets On June 5, 1999, Bankers Trust transferred its wholly-owned subsidiary BT Alex. Brown Incorporated ("BTAB") and substantially all of its interest in Bankers Trust International PLC ("BTI") to Deutsche Bank Securities Inc. ("DBSI") and Deutsche Holdings (BTI) Ltd., respectively, which are wholly-owned subsidiaries of Deutsche Bank. The transfer of BTAB to DBSI took the form of an exchange of stock pursuant to which BTAB became a wholly-owned subsidiary of DBSI and Bankers Trust received shares of DB U.S. Financial Markets Holding Corporation ("DBUSH"), the parent of DBSI. In the third quarter of 1999, the Corporation sold its shares of DBUSH to Taunus for approximately $800 million. The transfer of substantially all of Bankers Trust's interest in BTI was for cash in the amount of approximately $1.7 billion. On August 31, 1999, the Corporation completed the sale of Bankers Trust Australia Limited ("BTAL"), a wholly-owned subsidiary, to the Principal Financial Group for a price of approximately $1.3 billion. Prior to the sale, BTAL remitted to the Corporation a dividend for accumulated retained earnings that included proceeds from BTAL's sale of its investment banking division to Macquarie Bank. The Corporation also received cash for the assumption of certain BTAL long-term debt. The Corporation recognized a pretax gain of approximately $779 million in the third quarter of 1999 on the sale of BTAL. In 2001, a final payment was received under the sales agreement and as a result, the Corporation recorded revenue of $24 million. On September 29, 2000, Bankers Trust transferred its wholly-owned subsidiary BT Holdings (New York), Inc. ("BTH") to DBUSH and Taunus. 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, substantially all of which were financial assets, on the date of transfer. The Corporation recognized a pretax gain of approximately $561 million for the year ended December 31, 2000. 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 in Note 25. In connection with the Acquisition, and in addition to the foregoing transactions, the Corporation has transferred 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. Because of the significant business changes previously mentioned, the Corporation's historical financial statements are not fully comparable for all periods presented. Note 2--Significant Accounting Policies The accounting policies of the Corporation conform with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from management's estimates. The following is a description of the significant accounting policies of the Corporation. Principles of Consolidation The consolidated financial statements of the Corporation include Bankers Trust, Bankers Trust Company and its subsidiaries ("BTCo") and all other significant, majority-owned subsidiaries, after elimination of material intercompany transactions and accounts. Investments in other companies over which the Corporation has significant influence are accounted for using the equity method of accounting. These investments are reported in other assets and the related equity income or loss, as well as disposition gains and losses, is included in noninterest revenue. Investments within designated Small Business Investment Company subsidiaries are carried at fair value. Changes in fair value are included in noninterest revenue. 22 Bankers Trust Corporation and its Subsidiaries Foreign Currency Translation Assets and liabilities denominated in currencies other than an entity's functional currency are translated into its functional currency using the current exchange rates and the resulting translation gains and losses, as well as any gains and losses from related hedges, are reported in noninterest revenue. Assets and liabilities of entities whose functional currency is not the U.S. dollar are translated into U.S. dollars using the current exchange rates and the translation gains and losses, net of any hedge and tax effects, are reported in other comprehensive income. Resale and Repurchase Agreements Resale and repurchase agreements are generally treated as collateralized financings and are carried at the amount of cash disbursed or received. The Corporation offsets resale and repurchase agreements with the same counterparty which meet the applicable netting criteria in FASB Interpretation No. 41, "Offsetting of Amounts Related to Certain Repurchase and Resale Agreements" ("FIN41"). Interest earned on resale agreements and interest incurred on repurchase agreements are reported as interest revenues and interest expense, respectively. Generally, the party disbursing the cash takes possession of the securities serving as collateral for the financing. Securities purchased under resale agreements consist primarily of U.S. government and federal agency securities. The Corporation monitors the fair value of the securities received or delivered. For securities purchased under resale agreements, the Corporation requests additional securities or the return of a portion of the cash disbursed when appropriate in response to a decline in the market value of the securities received. Similarly, the return of excess securities or additional cash is requested when appropriate in response to an increase in the market value of securities sold under repurchase agreements. Securities provided as collateral under repurchase agreements in which the counterparty has the right by contract or custom to sell or repledge the collateral are disclosed separately on the statement of condition from securities not so encumbered, where material, in accordance with SFAS 140. Trading Securities; Securities Available for Sale The Corporation designates debt and marketable equity securities as either held for trading purposes or available for sale at the date of acquisition. Debt and marketable equity securities, loans and money market instruments that are classified as trading assets, as well as short trading positions which are classified as trading liabilities, are carried at their fair values and related gains and losses are included in trading revenue. Securities available for sale are carried at fair value with the changes in fair value, net of applicable deferred income taxes, reported in other comprehensive income. The amortization of premiums and accretion of discounts are recorded in interest revenue, and realized gains and losses are recorded in noninterest revenue. The specific identification method is used to determine the cost of securities sold. Fair value is generally based on quoted market prices, price quotes from brokers or dealers or discounted expected cash flows. Declines in fair value of securities available for sale below their amortized cost that are deemed to be other than temporary are reflected in the Consolidated Statement of Income as realized losses. Derivatives All freestanding derivatives, whether held for trading or non-trading purposes, are carried at fair value in the balance sheet. Derivative features embedded in other contracts that meet certain criteria are also measured at fair value. Fair values for derivatives are based on quoted market prices or pricing models which take into account current market and contractual prices of the underlying instruments as well as time value and yield curve or volatility factors underlying the positions. Fair values also take into account expected market risks, modeling risk, administrative costs and credit considerations. Assets and liabilities arising from contracts covered by qualifying master netting agreements are reported on a net basis, in accordance with FASB Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts" ("FIN 39"). The Corporation enters into swaps, futures contracts, forward commitments, options and other similar types of contracts and commitments based on interest and foreign exchange rates, and equity and commodity prices, for trading purposes. Such positions are carried at their fair values as either trading assets or trading liabilities, and related gains and losses are included in trading revenue. Derivative features embedded in other non-trading contracts are measured separately at fair value when they are not clearly and closely related to the host contract and meet the definition of a derivative. Unless designated as a hedge, changes in the fair value of such an embedded derivative are reported in trading revenue. The carrying amount is reported in the balance sheet with the host contract. Beginning January 1, 2001, the Corporation has applied hedge accounting for derivatives entered into for non-trading purposes under SFAS 133. Under this rule all derivatives, including those entered into for non-trading purposes, are carried at fair value on the balance sheet. For fair value hedges, changes in the fair value of the hedged asset or liability due to the risk being hedged are recognized in earnings along with changes in the entire fair value of the derivative. When hedging interest rate risk, for both the derivative and the hedged item any interest accrued or paid is reported in interest income or expense and the unrealized gains and losses from the fair value adjustments are reported in other revenue or other expenses. When hedging the foreign exchange risk in an available-for-sale security, the fair value adjustments related to the foreign exchange exposures are also recorded in other revenue or other expenses. Hedge ineffectiveness for a fair value hedge is measured as the net unrealized gain or loss for the period from these fair value adjustments to the derivative and hedge item recorded in other revenue or other expenses. If a fair value hedge is canceled because the derivative is terminated or de-designated, any basis adjustment remaining on the hedged asset or liability related to the hedging of interest rate risk is amortized to interest over the remaining life of the original hedge. Bankers Trust Corporation and its Subsidiaries 23 For other types of fair value hedges or anytime the hedged asset or liability is sold or terminated, any basis adjustments are included in the calculation of the gain or loss on sale or termination. For periods prior to January 1, 2001, hedge accounting was different for the limited cases where it was applied for certain interest rate and foreign currency hedges. Interest rate swaps were accounted for as off-balance sheet transactions with interest payable or receivable recorded on an accrual basis. For cross currency interest rate swaps, interest was accrued and the foreign currency notional amount of the swaps was translated at spot rates with the resulting gain or loss reported in earnings. No special accounting was applied to the hedged items. Loans, Other Real Estate and Other Nonperforming Assets Loans generally are stated at their outstanding unpaid principal balances net of charge-offs, net of any deferred fees on originated loans, and net of any unamortized premiums or discounts on purchased loans. Interest revenue is accrued on the unpaid principal balance. Net deferred fees and premiums or discounts are recognized as an adjustment of the yield (interest revenue) over the lives of the related loans. Loans are accounted for on a cash basis once principal or interest payments are past due 90 days or earlier if considered appropriate by management. In addition, all loans classified as doubtful and all partially charged-off loans are accounted for on a cash basis even if the borrower is still making required payments. Any accrued but unpaid interest previously recorded on cash basis loans is reversed against current period interest revenue. Interest income is recorded only when cash is received. Renegotiated loans are those which have been renegotiated to an effective interest rate lower than the then-current market rate because of a deterioration in the financial position of the borrower. Interest on such loans is accrued at the renegotiated rate. Assets acquired in credit work-outs, including real estate, are recorded at the lower of fair value less costs to sell or the recorded investment in the related loan and are classified as other assets. Any excess of the recorded investment in the loan over the fair value of the asset acquired is charged against the allowance for credit losses-loans. Allowances For Credit Losses The allowances for credit losses represent management's estimate of probable losses that have occurred in the loan portfolio and other credit-related items as of the date of the consolidated financial statements. The allowance for credit losses-loans is reported as a reduction of loans and the allowance for credit losses on other credit-related items is reported in other liabilities. To allow management to determine the appropriate level of the allowance for loan losses, all significant counterparty relationships are reviewed periodically, as are loans under special supervision, such as impaired loans. This review encompasses current information and events related to the counterparty, as well as industry, geographic, economic, political, and other environmental factors. This process results in an allowance for loan losses which consists of a specific loss component and an inherent loss component. The specific loss component is the allowance for impaired loans as calculated under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" as amended by SFAS No. 118 "Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures" (collectively "SFAS 114"). Impaired loans represent loans for which, based on current information and events, it is probable that the Corporation will not be able to collect all principal and interest amounts due in accordance with the contractual terms of the loan agreement. The measurement of specific loss is determined by the excess of the recorded investment in the loan, including accrued interest, over either the present value of expected future cash flows, the fair value of the underlying collateral or the market price of the loan. No specific loss is provided for impaired loans for which either the present value of expected future cash flows, the fair value of the underlying collateral or the market price of the loan exceeds the recorded investment. Impaired loans are generally placed on a non-accrual status. The inherent loss component is for all other loans not individually considered impaired but that, on a portfolio basis, are believed to have some inherent loss, in accordance with SFAS No. 5, "Accounting for Contingencies" ("SFAS 5"). The inherent loss component consists of an allowance for country risk, and an other inherent loss component. The country risk component is for loan exposures in countries where there are serious doubts about the ability of counterparties to comply with the repayment terms due to the economic or political situation prevailing in the respective country of domicile, that is, for transfer and currency convertibility risks. The other inherent loss component represents an estimate of inherent losses resulting from the imprecisions and uncertainties in determining credit losses. Loans subject to this component of the allowance exclude those that have been determined to be impaired under SFAS 114. This component is calculated by applying loss factors to the corresponding period-end loan categories. Loss factors are derived as a ratio of historical average loan losses (net of recoveries) to an historical average of its loan exposures and adjusted for relevant environmental factors. Amounts determined to be uncollectible are charged to the allowance. Subsequent recoveries, if any, are credited to the allowance. The provision for loan losses, which is charged to income, is the amount necessary to adjust the allowance to the level determined through the process described above. Premises and Equipment Premises and equipment owned are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated on a straight-line basis over the terms of the leases or the estimated useful lives of the 24 Bankers Trust Corporation and its Subsidiaries improvements, whichever are shorter. Maintenance and repairs are charged to expense and improvements are capitalized. Gains and losses on dispositions are reflected in earnings. Leased properties meeting certain criteria are capitalized and amortized using the straight-line method over the terms of the leases. Income Taxes The Corporation recognizes the current and deferred tax consequences of all transactions that have been recognized in the financial statements using the provisions of enacted tax laws. Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences. The amount of deferred tax assets is reduced, if necessary, to the amount that, based on available evidence, will more likely than not be realized. Impairment Securities available for sale, equity method and direct investments (including venture capital companies and non-marketable securities) are subject to impairment reviews. An impairment charge is recorded if a decline in fair value below the asset's amortized cost or carrying value, depending on the nature of the asset, is deemed to be other than temporary. Goodwill, other intangible assets, and property, plant, and equipment are also subject to impairment reviews if a change in circumstances indicates that the carrying amount of an asset may not be recoverable. If estimated undiscounted cash flows relating to an asset held for use are less than its carrying amount, an impairment charge is recorded to the extent the fair value of the asset is less than its carrying amount. For an asset held for disposal, an impairment charge is recorded based on the lower of the asset's carrying value or net realizable value. Stock-Based Compensation Prior to the Acquisition in 1999, the Corporation accounted for its stock option awards under the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Comprehensive Income Comprehensive income is defined as the change in equity of an entity excluding such transactions with stockholders as the issuance of common or preferred stock, payment of dividends, and purchase of treasury shares. Comprehensive income has two major components: net income, as reported in the "Consolidated Statement of Income," and other comprehensive income as reported in the "Consolidated Statement of Comprehensive Income." Other comprehensive income includes such items as unrealized gains and losses, net of applicable deferred income taxes, on securities available for sale and foreign currency translation adjustments. Comprehensive income does not include changes in the fair value of non-marketable securities, traditional credit products, and other assets generally carried at cost. Statement of Cash Flows For purposes of the consolidated statement of cash flows, the Corporation's cash and cash equivalents are cash and due from banks. Net cash flows from instruments such as futures, forwards, options and swaps used to hedge assets or liabilities are classified as cash flows from operating activities. Reclassifications Certain prior period amounts have been reclassified to conform to the current presentation. Note 3--Securities Available for Sale The fair value, amortized cost, and gross unrealized holding gains and losses for the Corporation's securities available for sale follow:
(in millions) December 31, 2001 2000 - --------------------------------------------------------------------------------------------------------------------- Gross Gross Unrealized Holding Unrealized Holding Fair ------------------ Amortized Fair ------------------ Amortized Value Gains (Losses) Cost Value Gains (Losses) Cost - --------------------------------------------------------------------------------------------------------------------- Debt securities U.S. government and agencies $ 102 $ -- $ -- $ 102 $ 112 $ -- $ (1) $ 113 States of the U.S. and political subdivisions 16 -- -- 16 16 -- -- 16 Asset-backed -- -- -- -- 1 -- -- 1 Foreign governments -- -- -- -- 4 1 -- 3 Corporate debt 53 1 (1) 53 25 1 (1) 25 Mortgage-backed 73 1 -- 72 80 2 -- 78 Equity securities 12 1 -- 11 14 1 (1) 14 - --------------------------------------------------------------------------------------------------------------------- Total securities available for sale $ 256 $ 3 $ (1) $ 254 $ 252 $ 5 $ (3) $ 250 ===================================================================================================================== (in millions) December 31, 1999 - ----------------------------------------------------------------------------- Gross Unrealized Holding Fair ------------------ Amortized Value Gains (Losses) Cost - ----------------------------------------------------------------------------- Debt securities U.S. government and agencies $ 348 $ -- $ (9) $ 357 States of the U.S. and political subdivisions 16 -- -- 16 Asset-backed 5 -- -- 5 Foreign governments 480 -- -- 480 Corporate debt 2,226 -- (1) 2,227 Mortgage-backed 94 -- (2) 96 Equity securities 83 45 (8) 46 - ----------------------------------------------------------------------------- Total securities available for sale $3,252 $ 45 $ (20) $ 3,227 =============================================================================
There were no securities of any individual issuer included in securities available for sale that exceeded 10 percent of the Corporation's total stockholder's equity at December 31, 2001. The components of securities available for sale gains (losses) as reported in the consolidated statement of income follow: (in millions) Year Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------- Debt securities--gross realized gains $ -- $ 3 $ 81 Debt securities--gross realized losses -- (4) (234) Equity securities--net realized gains -- 46 64 - ------------------------------------------------------------------------------- Total securities available for sale gains (losses) $ -- $ 45 $ (89) =============================================================================== Bankers Trust Corporation and its Subsidiaries 25 The following table shows the fair value, remaining maturities, approximate weighted-average yields (based on amortized cost) and total amortized cost by maturity distribution of the debt components of the Corporation's securities available for sale at December 31, 2001.
- ----------------------------------------------------------------------------------------------------------------------------------- Maturity Distribution - ----------------------------------------------------------------------------------------------------------------------------------- After One After Five Within But Within But Within After One Year Five Years Ten Years Ten Years Total - ----------------------------------------------------------------------------------------------------------------------------------- ($ in millions) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield - ----------------------------------------------------------------------------------------------------------------------------------- U.S. government and agencies $ 91 2.52% $ 10 4.37% $ 1 4.52% $ -- --% $ 102 2.73% States of the U.S. and political subdivisions 8 3.52 -- 4.54 6 3.22 2 5.33 16 3.67 Corporate debt securities 20 2.23 -- -- -- -- 33 6.79 53 5.10 Mortgage-backed securities -- -- 22 5.05 -- -- 51 6.77 73 6.26 - ----------------------------------------------------------------------------------------------------------------------------------- Total fair value $ 119 $ 32 $ 7 $ 86 $ 244 ========================================= ====== ====== ====== ======= Total amortized cost $ 119 $ 32 $ 7 $ 85 $ 243 ========================================= ====== ====== ====== =======
Note 4 -- Loans The following table summarizes the composition of loans at the end of each of the last five years:
- --------------------------------------------------------------------------------------------------------------- ($ in millions) December 31, 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Domestic Commercial and industrial $ 6,880 29% $ 8,370 37% $ 8,125 40% $ 6,448 27% $ 4,244 21% Financial institutions 10,869 46 1,779 8 2,788 14 2,441 10 2,148 11 Real estate Construction 88 -- 95 1 128 1 134 1 108 1 Mortgage 912 4 1,138 5 1,343 6 1,315 6 2,088 10 Other 3,316 14 8,621 38 4,028 20 3,558 15 1,427 7 - --------------------------------------------------------------------------------------------------------------- Total domestic 22,065 93 20,003 89 16,412 81 13,896 59 10,015 50 - --------------------------------------------------------------------------------------------------------------- International Governments and official institutions 14 -- 24 -- 120 1 190 1 252 1 Banks and other financial institutions 916 4 1,746 8 690 3 3,599 15 3,175 16 Commercial and industrial 607 3 544 2 1,765 9 3,931 17 4,931 25 Real estate Construction -- -- -- -- -- -- 71 -- -- -- Mortgage 4 -- 2 -- 31 -- 95 -- 195 1 Other 152 -- 305 1 1,167 6 1,813 8 1,402 7 - --------------------------------------------------------------------------------------------------------------- Total international 1,693 7 2,621 11 3,773 19 9,699 41 9,955 50 - --------------------------------------------------------------------------------------------------------------- Gross loans 23,758 100% 22,624 100% 20,185 100% 23,595 100% 19,970 100% === === === === === Less: unearned income 144 184 223 310 165 - ------------------------------------- ------- ------- ------- ------- Total loans $23,614 $22,440 $19,962 $23,285 $19,805 ===================================== ======= ======= ======= =======
On a global basis, the commercial and industrial category and the "other" category included no single industry group with aggregate borrowings from the Corporation in excess of 10 percent of the total loan portfolio at December 31, 2001. 26 Bankers Trust Corporation and its Subsidiaries - -------------------------------------------------------------------------------- Certain contractual maturity information for the Corporation's loans at December 31, 2001, excluding 1-4 family mortgages, installment loans and lease financing is summarized below. Actual maturities may differ from contractual maturities since borrowers may have the right to prepay obligations with or without prepayment penalties. Remaining Maturity - -------------------------------------------------------------------------------- Within After One After One But Within Five (in millions) Year Five Years Years Total - -------------------------------------------------------------------------------- Domestic Commercial and industrial $ 850 $4,461 $1,569 $ 6,880 Financial institutions 8,713 1,956 200 10,869 Real estate Construction 49 39 -- 88 Mortgage 291 375 21 687 Other 1,175 704 54 1,933 - -------------------------------------------------------------------------------- Total domestic 11,078 7,535 1,844 20,457 International 1,016 605 55 1,676 - -------------------------------------------------------------------------------- Total $12,094 $8,140 $1,899 $22,133 ================================================================================ Loans due after one year With predetermined interest rates $ 492 $ 767 ====================================================================== With floating or adjustable interest rates $7,648 $1,132 ====================================================================== In prior periods, the Corporation has sold commercial real estate mortgage loans in securitization transactions. The investors and the securitization trusts have no recourse to the Corporation's other assets for failure of debtors to pay when due. The Corporation has retained interests in these securitizations that, in some instances, are subordinate to investors' interests. The value of all of the interests retained is subject to credit, prepayment and interest rate risks on the transferred loans. Such assets are carried at fair value, with security interests in securities available for sale and servicing rights in other assets. The Corporation estimates fair value based upon the present value of future expected cash flows, using management's best estimates of such key assumptions as -- credit losses, prepayment speeds, forward yield curves, and discount rates commensurate with the risks involved. As required by SFAS 140, following are certain disclosures relating to retained interests from such securitizations. At December 31, 2001, the fair value of the Corporation's retained interests totaled $63.6 million based upon an assumed weighted-average life of 0.75 years (which reflects estimated prepayments) and utilizing a residual cash flows discount rate of 11.25%. The weighted-average actual and projected credit losses, at December 31, 2001 were zero percent. The sensitivity of the current fair value of these retained interests to immediate 10 percent and 20 percent adverse changes in the following assumptions are: residual cash flows discount rate--$0.4 million and $0.9 million; and expected credit losses--$1.9 million and $3.8 million, respectively. At December 31, 2001, the total principal amount outstanding of commercial real estate mortgage loans managed or securitized totaled $193 million, of which, none are 90 days or more past due and none are held in portfolio. Cash Basis Loans and Renegotiated Loans The Corporation's cash basis loans and renegotiated loans are summarized as follows: (in millions) December 31, 2001 2000 1999 - -------------------------------------------------------------------------------- Cash basis loans Domestic $1,452 $814 $573 International 132 26 164 - -------------------------------------------------------------------------------- Total cash basis loans $1,584 $840 $737 ================================================================================ Renegotiated loans Domestic $ -- $ -- $ 11 International -- -- -- - -------------------------------------------------------------------------------- Total renegotiated loans $ -- $ -- $ 11 ================================================================================ At December 31, 2001 and 2000, borrowers on a cash basis had undrawn commitments with the Corporation of $206 million and $100 million, respectively. Such 2001 amounts, if drawn, will be classified as cash basis loans. 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 December 31 of each year. The rates used in determining the gross amount of interest that would have been recorded at the original rate were not necessarily representative of current market rates. (in millions) Year Ended December 31, 2001 2000 1999 - -------------------------------------------------------------------------------- Domestic loans Gross amount of interest that would have been recorded at original rate $132 $80 $27 Less, interest, net of reversals, recognized in interest revenue 67 51 18 - -------------------------------------------------------------------------------- Reduction of interest revenue 65 29 9 ================================================================================ International loans Gross amount of interest that would have been recorded at original rate 13 -- 3 Less, interest, net of reversals, recognized in interest revenue 7 -- 1 Reduction of interest revenue 6 -- 2 - -------------------------------------------------------------------------------- Total reduction of interest revenue $ 71 $29 $11 ================================================================================ At December 31, 2001 and 2000, the recorded investment in loans that was considered to be impaired under SFAS 114 was $1,584 million and $858 million, respectively. Included in these amounts were $1,244 million and $725 million of loans that required a valuation allowance of $453 million and $344 million at those same dates, respectively. The average recorded investment in impaired loans during the years ended December 31, 2001 and December 31, 2000 was approximately $1,043 million and $805 million, respectively. For the years ended December 31, 2001, 2000 and 1999, the Corporation recognized interest income on impaired loans of $27 million, $40 million and $12 million, respectively. Bankers Trust Corporation and its Subsidiaries 27 Note 5--Allowances for Credit Losses An analysis of the changes in the Corporation's allowances for credit losses follows: (in millions) Year Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------- Loans Balance, beginning of year $ 424 $ 491 $ 652 Provision for credit losses 296 (19) (58) Allowance related to entities sold/transferred* (23) (6) (39) Net charge-offs Charge-offs 160 54 91 Recoveries 2 12 27 Total net charge-offs 158 42 64 - ------------------------------------------------------------------------------- Balance, end of year $ 539 $ 424 $ 491 =============================================================================== Other liabilities Balance, beginning of year $ 22 $ 24 $ 18 Provision for credit losses (6) (2) 6 Charge-offs 1 -- -- - ------------------------------------------------------------------------------- Balance, end of year $ 15 $ 22 $ 24 =============================================================================== * Reflects the allowance for credit losses--loans of certain legal entities transferred to Deutsche Bank on the date of transfer and the allowance for credit losses--loans of entities sold on the date of sale. Note 6--Premises and Equipment; Leases An analysis of premises and equipment follows: (in millions) December 31, 2001 2000 - -------------------------------------------------------------------------------- Land $ 66 $ 68 Buildings 253 258 Leasehold improvements 285 321 Furniture and equipment 776 843 Construction-in-progress 99 41 - -------------------------------------------------------------------------------- Total 1,479 1,531 Less accumulated depreciation and amortization 850 907 - -------------------------------------------------------------------------------- Net book value $ 629 $ 624 ================================================================================ Approximately $195 million of the $629 million net book value relates to two buildings and their contents that were damaged as a result of the terrorist attacks on September 11, 2001. These assets have been taken out of service. The Corporation is currently evaluating the future plans for 130 Liberty Street which was severely damaged due to the destruction of the World Trade Center. The Corporation's building at 4 Albany Street, which was less severely damaged, is being renovated, although no timetable for reoccupation has been established. See Note 27 for additional information relating to the terrorist attacks. The Corporation is a lessee under lease agreements covering real property and equipment. The future minimum lease payments required under the Corporation's noncancelable operating leases at the end of 2001 were as follows: (in millions) Year Ended December 31, - -------------------------------------------------------------------------------- 2002 $ 45 2003 45 2004 47 2005 35 2006 34 2007 and later 121 - -------------------------------------------------------------------------------- Total minimum lease payments 327 Less minimum noncancelable sublease rentals 10 - -------------------------------------------------------------------------------- Net minimum lease payments $317 ================================================================================ The following shows the net rental expense for all operating leases: (in millions) Year Ended December 31, 2001 2000 1999 - -------------------------------------------------------------------------------- Gross rental expense $57 $65 $124 Less sublease rental income 38 17 6 - -------------------------------------------------------------------------------- Net rental expense $19 $48 $118 ================================================================================ Note 7-- Securities Loaned and Securities Sold Under Repurchase Agreements and Other Short-term Borrowings Short-term borrowings are borrowed funds generally with an original maturity of one year or less. Debt instruments that contain a provision for early redemption, exercisable at the option of the security holder, are classified on the basis of the earliest possible redemption date. Securities loaned and securities sold under repurchase agreements and federal funds purchased generally mature in one day; commercial paper generally matures within 90 days. The details of these borrowings for the years 2001, 2000 and 1999 are presented below: ($ in millions) 2001 2000 1999 - ------------------------------------------------------------------------------- Securities loaned and securities sold under repurchase agreements Balance at year end $ 10 $ 109 $ 56 Average amount outstanding 7 66 8,261 Maximum amount outstanding at any month end 407 109 23,383 Average interest rate for the year --% 9.09% 6.52% Average interest rate on year-end balance 7.47% 8.74% 6.89% Federal funds purchased Balance at year end $ 5,569 $ 5,971 $ 5,270 Average amount outstanding 5,281 3,984 3,226 Maximum amount outstanding at any month end 6,956 7,066 5,968 Average interest rate for the year 3.04% 5.16% 4.48% Average interest rate on year-end balance 1.37% 5.56% 3.45% Commercial paper Balance at year end $ -- $ -- $ -- Average amount outstanding -- -- 3,615 Maximum amount outstanding at any month end -- -- 9,458 Average interest rate for the year --% --% 6.98% Average interest rate on year-end balance --% --% --% Other Balance at year end $13,552 $12,527 $ 6,270 Average amount outstanding 11,530 8,269 6,044 Maximum amount outstanding at any month end 13,552 12,527 8,854 Average interest rate for the year 5.29% 8.94% 6.61% Average interest rate on year-end balance 3.28% 4.48% 9.74% =============================================================================== 28 Bankers Trust Corporation and its Subsidiaries Note 8--Long-Term Debt In accordance with the Federal Reserve Board's Capital Adequacy Guidelines, long-term debt included in risk-based capital must meet specific criteria. Generally, qualifying debt must be unsecured, subordinated and have an original weighted-average maturity of at least five years. Additionally, the outstanding amount of long-term debt included in risk-based capital is reduced as these issues approach maturity. That is, one-fifth of the original issue is amortized each year during the last five years before maturity. Long-term debt included in risk-based capital and other long-term debt are summarized as follows, based on the contractual terms of each issue: Long-term debt included in risk-based capital
Dec. 31, Dec. 31, Subordinated Subordinated 2001 2000 (in millions) Fixed Rate Floating Rate Total Total - ----------------------------------------------------------------------------------- Bankers Trust Due in 2001 $ -- $ -- $ -- $ 213 Due in 2002 616 80 696 696 Due in 2003 102 194 296 297 Due in 2004 14 22 36 38 Due in 2005 150 67 217 219 Due in 2006 149 -- 149 149 Due in 2007-2011 595 -- 595 590 Thereafter 349 -- 349 762 - ----------------------------------------------------------------------------------- Total $ 1,975 $ 363 $ 2,338 $ 2,964 - ----------------------------------------------------------------------------------- BTCo Due in 2001 $ -- $ -- $ -- $ 9 Due in 2002 9 -- 9 9 Due in 2003 8 -- 8 8 Due in 2004 8 -- 8 7 Due in 2005 7 -- 7 7 Due in 2006 7 -- 7 6 Due in 2007-2011 -- 225 225 238 Thereafter -- -- -- -- - ----------------------------------------------------------------------------------- Total $ 39 $ 225 $ 264 $ 284 - ----------------------------------------------------------------------------------- Total long-term debt $ 2,014 $ 588 $ 2,602 $ 3,248 Less: Amortization for risk-based capital purposes (1,276) (1,175) - ----------------------------------------------------------------------------------- Total long-term debt included in risk-based capital $ 1,326 $ 2,073 ===================================================================================
Long-term debt not included in risk-based capital Senior Senior Dec. 31, Dec. 31, Fixed Floating 2001 2000 (in millions) Rate Rate Total Total - -------------------------------------------------------------------------------- Bankers Trust Due in 2001 $ -- $ -- $ -- $ 582 Due in 2002 -- 249 249 249 Due in 2003 -- 480 480 481 Due in 2004 -- 7 7 7 Due in 2005 113 5 118 118 Due in 2006 -- 9 9 10 Due in 2007-2011 -- 237 237 405 Thereafter -- -- -- -- Total $113 $ 987 $1,100 $1,852 - -------------------------------------------------------------------------------- BTCo Due in 2001 $ -- $ -- $ -- $ 513 Due in 2002 -- 289 289 642 Due in 2003 9 -- 9 20 Due in 2004 -- -- -- 2 Due in 2005 -- -- -- 1 Due in 2006 15 -- 15 19 Due in 2007-2011 -- -- -- 2 Thereafter -- -- -- -- - -------------------------------------------------------------------------------- Total $ 24 $ 289 $ 313 $1,199 - -------------------------------------------------------------------------------- Other Fixed rate $1,133 $1,393 Floating rate 4,339 3,651 - -------------------------------------------------------------------------------- Total long-term debt $6,885 $8,095 Add: Amortization for risk-based capital purposes 1,276 1,175 - -------------------------------------------------------------------------------- Total long-term debt not included in risk-based capital $8,161 $9,270 ================================================================================ Based solely on the contractual terms of the debt issues, at December 31, 2001 and 2000 the Corporation's total fixed rate long-term debt had a weighted-average interest rate of 6.89 percent and 6.25 percent, respectively. The Corporation has entered into interest rate and currency swap agreements for many of its long-term debt issues, in order to manage its interest rate and currency risks. The interest rates for the floating rate debt issues and the fixed rate debt issues effectively converted to floating are generally based on LIBOR, although in certain instances they are subject to minimum interest rates as specified in the agreements governing the respective issues. The weighted-average effective interest rates for total long-term debt, including the effects of the related swap agreements, were 6.17 percent and 6.46 percent at December 31, 2001 and 2000, respectively. At December 31, 2001 and 2000, certain subsidiaries of Bankers Trust Company had outstanding $0 million and $351 million, respectively of manditorily redeemable preference securities included in the table above which are not included in risk-based capital. Maturities at December 31, 2000 ranged from February 2001 to May 2002. Bankers Trust Corporation and its Subsidiaries 29 Note 9--Trust Preferred Securities The trust preferred securities are issued by trusts all of whose outstanding common securities are owned by either Bankers Trust or BTCo. The trust preferred securities represent preferred undivided beneficial interests in the assets of the trusts. The trusts exist for the sole purpose of issuing the trust preferred securities and investing the proceeds thereof in junior subordinated deferrable interest debentures issued by Bankers Trust or BTCo, as applicable (the "debentures"). The debentures are unsecured and subordinated to all senior indebtedness of Bankers Trust or BTCo, as applicable, and are the sole assets of the trusts. Payments under the debentures by either Bankers Trust or BTCo are the same as those for the trust preferred securities. The debentures are redeemable prior to stated maturity at the option of Bankers Trust or BTCo during the redemption periods described below. The trust preferred securities are subject to mandatory redemption upon repayment of the related debentures at their stated maturity dates or their earlier redemption at a redemption price equal to their liquidation amount plus accrued distributions to the date fixed for redemption and the premium, if any, paid by Bankers Trust or BTCo upon concurrent repayment of the related debentures. Bankers Trust and BTCo, as applicable, have issued guarantees for the payment of distributions and payments on liquidation or redemption of the trust preferred securities, but only to the extent of funds held by the relevant trust. The appropriate obligations of Bankers Trust or BTCo under each series of debentures, the relevant indenture and trust agreement, the relevant guarantee and certain other related agreements, in the aggregate, constitute a full and unconditional guarantee by Bankers Trust or BTCo, as applicable, of each trust's obligations under the relevant trust preferred securities. The Corporation is required by the Federal Reserve to maintain certain levels of capital. The Federal Reserve has announced that certain cumulative preferred securities having the characteristics of trust preferred securities qualify as minority interest, which is included in Tier 1 Capital for bank holding companies. Such Tier 1 Capital treatment, together with Bankers Trust's ability to deduct, for federal income tax purposes, interest expense on the corresponding debentures, provides Bankers Trust with a cost-effective means of obtaining capital for regulatory purposes. The following is a summary of the outstanding trust preferred securities and debentures:
Aggregate Aggregate Liquidation Liquidation Per Annum Amount of Amount of Interest Stated Trust Trust Rate of Maturity of Preferred Preferred Debentures Debentures Securities at Securities at and Trust Interest and Trust Earlier Redemption December 31, December 31, Preferred Payment Preferred Maturity Period of ($ in millions) 2001 2000 Securities Dates Securities Date(1) Debentures - ------------------------------------------------------------------------------------------------------------------------------------ Bankers Trust--Obligated BT Institutional Capital Trust A $ 275 $ 275 8.09% 6/1, 12/1 12/1/26 -- On or after 12/1/06 BT Institutional Capital Trust B 159 159 7.75 6/1, 12/1 12/1/26 -- On or after 12/1/06 BT Capital Trust B 205 205 7.90 1/15, 7/15 1/15/27 1/15/17 On or after 1/15/07 BT Preferred Capital Trust I(2) 250 250 8 1/8 3/31, 6/30 2/1/37 2/1/02 On or after 9/30, 12/31 2/1/02 BT Preferred Capital Trust II 203 203 7.875 2/25, 8/25 2/25/27 2/25/12 On or after 2/25/07 BTCo--Obligated BTC Capital Trust I(3) 208 222 3-Month 3/30, 6/30 12/30/26 -- On or after LIBOR 9/30, 12/30 12/30/06 plus 0.75% - ---------------------------------------------------------------------------------------------------------------------------------- Total(4) $1,300 $1,314 ================================================================================================================================
(1) The maturity dates may be shortened under certain circumstances. (2) All outstanding shares of BT Preferred Capital Trust I were redeemed at par on February 28, 2002. (3) During 2001, the Corporation repurchased $14 million of BTC Capital Trust I securities. (4) Excludes deferred issuance costs and unamortized discount. 30 Bankers Trust Corporation and its Subsidiaries Note 10--Preferred Stock The number of shares of Series Preferred Stock repurchased and redeemed during 1999 and 2000 was as follows (number of shares in thousands): Adjustable Adjustable Rate Rate 7.75% Cumulative Cumulative Cumulative Preferred Preferred Preferred Shares of Series Stock, Stock, Stock, Preferred Stock Series Q(1) Series R(1) Series S(1) - ----------------------------------------------------------------------------- December 31, 1998 64 44 50 - ----------------------------------------------------------------------------- Repurchased (4) (4) -- - ----------------------------------------------------------------------------- December 31, 1999 60 40 50 - ----------------------------------------------------------------------------- Repurchased (4) -- -- Redeemed (56) (40) (50) - ----------------------------------------------------------------------------- December 31, 2000 -- -- -- ============================================================================= (1) Series Q, Series R and Series S are represented by depositary shares at $25 per depositary share, each representing a one-hundredth interest of a share. 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. No shares of Series Preferred Stock have been issued subsequent to December 31, 2000. Note 11--Common Stock and Stock-Based Compensation Plans Common stock activity during 1999 was as follows: Year Ended December 31, 1999 - ---------------------------------------------------------------------------- Common shares outstanding, beginning of year 95,714,120 - ---------------------------------------------------------------------------- Shares issued or distributed under employee benefit plans 2,974,125 Shares purchased for treasury (837,410) Shares purchased and retired (97,850,834)(1) - ---------------------------------------------------------------------------- Common shares outstanding, end of year 1 ============================================================================ (1) Amount represents shares purchased and retired in connection with Acquisition. No common shares have been issued subsequent to the Acquisition. Prior to the Acquisition, stock options were granted to purchase stock at a price not less than the fair market value of the stock on the date of grant. As of the Acquisition date, all unvested options vested and became immediately exercisable. The Corporation paid $93.00 less the exercise price for each option outstanding on the Acquisition date. No stock options have been granted subsequent to the Acquisition. The following is a summary of stock option transactions that occurred during 1999 (number of shares in thousands): Weighted-Average Exercise Price Exercise Price Options Per Option Per Option - -------------------------------------------------------------------------------- December 31, 1998 10,796 $21.59-134.50 85.29 ================================== Exercised (442) 21.59-90.75 57.74 Cancelled (297) 92.61 Settled due to COC (10,057) - ---------------------------------- ----- December 31, 1999 -- -- -- ================================== ===== Deferred stock awards, which entitled certain employees to receive common stock of the Corporation at a specified future date, were also granted prior to the Acquisition. On the COC date, all deferred compensation amounts vested in full. In January 1999, 6,548,524 deferred stock awards were granted related to the 1998 performance year. Compensation expense recognized for deferred stock awards was $749 million in 1999. All deferred stock awards granted during 1999 were paid out at $93.00 per share on the COC date. Note 12-- Assets Pledged to Creditors and Other Asset and Dividend Restrictions The Federal Reserve Act, as amended by the Monetary Control Act of 1980, requires that reserve balances on certain deposits of depository institutions be maintained at the Federal Reserve Bank. The required reserve balances of the Corporation's subsidiary banks were $143 million and $141 million at December 31, 2001 and 2000, respectively. For the years 2001 and 2000, the average reserve balances of these banks amounted to $173 million and $147 million, respectively. In accordance with SFAS 140, at December 31, 2001 and 2000, the carrying amount of assets that were pledged as collateral in transactions in which the secured party did not have the right to sell or re-pledge the collateral provided by the Corporation was as follows: (in millions) December 31, 2001 2000 - ----------------------------------------------------------------------------- Trading assets--debt securities $ 3 $ 13 Securities available for sale 26 25 Loans 2,892 5,624 - ----------------------------------------------------------------------------- Total $2,921(1) $5,662(1) ============================================================================= (1) These were pledged to secure public and trust deposits, for borrowings, and for other purposes. Federal law also requires that "covered transactions," as defined, engaged in by insured banks and their subsidiaries with certain affiliates, including Bankers Trust, be at arm's length and limited to 20 percent of capital surplus. The Federal Reserve Board defines capital surplus as Tier 1 Capital and Tier 2 Capital plus the balance of the institution's allowance for loan and lease losses not included in Tier 2 Capital. Additionally, "covered transactions" with any one such affiliate is limited to 10 percent of capital and surplus. Covered transactions are defined to include, among other things, loans and other extensions of credit to such an affiliate and guarantees, acceptances and letters of credit issued on behalf of such an affiliate. Such loans, Bankers Trust Corporation and its Subsidiaries 31 other extensions of credit, guarantees, acceptances and letters of credit must be secured. Other restrictions also apply to inter-affiliate transactions. Limitations exist on the availability of BTCo's undistributed earnings for the payment of dividends to Bankers Trust without prior approval of the bank regulatory authorities of $669 million of its retained earnings at December 31, 2001, plus an additional amount equal to net profits, as defined, for 2002 up to the date of any such dividend declaration. In this regard, BTCo can declare dividends in 2002 without approval of the regulatory authorities. The Federal Reserve Board may prohibit the payment of dividends if it determines that circumstances relating to the financial condition of a bank are such that the payment of dividends would be an unsafe and unsound practice. Certain other subsidiaries are subject to various regulatory and other restrictions that may limit cash dividends and advances to Bankers Trust. In addition certain disclosures are required by SFAS 140. At December 31, 2001 and 2000, the Corporation has accepted collateral in the form of securities with a fair value of approximately $8.8 billion and $9.1 billion, respectively, arising from securities purchased under resale agreements and receivables under derivatives contracts which allow the Corporation to sell or re-pledge the collateral. Of this amount, $352 million and $255 million, respectively, has been re-pledged as collateral for payables under derivatives contracts and to cover short sales. Note 13 -- Regulatory Capital The Corporation's banking subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. The Federal Reserve Board's 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 Federal Reserve Board 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. Failure to meet minimum capital requirements can initiate certain mandates, and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on the consolidated financial statements of the Corporation's banking subsidiaries. Under the risk-based capital guidelines, there are two categories of capital: core capital ("Tier 1 Capital") and supplemental capital ("Tier 2 Capital"), collectively referred to as Total Capital. Tier 1 Capital includes common stockholder's equity, qualifying perpetual preferred stock, qualifying trust preferred securities and minority interest in equity accounts of consolidated subsidiaries. Tier 2 Capital includes perpetual preferred stock and trust preferred securities (to the extent ineligible for Tier 1 Capital), hybrid capital instruments (i.e., perpetual debt and mandatory convertible securities), limited amounts of subordinated debt, intermediate-term preferred stock, and a portion of the allowance for credit losses. Risk-weighted assets are calculated by assigning nontrading account assets and off-balance sheet items to broad risk categories. The Corporation's banking subsidiaries had previously adopted the market risk amendment to the risk-based capital guidelines issued by the Federal Reserve Board and the Bank for International Settlements (BIS). The amendment changed the calculation of the risk-weighted assets for trading accounts from assigning trading assets to broad risk categories to the use of internal models to measure market risk. In addition, under the prompt corrective action provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), five capital categories were established for banks. Pursuant to that statute, the federal bank regulatory agencies have specifically defined these categories by determining that a bank is well capitalized if it maintains a Tier 1 Capital ratio of at least 6.0 percent, a Total Capital ratio of at least 10.0 percent and a Leverage ratio of at least 5.0 percent. The Federal Reserve Board has also adopted these same thresholds for the Tier 1 Capital ratio and Total Capital ratio in defining a well-capitalized bank holding company. The well-capitalized threshold for the Leverage ratio is not applicable at the bank holding company level. Based on its regulatory capital ratios at December 31, 2001 and December 31, 2000 BTCo is well capitalized. There are no conditions or events that management believes have changed BTCo's well-capitalized status. 32 Bankers Trust Corporation and its Subsidiaries BTCo's actual capital amounts and ratios are presented in the table below.
FRB Minimum To Be Well For Capitalized Capital Under Actual as of Actual as of Adequacy Regulatory 12/31/01 12/31/00 Purposes: Guidelines: - --------------------------------------------------------------------------------------- ($ in millions) Amount Ratio Amount Ratio Ratio Ratio - --------------------------------------------------------------------------------------- Risk-Based Capital Ratios Tier 1 Capital(1) $6,252 27.1% $6,161 24.0% 4.0% 6.0% Total Capital(1) 6,808 29.5% 6,812 26.5% 8.0% 10.0% Leverage Ratio(2) $6,252 14.8% $6,161 16.0% 3.0% 5.0%
(1) Ratios are calculated on Tier 1 Capital and Total Capital as a percentage of risk-weighted assets. (2) Ratio is calculated on Tier 1 Capital as a percentage of adjusted quarterly average assets. As permitted by the FRB's Supervisory Letter SR 01-1, the Corporation is no longer required to comply with the FRB's capital adequacy guidelines since it is owned and controlled by a foreign bank that is a financial holding company which has been determined by the FRB to be well-capitalized and well-managed. Note 14--Interest Revenue and Interest Expense The following are the components of interest revenue and interest expense: (in millions) Year Ended December 31, 2001 2000 1999 - -------------------------------------------------------------------------------- Interest Revenue Interest-bearing deposits with banks $ 519 $ 619 $ 309 Federal funds sold 112 100 160 Securities purchased under resale agreements 38 129 675 Securities borrowed -- -- 383 Trading assets 507 918 916 Securities available for sale Taxable 22 69 362 Exempt from federal income taxes 2 1 22 Loans 1,307 1,772 1,522 Customer receivables 10 27 70 - -------------------------------------------------------------------------------- Total interest revenue 2,517 3,635 4,419 - -------------------------------------------------------------------------------- Interest Expense Interest-bearing deposits Domestic offices 467 558 694 Foreign offices 174 440 730 Trading liabilities 4 2 131 Securities loaned and securities sold under repurchase agreements -- 6 539 Other short-term borrowings 770 946 796 Long-term debt 398 921 608 Trust preferred securities 99 115 114 - -------------------------------------------------------------------------------- Total interest expense 1,912 2,988 3,612 - -------------------------------------------------------------------------------- Net interest revenue $ 605 $ 647 $ 807 ================================================================================ Note 15--Pension and Other Employee Benefit Plans In 2000, the Corporation's trusteed noncontributory, domestic defined benefit pension plan merged with Deutsche Bank Americas Holding Corp's ("DBAH") pension plan. The value of a participant's accrued benefit, which is expressed using a cash balance account approach (a type of defined benefit plan), did not change as a result of this transaction. The Corporation's 401(k) Savings Plan covers substantially all domestic employees. Employees are permitted within limitations imposed by tax laws to make pretax contributions to the 401(k) Savings Plan. The Corporation makes fixed contributions equaling three percent of eligible domestic employees' annual salary and will also match employees' contributions up to three percent of eligible salary. The Corporation may, solely at its discretion, match an additional zero percent to 200 percent of the employees' contribution up to 3 percent of eligible salary, which discretionary contribution it chose not to make for the years ended December 31, 2001, 2000 and 1999. Expense recognized for this plan amounted to $9 million, $25 million and $27 million for the years ended December 31, 2001, 2000 and 1999, respectively. The Corporation also provides health care benefits to employees (retirees) who met specific age and/or service requirements on January 1, 1990 provided that they retire (retired) under the principal domestic pension plan with at least ten years of service. This plan is contributory for participating retirees and also requires them to absorb deductibles and coinsurance. The Corporation also provided noncontributory life insurance benefits for substantially all domestic retirees who retired before January 1, 1999 with at least ten years of service. During 2000, the Corporation purchased an insurance contract that settled its primary responsibility for its benefits obligation for domestic retirees currently receiving benefits. Bankers Trust Corporation and its Subsidiaries 33 The following tables provide a reconciliation of the changes in the postretirement plan's benefit obligations and fair value of assets over the two-year period ended December 31, 2001 and a statement of the funded status as of December 31 of both years. Postretirement Benefits - ------------------------------------------------------------------------------- (in millions) 2001 2000 - ------------------------------------------------------------------------------- Change in benefit obligation Benefit obligation at beginning of year $ 83 $ 94 Service cost 1 1 Interest cost 7 5 Plan amendments -- 13 Actuarial (gain) loss 18 (17) Benefits paid (7) (6) Curtailment/settlement -- (7) - ------------------------------------------------------------------------------- Benefit obligation at end of year $ 102 $ 83 =============================================================================== Change in plan assets Fair value of plan assets at beginning of year $ -- $ 4 Employer contributions 5 11 Benefits paid (6) (6) Curtailment/settlement -- (9) Participant contributions 1 -- - ------------------------------------------------------------------------------- Fair value of plan assets at end of year $ -- $ -- =============================================================================== Funded status $(102) $ (83) Unrecognized net gain (13) (31) - ------------------------------------------------------------------------------- Accrued benefit cost at end of year $(115) $(114) =============================================================================== Postretirement benefits expense for 2001, 2000 and 1999 included the following components: - ------------------------------------------------------------------------------- (in millions) Year Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------- Service cost $ 1 $ 1 $ 1 Interest cost 4 6 6 Net amortization and deferral (1) (1) (3) - ------------------------------------------------------------------------------- Total 4 6 4 =============================================================================== The actuarial assumptions used for the postretirement benefit plan were as follows: - ------------------------------------------------------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------- Discount rate in determining expense 7.25% 7.75% 6.75% Discount rate in determining benefit obligations at year end 7.25% 7.75% 7.75% Expected long-term rate of return on assets 9.00% 9.00% 9.00% In determining postretirement benefits expense, a 10.00 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2002. The rate was assumed to decrease to 5.00 percent by 2007 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the retiree health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects on the Corporation's retiree health care plan: One-Percentage One-Percentage Point Increase Point Decrease - ------------------------------------------------------------------------------- (in millions) 2001 2000 2001 2000 - ------------------------------------------------------------------------------- Effect on total of service and interest cost components $ 1 $ 1 $(1) $ (1) Effect on accumulated postretirement benefit obligation $11 $12 $(9) $(10) Note 16--Restructuring and Other Related Activities Deutsche Bank approved a Group restructuring plan and accordingly, the Corporation provided a reserve of $35 million during the fourth quarter of 2001. The restructuring liability consists of $25 million related to severance and other employee termination-related costs and $10 million related to lease terminations. This restructuring plan affects two Group Divisions, Corporate and Investment Bank ("CIB") and Private Clients and Asset Management ("PCAM"). Approximately 335 staff will be terminated as a result of the restructuring plan. All actions contemplated in the restructuring plan are expected to be completed during 2002. The plan affects these two Group Divisions as follows: The restructuring in CIB covers the remaining steps to be taken as a result of changing market conditions in the year 2001, and to give effect to the CIB organizational and business model that was created during 2001. It primarily impacts CIB's customer coverage and relationship management processes, certain aspects of the cash management, custody and trade finance businesses of Global Transaction Banking, and the related elements of the settlement, infrastructure and real estate support functions. The plan also includes the further streamlining of the senior management structure in PCAM as a consequence of the reorganization of that group division's business model and operations, including real estate support. During 1999, the Corporation recorded pretax charges for restructuring and other related activities totaling $516 million. Of this amount, $394 million related to severance and other employee termination-related costs recorded in the second quarter in conjunction with the Acquisition ("Plan 1"). During the fourth quarter of 1999, the Corporation recorded additional severance and other termination-related costs of $122 million in connection with its continuing efforts to streamline support functions and realign certain business activities ("Plan 2"). As of December 31, 2000, all significant restructuring initiatives contemplated in Plan 1 and Plan 2 had been completed. The remaining reserve balance of $11 million related to Plan 1 was reversed during the second quarter of 2000. The cost to complete Plan 2 was reduced by $25 million resulting from certain management changes and a higher than anticipated level of employee attrition. Such amount was reversed in the second quarter of 2000. The additional remaining reserve balance related to Plan 2 of $2 million was reversed in the fourth quarter of 2000. 34 Bankers Trust Corporation and its Subsidiaries Note 17 -- Income Taxes The Corporation's 2001 results of operations are included in the consolidated tax returns of Taunus. The domestic and foreign components of consolidated income (loss) before income taxes (benefit) follow: (in millions) Year Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------- Domestic $104 $622 $(1,104) Foreign 229 278 (311) - ------------------------------------------------------------------------------- Total $333 $900 $(1,415) =============================================================================== For purposes of determining the above amounts, foreign income is defined as income recorded by operations located outside of the U.S. Deferred income taxes result from differences in the timing of revenue and expense recognition for income tax and financial reporting purposes. An analysis of consolidated income tax expense (benefit) follows: (in millions) Year Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------- Income tax expense (benefit) applicable to: Income before income tax expense (benefit)* $ 58 $ 388 $ 188 Capital surplus -- -- (5) Cumulative translation adjustments (14) (44) 41 Securities valuation allowance 2 (2) 28 - ------------------------------------------------------------------------------- Total $ 46 $ 342 $ 252 =============================================================================== * Includes income tax expense related to securities available for sale transactions of $0 million, $19 million and $4 million in 2001, 2000 and 1999, respectively. The components of consolidated income tax expense (benefit) follow: (in millions) Year Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------- Current Federal $(184) $ 179 $ 290 Foreign 92 94 237 State and local 16 96 120 - ------------------------------------------------------------------------------- Total current (76) 369 647 - ------------------------------------------------------------------------------- Deferred Federal 101 11 (122) Foreign 13 (68) (171) State and local 8 30 (102) - ------------------------------------------------------------------------------- Total deferred 122 (27) (395) - ------------------------------------------------------------------------------- Total $ 46 $ 342 $ 252 =============================================================================== The following is an analysis of the difference between the U.S. federal statutory income tax expense (benefit) and the effective tax expense on consolidated income (loss) before income taxes: (in millions) Year Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------- Computed expected tax expense (benefit) $ 117 $ 315 $(495) State and local income tax expense 14 87 7 Tax-exempt income (2) (7) (11) Foreign subsidiary earnings 52 12 428 Valuation allowance 7 (58) 211 Domestic equity (86) -- -- Other (44) 39 48 - ------------------------------------------------------------------------------- Effective income tax expense $ 58 $ 388 $ 188 =============================================================================== The following is an analysis of the Corporation's net deferred tax assets: (in millions) December 31, 2001 2000 - -------------------------------------------------------------------------------- Deferred tax assets $1,611 $2,028 Valuation allowance 38 358 - -------------------------------------------------------------------------------- Deferred tax assets net of valuation allowance 1,573 1,670 Deferred tax liabilities 281 275 - -------------------------------------------------------------------------------- Net deferred tax assets $1,292 $1,395 ================================================================================ At December 31, 2001, the Corporation's deferred tax assets were primarily related to foreign tax credit carryovers that will expire in 2004 and 2005 ($15 million), investments ($480 million), deferred interest expense ($255 million), international operations ($174 million), credit losses ($265 million), net operating loss carryovers that primarily will start to expire in 2021 ($97 million) and tax credit carryovers ($138 million). Deferred tax liabilities were primarily related to deferred related party sales ($203 million) and lease financing activities ($51 million). The decrease in the valuation allowance is due to the transfer of a subsidiary to a Deutsche Bank affiliate. At December 31, 2000, the Corporation's deferred tax assets were primarily related to foreign tax credit carryovers that will expire in 2003 through 2005 ($454 million), investments ($453 million), deferred interest expense ($352 million), international operations ($218 million), credit losses ($215 million), net operating loss carryovers that primarily will start to expire in 2018 ($81 million) and tax credit carryovers ($68 million). Deferred tax liabilities were primarily related to deferred related party sales ($203 million) and lease financing activities ($57 million). Note 18 -- Business Segments and Related Information SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," redefines operating segments and establishes standards for reporting information about operating segments and related disclosures about products and services, geographic areas, and major customers. In order to conform to Deutsche Bank's management structure, the Corporation has realigned its businesses into two client-focused group divisions: the Corporate and Investment Bank Group and the Private Clients and Asset Management Group. In addition, the reorganization involved the transfer of its principal investing business to the group division Corporate Investments. All prior periods have been restated to conform with this new structure. Business segments results are determined based on the Corporation's internal management accounting process, which allocates revenue and expenses among the business segments. Because the Corporation's business is diverse in nature and its operations are integrated, certain estimates and judgments have been made to apportion revenue and expense items. The internal management accounting process, unlike financial accounting in accordance with generally accepted accounting principles, is based on the way management views its business and is not necessarily comparable with similar information disclosed by other financial institutions. The accounting policies of the business segments are generally the same as those described in Note 2. Bankers Trust Corporation and its Subsidiaries 35 - -------------------------------------------------------------------------------- Segments that hold net asset positions are allocated interest expense to reflect their net use of funds and segments that have net liability positions are allocated interest income to reflect their net contribution of funds. The Corporate and Investment Bank Group includes Corporate Banking and Securities and Global Transaction Banking. Corporate Banking and Securities includes sales, trading and corporate finance activities. Global Transaction Banking consists of trade services, cash management, custody and corporate trust and agency services. The Private Clients and Asset Management Group includes Private Banking and Asset Management. Private Banking consists of banking services to private clients, self-employed individuals as well as to smaller business clients, and offers a wide variety of banking products to these clients including financial planning services and market research and investment strategies for high net worth individuals. Asset Management consists of the institutional asset management and retail investment fund businesses. Corporate Investments includes venture capital and private equity investments prior to the transfer of BTH at the end of the third quarter of 2000 and the corresponding cessation of most principal investment activities by the Corporation.
Corporate and Investment Bank Private Clients and Asset Management ------------------------------------ ------------------------------------ Year Ended Corporate Global December 31, 2001 Banking and Transaction Private Asset (in millions) Securities Banking Total Banking Management Total - ------------------------------------------------------------------------------------------------------------------ Net revenues from external customers* $ 413 $ 761 $ 1,174 $ 172 $240 $ 412 Net interest revenue 387 154 541 39 10 49 Credit quality expense -- loans 291 -- 291 -- 10 10 Pretax income (loss) 257 (62) 195 -- (74) (74) Total assets* 45,395 3,465 48,860 2,682 859 3,541 Year Ended Total December 31, 2001 Corporate Business (in millions) Investments Segments - ------------------------------------------------------------ Net revenues from external customers* $ -- $ 1,586 Net interest revenue (5) 585 Credit quality expense -- loans -- 301 Pretax income (loss) (17) 104 Total assets* 82 52,483
* There were no material intersegment revenues or intersegment assets among the business segments.
Corporate and Investment Bank Private Clients and Asset Management ------------------------------------ ------------------------------------ Year Ended Corporate Global December 31, 2000 Banking and Transaction Private Asset (in millions) Securities Banking Total Banking Management Total - ------------------------------------------------------------------------------------------------------------------ Net revenues from external customers* $ 706 $ 922 $ 1,628 $ 171 $334 $ 505 Net interest revenue 391 247 638 52 (10) 42 Credit quality expense -- loans (8) (6) (14) -- 1 1 Pretax income (loss) 69 36 105 12 51 63 Total assets* 50,275 5,170 55,445 2,598 536 3,134 Year Ended Total December 31, 2000 Corporate Business (in millions) Investments Segments - ------------------------------------------------------------ Net revenues from external customers* $ 38 $ 2,171 Net interest revenue (148) 532 Credit quality expense -- loans -- (13) Pretax income (loss) (33) 135 Total assets* 122 58,701
* There were no material intersegment revenues or intersegment assets among the business segments.
Corporate and Investment Bank Private Clients and Asset Management ------------------------------------ ------------------------------------ Year Ended Corporate Global December 31, 1999 Banking and Transaction Private Asset (in millions) Securities Banking Total Banking Management Total - ------------------------------------------------------------------------------------------------------------------ Net revenues from external customers* $ 597 $ 938 $ 1,535 $ 362 $331 $ 693 Net interest revenue 417 199 616 63 8 71 Credit quality expense -- loans 69 2 71 -- (5) (5) Pretax income (loss) (1,587) (36) (1,623) (22) 99 77 Total assets* 52,016 7,105 59,121 2,897 967 3,864 Year Ended Total December 31, 1999 Corporate Business (in millions) Investments Segments - ------------------------------------------------------------ Net revenues from external customers* $ 460 $ 2,688 Net interest revenue (81) 606 Credit quality expense -- loans -- 66 Pretax income (loss) 165 (1,381) Total assets* 2,924 65,909
* There were no material intersegment revenues or intersegment assets among the business segments. 36 Bankers Trust Corporation and its Subsidiaries The following table reconciles total net revenue for business segments to consolidated net revenue (in millions): Year Ended December 31, 2001 2000 1999 - -------------------------------------------------------------------------------- Total net revenue reported for business segments $ 1,586 $ 2,171 $2,688 Earnings associated with unassigned capital 150 213 195 Gain on transfer of BTH -- 561 -- Service affiliate revenues 184 -- -- Equity income not allocated to business segments 180 -- -- Net revenue of entities sold -- -- 366 Gain on sale of BTAL* -- -- 779 Credit quality adjustment 5 6 124 Other (85) (99) 213 - -------------------------------------------------------------------------------- Consolidated net revenue(1) $ 2,020 $ 2,852 $4,365 ================================================================================ (1) Consolidated net revenue includes net interest revenue after provision for credit losses--loans and noninterest revenue. * Gain is net of foreign currency translation losses realized on the sale. The following table reconciles total pretax income (loss) for business segments to consolidated pretax income (loss) (in millions): Year Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------- Total pretax income (loss) reported for business segments $ 104 $ 135 $(1,381) Gain on transfer of BTH -- 561 -- Pretax income (loss) of entities sold -- -- (76) Gain on sale of BTAL* -- -- 779 Restructuring and other related activities -- 38 (516) Realized foreign currency translation losses** (52) (28) (257) Equity income not allocated to business segments 180 -- -- Earnings associated with unassigned capital 150 213 195 Credit quality adjustment 5 6 124 Other unallocated amounts (54) (25) (283) - ------------------------------------------------------------------------------- Consolidated pretax income (loss) $ 333 $ 900 $(1,415) =============================================================================== * Gain is net of foreign currency translation losses realized on the sale. ** Excluding realized foreign currency translation losses related to BTAL. The following table reconciles total assets for business segments to consolidated assets (in millions): December 31, 2001 2000 - ------------------------------------------------------------------------------- Total assets reported for business segments $52,483 $58,701 Investments in unconsolidated companies accounted for at cost 1,175* 1,190* Investments in unconsolidated companies accounted for at equity 2,841** 24 Net deferred tax assets 1,292 1,395 Premises and equipment 142 177 Goodwill not allocated to business segments 62 69 Other unallocated amounts 2,138 1,207 - ------------------------------------------------------------------------------- Consolidated assets $60,133 $62,763 =============================================================================== * Amount primarily represents the Corporation's investment related to the transfer of BTH. ** Amount primarily represents the Corporation's investment related to the transfer of a subsidiary to a Deutsche Bank affiliate. The following table reconciles the other significant items reported for the business segments to the consolidated financial statements:
(in millions) Year Ended December 31, 2001 2000 - ------------------------------------------------------------------------------------------------------- Total Total Business Total Business Total Segments Adjustments Consolidated Segments Adjustments Consolidated - ------------------------------------------------------------------------------------------------------- Net interest revenue(1) $585 $ 20 $605 $ 532 $ 115 $ 647 Credit quality expense--loans 301 (5) 296 (13) (6) (19) ======================================================================================================= (in millions) Year Ended December 31, 1999 - ------------------------------------------------------------------ Total Business Total Segments Adjustments Consolidated - ------------------------------------------------------------------ Net interest revenue(1) $606 $ 201 $ 807 Credit quality expense--loans 66 (124) (58) ==================================================================
(1) Adjustments primarily represent earnings associated with unassigned capital partially offset by unallocated funding costs. Bankers Trust Corporation and its Subsidiaries 37 The following table presents net revenue by geographical location (in millions): Year Ended December 31, 2001 2000 1999 - -------------------------------------------------------------------------------- United States $1,802 $2,461 $3,385 United Kingdom 46 81 390 Australia 59 11 284 Other foreign countries 113 299 306 - -------------------------------------------------------------------------------- Consolidated net revenue(1) $2,020 $2,852 $4,365 ================================================================================ (1) Consolidated net revenue includes net interest revenue after provision for credit losses--loans and noninterest revenue. Revenue is attributed to countries based on the location in which entities are incorporated. The following table presents net revenue of the Corporation organized around specific products and services (in millions): Year Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------ Corporate Finance $ 390 $ 520 $ 1,163 Private Equity 40 92 521 Trading and Risk Management 232 272 (127) Processing Services 664 897 1,030 Investment Management 205 335 427 Private Banking 184 186 381 Insurance -- -- 128 Other 305 550** 842* - ------------------------------------------------------------------------------ Consolidated net revenue $2,020 $2,852 $ 4,365 ============================================================================== * Amount includes the gain on the sale of BTAL. ** Amount includes the gain on the transfer of BTH. Note 19 -- International Operations Management views the operations of the Corporation on a business segment basis, as disclosed in Note 18. However, in order to comply with the financial reporting regulations of the Securities and Exchange Commission, the Corporation is required to report international operations on the basis of the domicile of the customer. Pursuant to these regulations, any business transacted with a customer who is domiciled outside the U.S. is reported as international operations. Due to the complex nature of the Corporation's businesses and because its revenue from customers domiciled outside the U.S. is recorded in both domestic and foreign offices, it is impossible to segregate with precision the respective contributions to income from the domestic and international operations. As these operations are highly integrated, estimates and subjective assumptions have been made to apportion revenue and expenses between domestic and international operations. These estimates and assumptions include the following: interest revenue and interest expense are apportioned to geographic areas based on the geographic distribution of average interest-earning assets. The geographic location of the assets is determined by the domicile of the customer, or for interest-earning securities, by the domicile of the issuer. Trading gains and losses are primarily allocated based on the geographic distribution of average trading assets as determined by the domicile of the issuer. All other noninterest revenue is allocated based on the geographic location of the office recording the income. Noninterest expense is basically apportioned geographically based on the geographical distribution of operating income (net interest revenue plus noninterest revenue). Corporate overhead expenses are allocated based upon average assets by geographic region. International offices are assessed a cost of funds charge based on a short-term funding rate. Allocation of the provisions for credit losses is based on the geographical distribution of net charges to the allowances for credit losses and management's assessment of the risks associated with the domestic and international portfolios. International taxes are calculated based on a consolidated effective tax rate. Earning assets are allocated by the domicile of the customer. All other assets are allocated based on the location of the office recording the assets. Subject to the above limitations, estimates and assumptions, the following tables present information attributable to international operations ($ in millions):
Income (loss) Net Total Total Total before income assets revenue (1) expenses (1) taxes (loss) - ---------------------------------------------------------------------------------------- 2001 - ---------------------------------------------------------------------------------------- International operations Asia $ 223 $ 32 $ 38 $ (6) $ (5) Australia/New Zealand 161 21 25 (4) (3) Western Hemisphere 22,957 822 858 (36) (30) Europe 13,408 570 583 (13) (11) United Kingdom 3,827 724 767 (43) (35) Middle East/Africa 78 4 5 (1) (1) Eliminations (35,530) (1,250) (1,250) -- -- - ---------------------------------------------------------------------------------------- Total international 5,124 923 1,026 (103) (85) Domestic operations 55,009 3,305 2,869 436 360 - ---------------------------------------------------------------------------------------- Total $ 60,133 $ 4,228 $ 3,895 $ 333 $ 275 ======================================================================================== International as a percentage of total 9% 22% 26% N/M N/M ========================================================================================
(1) Total revenue includes interest revenue and noninterest revenue. Total expenses includes interest expense, noninterest expenses and provision for credit losses--loans. N/M Not meaningful.
Income (loss) Net Total Total Total before income assets revenue (1) expenses (1) taxes (loss) - ---------------------------------------------------------------------------------------- 2000 - ---------------------------------------------------------------------------------------- International operations Asia $ 498 $ 188 $ 158 $ 30 $ 17 Australia/New Zealand 155 17 16 1 1 Western Hemisphere 19,484 752 758 (6) (3) Europe 13,640 683 681 2 1 United Kingdom 6,177 701 773 (72) (41) Middle East/Africa 54 30 19 11 6 Eliminations (29,052) (1,315) (1,315) -- -- - ---------------------------------------------------------------------------------------- Total international 10,956 1,056 1,090 (34) (19) Domestic operations 51,807 4,765 3,831 934 531 - ---------------------------------------------------------------------------------------- Total $ 62,763 $ 5,821 $ 4,921 $ 900 $ 512 ======================================================================================== International as a percentage of total 17% 18% 22% N/M N/M ========================================================================================
(1) Total revenue includes interest revenue and noninterest revenue. Total expenses includes interest expense, noninterest expenses and provision for credit losses--loans. N/M Not meaningful. 38 Bankers Trust Corporation and its Subsidiaries
Income (loss) Net Total Total Total before income assets revenue (1) expenses (1) taxes (loss) - ------------------------------------------------------------------------------------------ 1999 - ------------------------------------------------------------------------------------------ International operations Asia $ 1,131 $ 222 $ 402 $ (180) $ (145) Australia/New Zealand 60 474 624 (150) (120) Western Hemisphere 8,712 802 1,057 (255) (206) Europe 18,159 684 933 (249) (201) United Kingdom 10,885 704 1,269 (565) (453) Middle East/Africa 801 58 69 (11) (9) Eliminations (21,135) (278) (278) -- -- - ------------------------------------------------------------------------------------------ Total international 18,613 2,666 4,076 (1,410) (1,134) Domestic operations 49,544 5,253 5,258 (5) (469) - ------------------------------------------------------------------------------------------ Total $ 68,157 $ 7,919 $ 9,334 $(1,415) $(1,603) ========================================================================================== International as a percentage of total 27% 34% 44% N/M N/M ==========================================================================================
(1) Total revenue includes interest revenue and noninterest revenue. Total expenses includes interest expense, noninterest expenses and provision for credit losses--loans. N/M Not meaningful. Note 20-- Derivative Financial Instruments and Financial Instruments with Off-Balance Sheet Risk In the normal course of business, the Corporation enters into a variety of derivative transactions for both trading and non-trading purposes. The Corporation's objectives in using derivative instruments are to meet customers' needs, to manage the Corporation's exposure to risks and to generate revenues through trading activities. Derivative contracts used by the Corporation in both trading and non-trading activities include swaps, futures, forwards, options and other similar types of contracts based on interest rates, foreign exchange rates and the prices of equities and commodities (or related indices). Derivatives Held or Issued for Trading Purposes 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. As a result of the Acquisition, the Corporation's former derivatives activities have been largely transferred to Deutsche Bank entities, and it is anticipated that the existing positions at December 31, 2001 will be reduced further over time. The Corporation trades derivative instruments on behalf of customers and for its own positions. The Corporation transacts derivative contracts to address customer demands both as a market maker in the wholesale markets and in structuring tailored derivatives for customers. The Corporation also takes proprietary positions for its own accounts. Trading derivative products include swaps, options, forwards and futures and a variety of structured derivatives which are based on interest rates, equities, credit, foreign exchange and commodities. Derivatives held or issued for non-trading purposes Derivatives held or issued for non-trading purposes primarily consist of interest rate swaps used to manage interest rate risk. Through the use of these derivatives, the Corporation is able to modify the volatility and interest rate characteristics of its non-trading interest-earning assets and interest-bearing liabilities. The Corporation is subject to risk from interest rate fluctuations to the extent that there is a gap between the amount of interest-earning assets and the amount of interest-bearing liabilities that mature or reprice in specified periods. The Corporation actively manages this interest rate risk through, among other things, the use of derivative contracts. Utilization of derivative financial instruments is modified from time to time within prescribed limits in response to changing market conditions, as well as changes in the characteristics and mix of the related assets and liabilities. The Corporation also uses cross currency interest rate swaps to hedge both foreign currency and interest rate risks from securities available for sale. For these hedges, the Corporation applies fair value accounting. For the year ended December 31, 2001, net hedge ineffectiveness from fair value hedges was a $3.7 million gain. Financial Instruments with Off-Balance Sheet Credit Risk As required by SFAS 107, off-balance sheet credit risk amounts are determined without consideration of the value of any related collateral and reflect the total potential loss on commitments to purchase securities for all obligors (including governments); securities lending indemnifications; and undrawn commitments, standby letters of credit and similar arrangements. Securities and Money Market Activities (in millions) December 31, 2001 December 31, 2000 - -------------------------------------------------------------------------------- Contract Credit Risk Contract Credit Risk Amount Amount Amount Amount - -------------------------------------------------------------------------------- Securities lending indemnifications $37,197 $37,197 $43,791 $43,791 - -------------------------------------------------------------------------------- Securities lending indemnifications represent the market value of customers' securities lent to third parties. The Corporation indemnifies customers to the extent of the replacement cost and/or the market value of the securities in the event of a failure by a third party to return the securities lent. The market value of collateral, primarily cash, received for customers' securities lent was in excess of the contract amounts and was approximately $38 billion at December 31, 2001 and $46 billion at December 31, 2000. Bankers Trust Corporation and its Subsidiaries 39 Credit-Related Arrangements (in millions) December 31, 2001 December 31, 2000 - -------------------------------------------------------------------------------- Credit Credit Contract Risk Contract Risk Amount Amount Amount Amount - -------------------------------------------------------------------------------- Commitments to extend credit(1) $12,552 $12,552 $12,874 $12,874 Standby letters of credit and similar arrangements(2) 4,782 4,782 7,102 7,102 - -------------------------------------------------------------------------------- (1) Includes participations to other entities of approximately $468 million and $873 million at December 31, 2001 and 2000, respectively. Of the non-participated amount, approximately $7 billion and $4 billion expire in one year or less at December 31, 2001 and 2000, respectively. (2) Includes participations to other entities of approximately $1.2 billion and $784 million at December 31, 2001 and 2000, respectively. At December 31, 2001 and 2000, this balance includes $2.2 billion and $4.8 billion, respectively, of guarantees related to BTH. Commitments to extend credit represent contractual commitments to make loans and revolving credits. Commitments generally have fixed expiration dates or other termination clauses and require the payment of a fee. Because commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements. Included in the amounts above are unused commitments to extend credit that are related to loans held for trading purposes. Standby letters of credit and similar arrangements ("standbys"), issued primarily to support corporate obligations, commit the Corporation to make payments on behalf of customers contingent upon the failure of the customer to perform under the terms of the contract. Standbys at December 31, 2001 related to customer obligations such as commercial paper, medium- and long-term notes and debentures (including industrial revenue obligations), as well as other financial and performance-related obligations. At December 31, 2001, excluding related party guarantees of $2.200 billion, $1.978 billion will expire within one year, $488 million from one to four years and $116 million after four years. For standbys, commitments to extend credit and securities lending indemnifications, the credit risk amount represents the contractual amount. Standbys and commitments to extend credit would have market risk if issued or extended at a fixed rate of interest. However, these contracts are primarily made at a floating rate. Fees received are generally recognized as revenue over the life of the commitment. Note 21 -- Concentrations of Credit Risk The Corporation, as required by SFAS 107, has identified three significant concentrations of credit risk: (1) Deutsche Bank entities, (2) OECD country banks and (3) OECD country central governments, their agencies and central banks. Together they represented 53 percent and 50 percent of total credit risk (after exclusion of securities lending indemnifications for customers) at December 31, 2001 and 2000, respectively. The Deutsche Bank concentration is comprised of related party transactions which the Corporation has entered into with Deutsche Bank and its affiliated entities. Refer to Note 25 for a detailed discussion of related party transactions. The Organization for Economic Cooperation and Development (OECD) is an international organization of countries which are committed to market-oriented economic policies, including the promotion of private enterprise and free market prices, liberal trade policies, and the absence of exchange controls. The OECD consists of 30 industrialized countries that are located primarily in Western Europe and North America, as well as Australia, Japan, New Zealand and South Korea. For regulatory capital purposes, domestic and foreign bank regulators generally assign OECD country central governments, their agencies and their central banks a credit risk weighting of zero percent, which means that no credit risk capital is required to support their financial instruments. OECD country banks are assigned the next lowest credit risk weighting (20 percent) by these regulators. Within all other counterparties, approximately 57 percent was collateralized by cash and U.S. government securities. The following table reflects the aggregate credit risk by groups of counterparties, as defined by SFAS 107, relating to on- and off-balance sheet financial instruments, including derivatives, at December 31, 2001 and 2000. Credit Risk On-Balance Off-Balance (in millions) Sheet Sheet Total - ------------------------------------------------------------------------------- 2001 - ------------------------------------------------------------------------------- Significant concentrations(1) Deutsche Bank entities(2) $26,209 $ 2,200 $ 28,409 OECD country banks 1,875 1,424 3,299 OECD country governments 437 -- 437 - ------------------------------------------------------------------------------- Total significant concentrations 28,521 3,624 32,145 All other(3) 14,344 50,907 65,251 - ------------------------------------------------------------------------------- Total $42,865 $54,531 $ 97,396 =============================================================================== 2000 - ------------------------------------------------------------------------------- Significant concentrations(1) Deutsche Bank entities(2) $25,033 $ 4,752 $ 29,785 OECD country banks 2,230 1,541 3,771 OECD country governments 730 -- 730 - ------------------------------------------------------------------------------- Total significant concentrations 27,993 6,293 34,286 All other(3) 20,473 57,467 77,940 - ------------------------------------------------------------------------------- Total $48,466 $63,760 $112,226 =============================================================================== (1) For these purposes, Poland has been excluded from the OECD categories. (2) Included in the on-balance sheet component of this category was approximately $9 billion and $8 billion at December 31, 2001 and 2000, respectively, that was collateralized by cash and U.S. government securities. (3) The "all other" category of credit risk is diversified with respect to type of obligor and counterparty. Included in the off-balance sheet component of this category at December 31, 2001 was approximately $37 billion that was collateralized by cash and U.S. government securities and approximately $12 billion of unused commitments to extend credit, approximately $8 billion of which expire in one year or less. The corresponding amounts for December 31, 2000 were $43 billion, $12 billion and $4 billion, respectively. 40 Bankers Trust Corporation and its Subsidiaries Note 22 -- Fair Value of Financial Instruments SFAS 107, "Disclosures about Fair Value of Financial Instruments," requires the disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Quoted market prices, when available, are used as the measure of fair value. In cases where quoted market prices are not available, fair values are based on present value estimates or other valuation techniques. These derived fair values are significantly affected by assumptions used, principally the timing of future cash flows and the discount rate. Because assumptions are inherently subjective in nature, the estimated fair values cannot be substantiated by comparison to independent market quotes and, in many cases, the estimated fair values would not necessarily be realized in an immediate sale or settlement of the instrument. The disclosure requirements of SFAS 107 exclude certain financial instruments and all nonfinancial instruments (e.g., franchise value of businesses). Accordingly, the aggregate fair value amounts presented do not represent management's estimation of the underlying value of the Corporation. The disclosures distinguish between financial instruments held for trading purposes, measured at fair value with gains and losses recognized in earnings, and financial instruments held or issued for purposes other than trading. The fair value of derivative financial instruments must be disclosed separately from nonderivative financial instruments. Additionally, the fair value of derivative financial instruments may not be netted with the fair value of other derivative financial instruments, except as allowed by FIN 39. The following are the estimated fair values of the Corporation's financial instruments followed by a general description of the methods and assumptions used to estimate such fair values. Fair Value of Financial Instruments
- --------------------------------------------------------------------------------- Fair Value Underlying Over (Under) (in millions) December 31, 2001 Book Value Fair Value Book Value - --------------------------------------------------------------------------------- Financial Assets, Including Hedges Cash and due from banks $ 1,110 $ 1,110 $ -- Interest-bearing deposits with banks 4,667 4,662 (5) Federal funds sold 2 2 -- Securities purchased under resale agreements 8,752 8,752 -- Trading assets 13,518 13,518 -- Securities available for sale (see Note 3) 256 256 -- Loans (excluding leases), commitments to extend credit and standby letters of credit, net 23,002 22,944 (58) Customer receivables 183 183 -- Due from customers on acceptances 81 81 -- Accounts receivable and accrued interest 1,174 1,174 -- Other financial assets 1,320 1,320 -- Financial Liabilities, Including Hedges Noninterest-bearing deposits 3,681 3,681 -- Interest-bearing deposits 13,545 13,577 32 Trading liabilities 2,350 2,350 -- Securities loaned and securities sold under repurchase agreements 10 10 -- Other short-term borrowings 19,121 19,121 -- Acceptances outstanding 81 81 -- Other financial liabilities 1,251 1,251 -- Long-term debt* 10,776 10,988 212 - --------------------------------------------------------------------------------- (in millions) December 31, 2000 - --------------------------------------------------------------------------------- Financial Assets, Including Hedges Cash and due from banks $ 1,921 $ 1,921 $ -- Interest-bearing deposits with banks 8,905 8,905 -- Securities purchased under resale agreements 8,310 8,310 -- Trading assets 13,390 13,390 -- Securities available for sale (see Note 3) 252 252 -- Loans (excluding leases), commitments to extend credit and standby letters of credit, net 21,956 21,951 (5) Customer receivables 308 308 -- Due from customers on acceptances 254 254 -- Accounts receivable and accrued interest 2,954 2,954 -- Other financial assets 1,477 1,476 (1) Financial Liabilities, Including Hedges Noninterest-bearing deposits 4,231 4,231 -- Interest-bearing deposits 11,523 11,320** (203) Trading liabilities 3,081 3,081 -- Securities loaned and securities sold under repurchase agreements 109 109 -- Other short-term borrowings 18,498 18,496** (2) Acceptances outstanding 254 254 -- Other financial liabilities 527 527 -- Long-term debt* 12,650 12,548** (102) =================================================================================
* Includes trust preferred securities. ** Includes effect of end-user derivatives. Bankers Trust Corporation and its Subsidiaries 41 The Corporation has reviewed its other categories of off-balance sheet instruments (forward-dated assets and liabilities, securities lending indemnifications and securities borrowed) accounted for at cost and has determined that, in the case of each such category, the unrealized gain or loss on such instruments at both December 31, 2001 and 2000 was not material. Methods and Assumptions For short-term financial instruments, defined as those with remaining maturities of 90 days or less, the carrying amount was considered to be a reasonable estimate of fair value. The following instruments were predominantly short-term: Assets Liabilities - -------------------------------------------------------------------------------- Cash and due from banks Interest-bearing deposits Interest-bearing deposits Securities loaned and securities with banks sold under repurchase agreements Federal funds sold Other short-term borrowings Securities purchased under Acceptances outstanding resale agreements Other financial liabilities Securities borrowed Customer receivables Due from customers on acceptances Accounts receivable and accrued interest For those components of the above-listed financial instruments with remaining maturities greater than 90 days, fair value was determined by discounting contractual cash flows using rates which could be earned for assets with similar remaining maturities and, in the case of liabilities, rates at which the liabilities with similar remaining maturities could be issued as of the balance sheet date. As indicated in Note 2, trading assets (including derivatives), trading liabilities and securities available for sale are carried at their fair values. For short-term loans and variable rate loans which reprice within 90 days, the carrying value was considered to be a reasonable estimate of fair value. For those loans for which quoted market prices were available, fair value was based on such prices. For other types of loans, fair value was estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. In addition, for loans secured by real estate, appraisal values for the collateral were considered in the fair value determination. The fair value estimate of commitments to extend credit and standby letters of credit represented the unrealized gains and losses on those off-balance sheet positions and was generally determined in the same manner as loans. Other financial assets consisted primarily of investments in equity instruments (excluding, in accordance with SFAS 107, investments accounted for under the equity method) and cash and cash margins with brokers. The fair value of non-marketable equity instruments was determined by matrix pricing utilizing market prices for comparable publicly traded instruments, adjusted for liquidity and contractual arrangements. Noninterest-bearing deposits do not have defined maturities. In accordance with SFAS 107, fair value represented the amount payable on demand as of the balance sheet date. Other financial liabilities consisted primarily of accounts payable and accrued expenses at both December 31, 2001 and 2000. The fair value of long-term debt was estimated by using market quotes as well as discounting the remaining contractual cash flows using a rate at which the Corporation could issue debt with a similar remaining maturity as of the balance sheet date. Note 23 -- Condensed Bankers Trust Financial Statements (Parent Company Only) Condensed Statement of Income (in millions) Year Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------- Revenue Dividends Nonbanks $ -- $ -- $ 118 Interest from subsidiaries 190 533 498 Other interest 485 213 118 Trading 126 52 (205) Other 136 681 (154) - ------------------------------------------------------------------------------- Total revenue 937 1,479 375 - ------------------------------------------------------------------------------- Expenses Interest to subsidiaries 146 266 253 Other interest 775 794 696 Other 193 167 271 - ------------------------------------------------------------------------------- Total expenses 1,114 1,227 1,220 - ------------------------------------------------------------------------------- Income (loss) before income taxes (benefit) and equity in undistributed income of subsidiaries and affiliates (177) 252 (845) Income taxes (benefit) (128) 164 (409) - ------------------------------------------------------------------------------- Income (loss) before equity in undistributed income of subsidiaries and affiliates (49) 88 (436) Equity in undistributed (loss) income of subsidiaries and affiliates 324 424 (1,167) - ------------------------------------------------------------------------------- Net Income (Loss) $ 275 $ 512 $(1,603) =============================================================================== 42 Bankers Trust Corporation and its Subsidiaries Condensed Balance Sheet (in millions) December 31, 2001 2000 - -------------------------------------------------------------------------------- Assets Cash and due from banks $ -- $ 4 Interest-bearing deposits with bank subsidiaries 4,228 3,706 Trading assets 1,526 294 Loans, net 10,782 5,801 Investments in subsidiaries and affiliates Banks 6,524 6,277 Nonbanks 1,043 991 Receivables from subsidiaries Banks 25 30 Nonbanks 11 16 Accounts receivable and accrued interest 83 1,144 Other assets 2,608 5,761 - -------------------------------------------------------------------------------- Total assets $26,830 $24,024 ================================================================================ Liabilities and Stockholder's Equity Trading liabilities $ 1,469 $ 1,236 Other short-term borrowings 13,610 10,653 Payables to subsidiaries Banks 5 -- Nonbanks 22 26 Other liabilities 392 386 Long-term debt 6,710 7,340 - -------------------------------------------------------------------------------- Total liabilities 22,208 19,641 - -------------------------------------------------------------------------------- Total stockholder's equity 4,622 4,383 - -------------------------------------------------------------------------------- Total liabilities and stockholder's equity $26,830 $24,024 ================================================================================ Condensed Statement of Cash Flows
(in millions) Year Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net income (loss) $ 275 $ 512 $(1,603) Adjustments to reconcile net income (loss) to net cash used in operating activities: Equity in undistributed loss (income) of subsidiaries and affiliates (324) (424) 1,167 Deferred income taxes 30 303 (235) Net change in trading assets (1,232) (95) 770 Net change in trading liabilities 233 29 (43) Other, net 484 (1,063) (375) - ------------------------------------------------------------------------------------------- Net cash used in operating activities (534) (738) (319) - ------------------------------------------------------------------------------------------- Cash Flows From Investing Activities Net change in: Interest-bearing deposits with bank subsidiaries (522) (487) 17 Securities purchased under resale agreements with nonbank subsidiary -- -- (17) Short-term notes receivable from subsidiaries and affiliates 11 (464) 737 Securities available for sale: Purchases -- -- (434) Maturities and other redemptions -- -- 161 Sales -- 4 2,431 Increases in long-term notes receivable from subsidiaries (196) (801) (1,440) Decreases in long-term notes receivable from subsidiaries 221 4,241 2,196 Capital contributed to subsidiaries and affiliates (37) (455) (501) Return of capital from subsidiaries and affiliates 12 43 884 Other, net (1,283) (3,135) (78) - ------------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities (1,794) (1,054) 3,956 - ------------------------------------------------------------------------------------------- Cash Flows From Financing Activities Net change in: Commercial paper and other short-term borrowings 2,985 3,574 (3,663) Short-term notes payable to subsidiaries (28) (112) 216 Issuance of long-term notes payable to subsidiaries 287 351 (10) Issuance of long-term debt 524 (225) -- Repayments of long-term debt (1,440) (1,795) (1,326) Redemption/repurchase of preferred stock -- -- (18) Purchases of treasury stock -- -- (71) Cash dividends paid -- -- (216) Capital contribution from Taunus -- -- 1,400 Other, net (4) -- 25 - ------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 2,324 1,793 (3,663) - ------------------------------------------------------------------------------------------- Net Increase (Decrease) In Cash and Due From Banks (4) 1 (26) Cash and due from banks, beginning of year 4 3 29 - ------------------------------------------------------------------------------------------- Cash and due from banks, end of year $ -- $ 4 $ 3 =========================================================================================== Interest paid $ 988 $ 759 $ 975 =========================================================================================== Income taxes paid $ -- $ -- $ 15 ===========================================================================================
Bankers Trust Corporation and its Subsidiaries 43 Note 24 -- Bankers Trust Company Consolidated Summarized Financial Information Consolidated Statement of Income
(in millions) Year Ended December 31, 2001 2000 1999 - --------------------------------------------------------------------------------- Net Interest Revenue Interest revenue $1,744 $ 2,620 $ 3,399 Interest expense 1,120 1,715 2,429 - --------------------------------------------------------------------------------- Net Interest Revenue 624 905 970 Provision for credit losses --loans 288 (21) (41) - --------------------------------------------------------------------------------- Net Interest Revenue After Provision For Credit Losses -- Loans 336 926 1,011 - --------------------------------------------------------------------------------- Noninterest Revenue Trading 50 46 (50) Fiduciary and funds management 545 659 882 Corporate finance fees 88 128 292 Other fees and commissions 239 264 383 Securities available for sale losses -- (2) (153) Other 711 233 1,294 - --------------------------------------------------------------------------------- Total noninterest revenue 1,633 1,328 2,648 - --------------------------------------------------------------------------------- Noninterest Expenses Salaries and commissions 370 394 788 Incentive compensation and employee benefits* 289 373 1,451 Agency and other professional service fees 194 194 363 Communication and data services 55 75 155 Occupancy, net 99 98 178 Furniture and equipment 124 123 197 Travel and entertainment 30 39 76 Other 391 390 464 Restructuring and other related activities 31 (31) 489 - --------------------------------------------------------------------------------- Total noninterest expenses 1,583 1,655 4,161 - --------------------------------------------------------------------------------- Income (loss) before income taxes 386 599 (502) Income taxes 130 186 579 - --------------------------------------------------------------------------------- Net Income (Loss) $ 256 $ 413 $(1,081) =================================================================================
* 1999 includes change-of-control related costs. In the normal course of business, BTCo enters into various transactions with Bankers Trust and Bankers Trust's other subsidiaries. Included in the above financial statements were the following transactions and balances with such affiliates. (in millions) Year Ended December 31, 2001 2000 1999 - -------------------------------------------------------------------------------- Interest revenue $ 19 $ 20 $ 246 Interest expense 194 208 213 Noninterest revenue 154 239 500 Noninterest expenses 88 77 151 (in millions) December 31, 2001 2000 - -------------------------------------------------------------------------------- Interest-earning assets $1,092 $ 483 Noninterest-earning assets 262 67 Interest-bearing liabilities 6,823 6,164 Noninterest-bearing liabilities 1,447 69 Consolidated Balance Sheet
($ in millions, except par values) December 31, 2001 2000 - ------------------------------------------------------------------------------------- Assets Cash and due from banks $ 1,084 $ 1,419 Interest-bearing deposits with banks 490 1,423 Federal funds sold 195 229 Securities purchased under resale agreements 8,744 8,296 Trading assets 13,288 12,779 Securities available for sale 101 110 Loans, net of allowance for credit losses of $527 at December 31, 2001 and $405 at December 31, 2000 12,277 15,891 Due from customers on acceptances 82 254 Accounts receivable and accrued interest 612 1,245 Other assets 5,805 2,677 - ------------------------------------------------------------------------------------- Total assets $ 42,678 $ 44,323 ===================================================================================== Liabilities Noninterest-bearing deposits Domestic offices $ 2,689 $ 3,195 Foreign offices 1,022 1,043 Interest-bearing deposits Domestic offices 8,734 9,775 Foreign offices 8,978 5,146 - ------------------------------------------------------------------------------------- Total deposits 21,423 19,159 Trading liabilities 2,461 1,814 Securities loaned and securities sold under repurchase agreements -- 93 Other short-term borrowings 7,970 10,940 Acceptances outstanding 82 254 Accounts payable and accrued expenses 1,023 1,700 Other liabilities, including allowance for credit losses of $15 at December 31, 2001 and $22 at December 31, 2000 1,294 1,550 Long-term debt not included in risk-based capital 1,339 1,882 Long-term debt included in risk-based capital 59 116 Trust preferred securities 205 218 - ------------------------------------------------------------------------------------- Total liabilities 35,856 37,726 - ------------------------------------------------------------------------------------- Stockholder's Equity Floating rate non-cumulative preferred stock-- Series A, $1 million par value Authorized, issued and outstanding: 1,500 shares 1,500 1,500 Common stock, $10 par value Authorized, issued and outstanding: 212,730,867 shares 2,127 2,127 Capital surplus 584 584 Retained earnings 2,725 2,467 Accumulated other comprehensive income: Net unrealized gains (losses) on securities available for sale, net of taxes 2 5 Foreign currency translation, net of taxes (116) (86) - ------------------------------------------------------------------------------------- Total stockholder's equity 6,822 6,597 - ------------------------------------------------------------------------------------- Total liabilities and stockholder's equity $ 42,678 $ 44,323 =====================================================================================
See Note 8 for details of BTCo's long-term debt. 44 Bankers Trust Corporation and its Subsidiaries Note 25 -- Related Party Transactions In conjunction with the Acquisition and subsequent integration of the Corporation into Deutsche Bank's management structure, the Corporation has entered into various related party transactions with Deutsche Bank and its affiliated entities. As previously mentioned, the Corporation transferred BTH on September 29, 2000 and BTAB and substantially all of its interest in BTI on June 5, 1999, to Deutsche Bank entities. This resulted in the transfer of approximately $1.1 billion and $2.5 billion of net assets, respectively. In addition, the Corporation has transferred at fair market value certain other entities and financial assets and liabilities to Deutsche Bank entities. In order to realign the Corporation's businesses with the Deutsche Bank management structure, the Corporation will continue to transfer other financial assets and liabilities and entities as necessary. In connection with the sale of BTAL to the Principal Financial Group ("Principal"), Deutsche Bank provided various representations and warranties to Principal. The Corporation also has related party balances with Deutsche Bank or affiliated companies as the result of transactions entered into in the ordinary course of business. 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. In addition to specific operating expenses incurred by the Corporation and charged directly to operations, certain management, accounting and other costs are incurred in common for the Corporation and its affiliates. The Corporation is allocated a share of these costs, proportionately based on an appropriate methodology for each type of expense. In the normal course of business, the Corporation may provide services to affiliates, the costs for which are allocated to such affiliates and are reflected in the accompanying consolidated statement of income in other noninterest revenue beginning in May 2001. Prior to May 2001, the net amount of costs incurred and costs allocated was reflected in other noninterest expenses. Management believes the allocation methods used are reasonable and appropriate in the circumstances. The Corporation's results from operations may not necessarily be indicative of results that would have existed had the Corporation operated as an unaffiliated entity. Included in the Corporation's financial statements were the following balances with such affiliates. (in millions) December 31, 2001 December 31, 2000 - -------------------------------------------------------------------------------- Interest-earning assets $ 23,569 $ 22,230 Noninterest-earning assets 2,640 2,803 Interest-bearing liabilities 19,403 14,507 Noninterest-bearing liabilities 4,501 4,815 Note 26 -- 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. Since January 2001, Bankers Trust Company has been named as one of numerous defendants in more than a dozen actions (certain of which are brought as class actions) filed in the Superior Court of the State of California, County of Los Angeles, all of which have been consolidated and assigned to a single judge. Pursuant to the Court's orders, plaintiffs have served two amended model complaints, one denominated as a class action and the other denominated as an individual action. The actions arise out of the default of Stanwich Financial Services Corporation in connection with certain structured settlement agreements entered into principally in the early 1980s. Stanwich is presently in reorganization proceedings under the United States Bankruptcy Code. Bankers Trust Company is alleged to have served as "trustee" under certain trust agreements in the mid 1990s. On July 17, 2001, the California Court sustained demurrers by Bankers Trust Company to the model class and individual complaints in these actions. Plaintiffs have filed second amended model complaints alleging claims of breach of contract, breach of trust, breach of fiduciary duty, tortious breach of the implied covenant of good faith and fair dealing, intentional interference with contract, negligence, bad faith denial of contract, constructive fraud, reformation, unfair business practices and declaratory relief, and seeking unspecified compensatory and punitive damages and certain other relief. The Superior Court of the State of California denied the demurrers of Bankers Trust Company's second amended model complaints and certified the class in the second amended model class action complaint. Two other individual actions brought on behalf of other structured settlement payees are pending in Montana. The court in those cases denied Bankers Trust Company's motion to dismiss the complaints. The Corporation believes that Bankers Trust Company has meritorious defenses in these actions and intends to defend these matters vigorously. In addition to the matters described above, various legal actions and proceedings involving Bankers Trust and various of its subsidiaries are currently pending. Management, after discussions with counsel, does not anticipate that losses, if any, resulting from such actions and proceedings would be material to the financial condition of the Corporation. Bankers Trust Corporation and its Subsidiaries 45 Note 27 -- Terrorist Attacks in The United States As a result of the terrorist attacks in the United States on September 11, 2001, the Corporation's office buildings located at 130 Liberty Street and 4 Albany Street in New York were damaged. The Corporation's employees located at these office buildings, in addition to employees located in leased properties at 4 World Trade Center and 14-16 Wall Street were relocated to contingency premises. The global financial and certain other industries were immediately adversely impacted which in turn had an adverse impact on the results of operations of the Corporation. The Corporation is currently evaluating the future plans for the building located at 130 Liberty Street, which was severely damaged due to the destruction of the World Trade Center. The Corporation's building at 4 Albany Street, which was less severely damaged, is being renovated, although no timetable for reoccupation has been established. Employees based at 14-16 Wall Street have returned to their offices. The Corporation accelerated its occupation of a 47-story building at 60 Wall Street, which Deutsche Bank acquired in November 2001. The leased property and all leasehold improvements at 4 World Trade Center were destroyed. The Corporation continues to evaluate the costs that it will incur and the adverse impact of the terrorist attacks on its results of operations. Such costs will include, but are not limited to, write-offs of fixed assets, costs to repair the buildings, expenses incurred to replace fixed assets that were damaged, relocation expenses, and the abatement of the contamination of its buildings adjacent to the World Trade Center site. The Corporation expects to make a claim for these costs, including those related to business interruption, through its insurance policies. The Corporation believes that it will recover substantially all of these costs under its insurance policies, but there can be no assurance that all of the costs incurred, losses from business interruption, losses from service interruption or extra expenses will be paid by the insurance carriers, as they may dispute portions of the Corporation's claims. At December 31, 2001, no losses have been recorded by the Corporation. 46 Bankers Trust Corporation and its Subsidiaries INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholder of Bankers Trust Corporation: We have audited the accompanying consolidated balance sheet of Bankers Trust Corporation and Subsidiaries (the "Corporation," a wholly owned indirect subsidiary of Deutsche Bank AG) as of December 31, 2001 and 2000, and the related consolidated statements of income, comprehensive income, changes in stockholder's equity and cash flows for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bankers Trust Corporation and Subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. /S/ KPMG LLP KPMG LLP New York, New York January 31, 2002 Bankers Trust Corporation and its Subsidiaries 47 SUPPLEMENTAL FINANCIAL DATA The statistical data on pages 48 through 51 should be read in conjunction with the Financial Review and the financial statements included elsewhere in this Annual Report. In the opinion of management, all material adjustments necessary for a fair presentation of the results of operations for the interim periods have been made. Average Balances, Interest and Average Rates The following table shows the major consolidated assets and liabilities, together with their respective interest amounts and rates earned or paid by the Corporation. Cash basis and renegotiated loans are included in the averages to determine an effective yield on all loans. The average balances are principally daily averages.
- ----------------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 --------------------------- --------------------------- --------------------------- Average Average Average Average Average Average ($ in millions) Balance Interest Rate Balance Interest Rate Balance Interest Rate - ----------------------------------------------------------------------------------------------------------------------------------- Assets Interest-bearing deposits with banks In domestic offices $ 7,576 $ 432 5.70% $ 6,068 $ 434 7.15% $ 1,211 $ 56 4.62% In foreign offices 269 87 32.34% 1,514 185 12.22% 3,254 253 7.78% - ------------------------------------------------------------- ------------------ ------------------ Total interest-bearing deposits with banks 7,845 519 6.62% 7,582 619 8.16% 4,465 309 6.92% Federal funds sold (in domestic offices) 3,455 112 3.24% 1,589 100 6.29% 3,146 160 5.09% Securities purchased under resale agreements In domestic offices 633 24 3.79% 1,296 115 8.87% 8,386 545 6.50% In foreign offices 337 14 4.15% 625 14 2.24% 3,270 130 3.98% - ------------------------------------------------------------- ------------------ ------------------ Total securities purchased under resale agreements 970 38 3.92% 1,921 129 6.72% 11,656 675 5.79% Securities borrowed In domestic offices -- -- -- -- 7,254 312 4.30% In foreign offices -- -- -- -- 691 71 10.27% - ------------------------------------------------------------- ------------------ ------------------ Total securities borrowed -- -- -- -- 7,945 383 4.82% Trading assets In domestic offices (1) 1,629 88 5.40% 4,741 369 7.78% 6,118 489 7.99% In foreign offices 9,838 421 4.28% 9,342 552 5.91% 7,006 431 6.15% - ------------------------------------------------------------- ------------------ ------------------ Total trading assets (1) 11,467 509 4.44% 14,083 921 6.54% 13,124 920 7.01% Securities available for sale In domestic offices Taxable 230 21 9.13% 472 44 9.32% 2,398 171 7.13% Exempt from federal income taxes (1) 16 2 12.50% 16 1 6.25% 676 25 3.70% In foreign offices Taxable 12 1 8.33% 527 25 4.74% 3,460 191 5.52% Exempt from federal income taxes (1) -- -- -- -- 35 8 22.86% - ------------------------------------------------------------- ------------------ ------------------ Total securities available for sale (1) 258 24 9.30% 1,015 70 6.90% 6,569 395 6.01% Loans In domestic offices Commercial and industrial 7,724 521 6.75% 8,215 706 8.59% 6,674 492 7.37% Financial institutions 2,321 72 3.10% 1,950 115 5.90% 1,467 106 7.23% Secured by real estate 1,085 71 6.54% 1,359 118 8.68% 1,344 113 8.41% Other (1) 10,240 539 5.26% 8,685 630 7.25% 4,720 298 6.31% - ------------------------------------------------------------- ------------------ ------------------ Total in domestic offices (1) 21,370 1,203 5.63% 20,209 1,569 7.76% 14,205 1,009 7.10% In foreign offices 915 55 6.01% 2,486 161 6.48% 7,346 482 6.56% - ------------------------------------------------------------- ------------------ ------------------ Total loans, excluding fees (1) 22,285 1,258 5.65% 22,695 1,730 7.62% 21,551 1,491 6.92% Loan fees -- 49 --% -- 42 --% -- 31 --% - ------------------------------------------------------------- ------------------ ------------------ Total loans, including fees (1) 22,285 1,307 5.86% 22,695 1,772 7.81% 21,551 1,522 7.06% - ------------------------------------------------------------- ------------------ ------------------ Customer receivables (in domestic offices) 215 10 4.65% 351 27 7.69% 955 70 7.33% - ------------------------------------------------------------- ------------------ ------------------ Total Interest-Earning Assets(1) 46,495 $ 2,519 5.42% 49,236 $ 3,638 7.39% 69,411 $ 4,434 6.39% ======== ======== ======== Cash and due from banks 1,837 1,996 2,264 Noninterest-earning trading assets 1,956 4,157 15,008 Due from customers on acceptances 172 260 253 All other assets 9,144 8,400 10,266 Allowance for credit losses--loans (413) (415) (564) - -------------------------------------------------- ------- ------- Total Assets $59,191 $63,634 $96,638 ================================================== ======= ======= % of assets attributable to foreign offices 19% 23% 41%
(1) Interest and average rates are presented on a fully taxable basis. The applicable combined federal, state and local incremental tax rate used to determine the amounts of the tax equivalent adjustments to interest revenue (which recognize the income tax savings on tax-exempt assets) was 44 percent for 2001 and 2000, and 41 percent for 1999. 48 Bankers Trust Corporation and its Subsidiaries
- ----------------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 -------- -------- ------- -------- -------- ------- -------- -------- ------- Average Average Average Average Average Average ($ in millions) Balance Interest Rate Balance Interest Rate Balance Interest Rate - ----------------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholder's Equity Interest-bearing deposits In domestic offices Time deposits $ 2,835 $ 176 6.21% $ 3,646 $ 207 5.68% $ 8,006 $ 431 5.38% Other 6,635 291 4.38% 6,238 351 5.63% 6,658 263 3.95% - ------------------------------------------------------------ ------------------- ------------------- Total in domestic offices 9,470 467 4.93% 9,884 558 5.65% 14,664 694 4.73% In foreign offices Deposits from banks in foreign countries 218 -- --% 327 28 8.56% 3,283 256 7.80% Other time and savings deposits 4,120 174 4.22% 4,785 403 8.42% 9,021 428 4.74% Other -- -- 105 9 8.57% 388 46 11.86% - ------------------------------------------------------------ ------------------- ------------------- Total in foreign offices 4,338 174 4.01% 5,217 440 8.43% 12,692 730 5.75% - ------------------------------------------------------------ ------------------- ------------------- Total interest-bearing deposits 13,808 641 4.64% 15,101 998 6.61% 27,356 1,424 5.21% Trading liabilities In domestic offices 55 4 7.27% 54 2 3.70% 286 33 11.54% In foreign offices -- -- -- -- 2,294 98 4.27% - ------------------------------------------------------------ ------------------- ------------------- Total trading liabilities 55 4 7.27% 54 2 3.70% 2,580 131 5.08% Securities loaned and securities sold under repurchase agreements In domestic offices 3 -- --% 58 5 8.62% 5,944 415 6.98% In foreign offices 4 -- --% 8 1 12.50% 2,317 124 5.35% - ------------------------------------------------------------ ------------------- ------------------- Total securities loaned and securities sold under repurchase agreements 7 -- --% 66 6 9.09% 8,261 539 6.52% Other short-term borrowings In domestic offices 16,211 703 4.34% 11,801 946 8.02% 9,889 556 5.62% In foreign offices 600 67 11.17% 452 -- --% 2,996 240 8.01% - ------------------------------------------------------------ ------------------- ------------------- Total other short-term borrowings 16,811 770 4.58% 12,253 946 7.72% 12,885 796 6.18% Long-term debt In domestic offices 9,960 383 3.85% 14,197 839 5.91% 9,375 545 5.81% In foreign offices 620 15 2.42% 2,363 82 3.47% 5,922 63 1.06% - ------------------------------------------------------------ ------------------- ------------------- Total long-term debt 10,580 398 3.76% 16,560 921 5.56% 15,297 608 3.97% - ------------------------------------------------------------ ------------------- ------------------- Trust preferred securities 1,295 99 7.64% 1,373 115 8.38% 1,424 114 8.01% - ------------------------------------------------------------ ------------------- ------------------- Total Interest-Bearing Liabilities 42,556 $ 1,912 4.49% 45,407 $ 2,988 6.58% 67,803 $ 3,612 5.33% ======== ======== ======== Noninterest-bearing deposits In domestic offices 3,813 2,804 2,578 In foreign offices 1,057 1,059 1,597 - ------------------------------------------------- -------- -------- Total noninterest-bearing deposits 4,870 3,863 4,175 Noninterest-bearing trading liabilities 1,841 3,902 12,097 Acceptances outstanding 172 260 218 All other liabilities 4,681 5,853 7,856 Preferred stock of subsidiary 500 -- -- Stockholder's equity Preferred stock -- 271 393 Common Stockholder's equity 4,571 4,078 4,096 - ------------------------------------------------- -------- -------- Total Liabilities and Stockholder's Equity $ 59,191 $ 63,634 $ 96,638 ================================================= ======== ======== % of liabilities attributable to foreign offices 11% 14% 43% Rate spread 0.93% 0.81% 1.06% Net interest margin (net interest revenue to total interest- earning assets) In domestic offices $ 35,124 $ 285 0.81% $ 34,742 $ 236 0.68% $ 44,350 $ 509 1.15% In foreign offices 11,371 322 2.83% 14,494 414 2.86% 25,061 313 1.25% - ------------------------------------------------------------ ------------------- ------------------- Total $ 46,495 $ 607 1.31% $ 49,236 $ 650 1.32% $ 69,411 $ 822 1.18% ============================================================ =================== ===================
Bankers Trust Corporation and its Subsidiaries 49 Volume/Rate Analysis of Changes in Net Interest Revenue The following table attributes changes in fully taxable net interest revenue to changes in either average daily balances or average rates for both interest-earning assets and interest-bearing sources of funds. Because of the numerous simultaneous balance and rate changes during any period, it is not possible to precisely allocate such changes between balances and rates. For purposes of this table, changes that are not due solely to balance or rate changes are allocated to such categories based on the respective percentage changes in average daily balances and average rates.
- -------------------------------------------------------------------------------------------------------------------------------- 2001/00 2000/99 ------------------------------------- ------------------------------------ Increase (decrease) due to change in: Increase (decrease) due to change in: ------------------------------------- ------------------------------------ Average Average Average Average (in millions) Balance Rate Total Balance Rate Total - -------------------------------------------------------------------------------------------------------------------------------- Consolidated Interest Revenue Interest-bearing deposits with banks $ 21 $ (121) $ (100) $ 247 $ 63 $ 310 Federal funds sold 77 (65) 12 (92) 32 (60) Securities purchased under resale agreements (49) (42) (91) (639) 93 (546) Securities borrowed -- -- -- (383) -- (383) Trading assets (151) (261) (412) 65 (64) 1 Securities available for sale (65) 19 (46) (376) 51 (325) Loans (31) (434) (465) 84 166 250 Customer receivables (8) (9) (17) (46) 3 (43) - -------------------------------------------------------------------------------------------------------------------------------- Total interest revenue (206) (913) (1,119) (1,140) 344 (796) - -------------------------------------------------------------------------------------------------------------------------------- Interest Expense Interest-bearing deposits (80) (277) (357) (745) 319 (426) Trading liabilities -- 2 2 (101) (28) (129) Securities loaned and securities sold under repurchase agreements (3) (3) (6) (685) 152 (533) Other short-term borrowings 283 (459) (176) (41) 191 150 Long-term debt (276) (247) (523) 54 259 313 Trust preferred securities (6) (10) (16) (4) 5 1 - -------------------------------------------------------------------------------------------------------------------------------- Total interest expense (82) (994) (1,076) (1,522) 898 (624) - -------------------------------------------------------------------------------------------------------------------------------- Net change in net interest revenue $ (124) $ 81 $ (43) $ 382 $ (554) $(172) ================================================================================================================================ Domestic Offices Interest Revenue Interest-bearing deposits with banks $ 96 $ (98) $ (2) $ 333 $ 45 $ 378 Federal funds sold 77 (65) 12 (92) 32 (60) Securities purchased under resale agreements (43) (48) (91) (578) 149 (429) Securities borrowed -- -- -- (312) -- (312) Trading assets (192) (89) (281) (107) (13) (120) Securities available for sale (23) 1 (22) (213) 62 (151) Loans 88 (447) (359) 467 132 599 Customer receivables (8) (9) (17) (46) 3 (43) - -------------------------------------------------------------------------------------------------------------------------------- Total interest revenue (5) (755) (760) (548) 410 (138) - -------------------------------------------------------------------------------------------------------------------------------- Interest Expense Interest-bearing deposits (23) (68) (91) (254) 118 (136) Trading liabilities -- 2 2 (17) (14) (31) Securities loaned and securities sold under repurchase agreements (2) (3) (5) (489) 79 (410) Other short-term borrowings 281 (524) (243) 122 268 390 Long-term debt (210) (246) (456) 285 9 294 Trust preferred securities (6) (10) (16) (4) 5 1 Funds provided to foreign offices 14 (106) (92) 174 (307) (133) Funds provided by foreign offices (156) (20) (176) (146) 79 (67) - -------------------------------------------------------------------------------------------------------------------------------- Total interest expense (102) (975) (1,077) (329) 237 (92) - -------------------------------------------------------------------------------------------------------------------------------- Net change in net interest revenue $ 97 $ 220 $ 317 $ (219) $ 173 $ (46) ================================================================================================================================ Foreign Offices Interest Revenue Interest-bearing deposits with banks $ (236) $ 138 $ (98) $ (173) $ 105 $ (68) Securities purchased under resale agreements (8) 8 -- (76) (41) (117) Securities borrowed -- -- -- (71) -- (71) Trading assets 28 (159) (131) 139 (18) 121 Securities available for sale (35) 11 (24) (145) (29) (174) Loans (95) (11) (106) (317) (32) (349) - -------------------------------------------------------------------------------------------------------------------------------- Total interest revenue (346) (13) (359) (643) (15) (658) - -------------------------------------------------------------------------------------------------------------------------------- Interest Expense Interest-bearing deposits (65) (201) (266) (542) 252 (290) Trading liabilities -- -- -- (98) -- (98) Securities loaned and securities sold under repurchase agreements -- (1) (1) (194) 71 (123) Other short-term borrowings -- 67 67 (110) (130) (240) Long-term debt (48) (19) (67) (56) 75 19 Funds provided by domestic offices (14) 106 92 (174) 307 133 Funds provided to domestic offices 156 20 176 146 (79) 67 - -------------------------------------------------------------------------------------------------------------------------------- Total interest expense 29 (28) 1 (1,028) 496 (532) - -------------------------------------------------------------------------------------------------------------------------------- Net change in net interest revenue $ (375) $ 15 $ (360) $ 385 $ (511) $(126) ================================================================================================================================
50 Bankers Trust Corporation and its Subsidiaries Deposits The Corporation's certificates of deposit and other time deposits issued by domestic and foreign offices in amounts of $100,000 or more, together with their remaining maturities, and other interest-bearing deposits at December 31, 2001 were as follows:
- ------------------------------------------------------------------------------------- (in millions) Domestic Foreign Total - ------------------------------------------------------------------------------------- Certificates of deposit of $100,000 or more 3 months or less $ 15 $ -- $ 15 Over 3 through 6 months -- -- -- Over 6 through 12 months 2 -- 2 Over 12 months 285 -- 285 - ------------------------------------------------------------------------------------- Total 302 -- 302 - ------------------------------------------------------------------------------------- Other time deposits of $100,000 or more 3 months or less 184 103 287 Over 3 through 6 months 11 7 18 Over 6 through 12 months 1 -- 1 Over 12 months 497 -- 497 - ------------------------------------------------------------------------------------- Total 693 110 803 - ------------------------------------------------------------------------------------- Other 9,355 3,085 12,440 - ------------------------------------------------------------------------------------- Total interest-bearing deposits $ 10,350 $ 3,195 $ 13,545 =====================================================================================
Deposits by foreign depositors in domestic offices amounted to $0.9 billion, $1.1 billion and $1.5 billion at December 31, 2001, 2000 and 1999, respectively. Supplemental Data
- ----------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 - ----------------------------------------------------------------------------------------------- Profitability Ratios Return on average common stockholder's equity 6.0% 12.1% N/M N/M 15.6% Return on average total stockholder's equity 6.0% 11.8% N/M N/M 14.6% Return on average total assets 0.46% 0.80% N/M N/M 0.63% Employees, at December 31 In domestic offices 5,435 5,486 6,342 11,005 10,585 In foreign offices 347 682 1,433 9,536 8,070 - ----------------------------------------------------------------------------------------------- Total 5,782 6,168 7,775 20,541 18,655 ===============================================================================================
* Certain 2001, 2000 and 1999 amounts are not comparable to prior year periods due to significant business and net financial asset transfers to Deutsche Bank entities, charges reflecting changes in management intent and responsibility regarding certain assets and the sale of Bankers Trust Australia Limited in 1999. N/M Not Meaningful Bankers Trust Corporation and its Subsidiaries 51 DESCRIPTION OF BUSINESS Acquisition by Deutsche Bank AG On June 4, 1999, the change-in-control ("COC") date, pursuant to an agreement dated as of November 30, 1998, between Deutsche Bank AG ("Deutsche Bank") and Bankers Trust Corporation ("Bankers Trust"), Deutsche Bank, through its U.S. holding corporation, Taunus Corporation ("Taunus"), acquired all of the outstanding shares of common stock of Bankers Trust from its shareholders at a price of $93.00 per share (the "Acquisition"). On June 5, 1999, Bankers Trust transferred its wholly-owned subsidiary BT Alex. Brown Incorporated ("BTAB") and substantially all of its interest in Bankers Trust International PLC ("BTI") to Deutsche Bank Securities Inc. ("DBSI") and Deutsche Holdings (BTI) Ltd., respectively, which are wholly-owned subsidiaries of Deutsche Bank. The transfer of BTAB to DBSI took the form of an exchange of stock pursuant to which BTAB became a wholly-owned subsidiary of DBSI and Bankers Trust received shares of DB U.S. Financial Markets Holding Corporation ("DBUSH"), the parent of DBSI. In the third quarter of 1999, Bankers Trust sold its shares of DBUSH to Taunus for approximately $800 million. The transfer of substantially all of Bankers Trust's interest in BTI was for cash in the amount of approximately $1.7 billion. 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 a price of approximately $1.3 billion. Prior to the sale, BTAL remitted to Bankers Trust Corporation a dividend for accumulated retained earnings that included proceeds from BTAL's sale of its investment banking division to Macquarie Bank. The Corporation also received cash for the assumption of certain BTAL long-term debt. Bankers Trust Corporation recognized a pretax gain of approximately $779 million in the third quarter of 1999 on the sale of BTAL. In 2001, a final payment was received under the sales agreement and as a result, the Corporation recorded revenue of $24 million. In connection with the Acquisition, and in addition to the foregoing transactions, the Corporation has transferred 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. In conjunction with the Acquisition and to strengthen the Corporation's capital base, Deutsche Bank made a capital contribution of $1.4 billion in the second quarter of 1999. See Note 1 of Notes to Financial Statements for more information on the Acquisition by Deutsche Bank. Prior to the Acquisition, the Corporation 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 and private banking businesses. Bankers Trust Corporation Bankers Trust Corporation is a registered bank holding company that was incorporated in 1965. Bankers Trust is the parent of Bankers Trust Company ("BTCo" or the "Bank") and its other subsidiaries. Bankers Trust is a legal entity separate and distinct from its subsidiaries, including BTCo. There are various legal limitations governing the extent to which certain of Bankers Trust's subsidiaries may extend credit, pay dividends or otherwise supply funds to, or engage in transactions with, Bankers Trust or certain of its other subsidiaries. The rights of Bankers Trust to participate in any distribution of assets of any subsidiary upon its dissolution, winding-up, liquidation or reorganization or otherwise are subject to the prior claims of creditors of that subsidiary, except to the extent that Bankers Trust may itself be a creditor of that subsidiary and its claims are recognized. Claims on Bankers Trust's subsidiaries by creditors other than Bankers Trust include long-term debt and substantial obligations with respect to deposit liabilities, trading liabilities, federal funds purchased, securities sold under repurchase agreements and commercial paper, as well as short-term borrowings and accounts payable. Disposition of Assets On September 29, 2000, Bankers Trust transferred its wholly-owned subsidiary BT Holdings (New York), Inc. ("BTH") to DBUSH and Taunus. 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, substantially all of which were financial assets, on the date of transfer. The Corporation recognized a pretax gain of approximately $561 million for the year ended December 31, 2000. Refer to the Corporation's report on Form 8-K dated September 29, 2000. Business Segments The Corporation realigned its businesses into two client-focused group divisions: the Corporate and Investment Bank Group and the Private Clients and Asset Management Group to correspond to the reorganization implemented by Deutsche Bank during the first quarter of 2001. The reorganization also involved the transfer of its principal investing business to the group division Corporate Investments. Corporate and Investment Bank Group includes the business segments Corporate Banking and Securities and Global Transaction Banking. Corporate Banking and Securities includes sales, trading and corporate finance activities. Global Transaction Banking consists of trade services, cash management, custody and corporate trust and agency services. Private Clients and Asset Management Group includes the business segments Private Banking and Asset Management. Private Banking consists of banking services to private clients, self-employed individuals as well as to smaller business clients, and offers a wide variety of banking products to these clients including financial planning services and market research and investment strategies for high net worth individuals. Asset Management consists of the institutional asset management and retail investment fund businesses. 52 Bankers Trust Corporation and its Subsidiaries Corporate Investments includes venture capital and private equity investments prior to the transfer of BTH at the end of the third quarter of 2000 and the corresponding cessation of most principal investment activities by the Corporation. See Note 18 of Notes to Financial Statements for a description of these Business Segments. Bankers Trust Company Bankers Trust's principal banking subsidiary is Bankers Trust Company. BTCo, founded in 1903, originates loans and other forms of credit, accepts deposits, arranges financings and provides numerous other commercial banking and financial services. Bankers Trust (Delaware) Bankers Trust (Delaware) is a state bank chartered under the laws of Delaware. Bankers Trust (Delaware) engages in commercial banking activities, with an emphasis on lending, funding and corporate finance. Supervision and Regulation Bankers Trust is a bank holding company within the meaning of the Bank Holding Company Act of 1956, and as such is required to register with the Federal Reserve Board. As a registered bank holding company, Bankers Trust is required to file with the Federal Reserve Board certain reports and information and is restricted in certain of its acquisitions, some of which are subject to approval by the Federal Reserve Board. In addition, Bankers Trust may be required to obtain the approval of the New York State Banking Department in order for it to acquire certain bank and non-bank subsidiaries. Bankers Trust, its nonbank subsidiaries and certain of its affiliates, including Deutsche Bank, New York branch, are affiliates of BTCo and Bankers Trust (Delaware) within the meaning of applicable federal statutes, and such banks are therefore subject to restrictions on loans and other extensions of credit to Bankers Trust and certain other affiliates and on certain other types of transactions with them or involving their securities. BTCo is subject to the supervision of, and to examination by, the New York State Banking Department, the Federal Reserve Board and the Federal Deposit Insurance Corporation. Bankers Trust (Delaware) is subject to regulation by the Office of the State Bank Commissioner of the State of Delaware and by the Federal Deposit Insurance Corporation. See Note 13 of Notes to Financial Statements for the required reserve balances maintained by the Corporation's subsidiary banks at a Federal Reserve Bank and limitations on the availability of BTCo's undistributed earnings for the payment of dividends. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") provides for cross-guarantees of the liabilities of insured depository institutions pursuant to which any bank or savings association subsidiary of a holding company may be required to reimburse the FDIC for any loss or anticipated loss to the FDIC that arises from a default of any other subsidiary bank or savings association of the parent holding company or assistance provided to such an institution in danger of default. In December 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was enacted. FDICIA substantially revised the bank regulatory and funding provisions of the Federal Deposit Insurance Act and revised several other federal banking statutes. FDICIA establishes five capital categories, ranging from "well capitalized," to "critically undercapitalized." A depository institution is well capitalized if it significantly exceeds the minimum level required by regulation for each relevant capital measure. Under FDICIA, an institution that is not well capitalized is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market; in addition, "pass through" insurance coverage may not be available for certain employee benefit accounts. FDICIA also requires an undercapitalized depository institution to submit an acceptable capital restoration plan to the appropriate federal bank regulatory agency. One requisite element of such a plan is that the institution's parent holding company must guarantee compliance by the institution with the plan, subject to certain limitations. In the event of the parent holding company's bankruptcy, the guarantee, and any other commitments that the parent holding company has made to federal bank regulators to maintain the capital of its depository institution subsidiaries, would be assumed by the bankruptcy trustee and entitled to priority in payment. Based on their respective regulatory capital ratios at December 31, 2001, both BTCo and Bankers Trust (Delaware) are well capitalized, based on the definitions in the regulations issued by the Federal Reserve Board and the other federal bank regulatory agencies setting forth the general capital requirements mandated by FDICIA. See Note 13 of Notes to Financial Statements for information regarding the Corporation's and BTCo's regulatory capital ratios. FDICIA contains numerous other provisions, including reporting requirements, termination of the "too big to fail" doctrine except for special cases, limitations on the FDIC's payment of deposits at foreign branches and revised regulatory standards for, among other things, real estate lending and capital adequacy. A federal depositor preference statute was enacted in 1993 providing that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general claims against such an institution, including federal funds and letters of credit, in the "liquidation or other resolution" of such an institution by any receiver. In November 1999 federal financial modernization legislation was enacted which allows qualifying banks and bank holding companies to elect to be treated as financial holding companies ("FHCs"). FHCs may engage in a broader range of activity than non-FHCs, which are limited to the activities traditionally permissible for bank holding companies. Although bank regulatory authorities have issued interim and proposed regulations, as well as some final regulations, the full scope of the new powers available to FHCs will only become clear after all regulatory authorities adopt final implementing regulations. The expanded activities include insurance underwriting and agency Bankers Trust Corporation and its Subsidiaries 53 activities, and expanded securities, mutual fund and merchant banking activities. The ability to engage in information technology and data processing related businesses has also been expanded. The expanded scope of activities permits the affiliation of firms, such as banks and insurance companies, not permissible under prior law. Certain of these activities, including activities presently included in Bankers Trust Company, must be "pushed out" to affiliates of the Corporation which are Deutsche Bank entities. In order to qualify to make the FHC election, the electing foreign bank or the bank subsidiaries of the electing bank holding company, as the case may be, must be "well capitalized," "well managed," and, if subject to the CRA, have at least a "satisfactory" CRA rating. In the case of Bankers Trust, Deutsche Bank, BTCo and Bankers Trust (Delaware) are all required to meet the standards (or their equivalent) for it to maintain FHC status. The modernization legislation also modifies current law related to financial privacy and community reinvestment. The new financial privacy provisions generally prohibit financial institutions, including the Corporation, from disclosing nonpublic personal financial information to third parties unless customers have the opportunity to "opt out" of the disclosure. Although Deutsche Bank has received FHC status, the Corporation at this time is unable to predict the impact the modernization legislation may have on it and its affiliates. In addition to banking and securities laws, regulations and regulatory agencies governing the Corporation worldwide, the Corporation also is subject to various other laws, regulations and regulatory agencies throughout the United States and in other countries, including Germany. Furthermore, various proposals, bills and regulations have been, and may in the future be, considered in the United States Congress, the New York State Legislature and various other governmental regulatory and legislative bodies, which could result in changes in the profitability and governance of the Corporation. Changes in German laws and regulations would also affect the profitability and governance of the Corporation. References under the caption "Supervision and Regulation" to applicable statutes, regulations and orders are brief summaries of portions thereof which do not purport to be complete and which are qualified in their entirety by reference thereto. Important Factors Relating to Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in such statements. In connection with certain statements made in this report and those that may be made in the future by or on behalf of the Corporation which are identified as forward-looking statements, the Corporation notes that the following important factors, among others, could cause actual results to differ materially from those set forth in any such forward-looking statements. Further, such forward-looking statements speak only as of the date on which such statement or statements are made, and the Corporation undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. The business and profitability of a large financial services organization such as the Corporation is influenced by prevailing economic conditions and governmental policies, both foreign and domestic. The actions and policy directives of the Federal Reserve Board determine to a significant degree the cost and the availability of funds obtained from money market sources for lending and investing. Federal Reserve Board policies and regulations also influence, directly and indirectly, the rates of interest paid by commercial banks on their interest-bearing deposits and may also impact the value of financial instruments held by the Corporation. The nature and impact on the Corporation of future changes in economic and market conditions and monetary and fiscal policies, both foreign and domestic, are not predictable and are beyond the Corporation's control. In addition, these conditions and policies can impact the Corporation's customers and counterparties which may increase the risk of default on their obligations to the Corporation and its affiliates. They can also affect the competitive conditions in the markets and products within which the Corporation operates, which can have an adverse impact on the Corporation's ability to maintain its revenue streams. As part of its ongoing business, the Corporation assumes financial exposures to interest rates, currencies, equities and other financial products. In doing so, the Corporation is subject to unforeseen events which may not have been anticipated or which may have effects which exceed those assumed within its risk management processes. This risk can be accentuated by volatility and reduction in liquidity in those markets, which in turn can impact the Corporation's ability to hedge and trade the positions concerned. In addition, the Corporation is dependent on the ability of Deutsche Bank to access the financial markets for its funding needs. The operations of the Corporation and its affiliates, which are widely diversified geographically and vary from country to country, involve certain economic, political and legal risks which differ from those associated with their U.S. operations. These risks include, among others, the possibility of expropriation of assets, exchange rate fluctuations, severe reductions in business levels, restrictions on the withdrawal of funds, balance-of-payments problems and changes in laws and regulations. In addition, in certain jurisdictions the operations of the Corporation and its affiliates may involve legal uncertainties. See "Cross-Border Outstandings" on page 15. Further, certain financial institutions with which the Corporation competes may not be subject to the same regulatory restrictions as the Corporation and its affiliates which may make it more difficult for the Corporation to compete with those institutions for business. As noted in "Supervision and Regulation" on page 53, the Corporation is regulated by and subject to various domestic and international regulators. The actions of these regulators can have an impact on the profitability and governance of the Corporation. Increases by regulatory authorities of minimum capital, reserve, deposit insurance and other financial viability requirements can also affect the Corporation's profitability. 54 Bankers Trust Corporation and its Subsidiaries The Corporation is subject to operational and control risk which is the potential for loss caused by a breakdown in communication, information, processing and settlement systems or processes or a lack of compliance with the procedures on which they rely either within the Corporation and its affiliates or within the broader financial systems infrastructure. As with any large financial institution, the Corporation is also subject to the risk of litigation and to an unexpected or adverse outcome in such litigation. Competitive pressures in the marketplace and unfavorable or adverse publicity and news coverage can have the effect of lessening customer demand for the Corporation's services. Ultimately, the Corporation's businesses and their success are dependent on the Corporation's ability to attract and retain high quality employees. Properties BTCo owns a 39-story building at 130 Liberty Street and a 10-story office building at 4 Albany Street, both in Manhattan. The Corporation is currently evaluating the future plans for 130 Liberty Street which was severely damaged due to the destruction of the World Trade Center. The Corporation's building at 4 Albany Street, which was less severely damaged, will be renovated, although no timetable for reoccupation has been established. The principal office premises leased are a portion of a 42-story office building located at 280 Park Avenue, seven stories of a 37-story building at 14-16 Wall Street, both in Manhattan, an eight-story building in Jersey City, New Jersey, and a three-story building in Nashville, Tennessee. Portions of certain of these properties are leased to tenants or subtenants. Also, the Corporation utilizes a portion of a 47-story building owned by Deutsche Bank at 60 Wall Street in Manhattan. In addition to the offices referred to above, branch offices and locations for other activities are occupied in cities throughout the world under various types of ownership and leaseholds. The majority of the properties above support all of the Corporation's business segments. See Note 6 of Notes to Financial Statements for additional information concerning lease commitments. Litigation and Related Matters 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. Since January 2001, Bankers Trust Company has been named as one of numerous defendants in more than a dozen actions (certain of which are brought as class actions) filed in the Superior Court of the State of California, County of Los Angeles, all of which have been consolidated and assigned to a single judge. Pursuant to the Court's orders, plaintiffs have served two amended model complaints, one denominated as a class action and the other denominated as an individual action. The actions arise out of the default of Stanwich Financial Services Corporation in connection with certain structured settlement agreements entered into principally in the early 1980s. Stanwich is presently in reorganization proceedings under the United States Bankruptcy Code. Bankers Trust Company is alleged to have served as "trustee" under certain trust agreements in the mid 1990s. On July 17, 2001, the California Court sustained demurrers by Bankers Trust Company to the model class and individual complaints in these actions. Plaintiffs have filed second amended model complaints alleging claims of breach of contract, breach of trust, breach of fiduciary duty, tortious breach of the implied covenant of good faith and fair dealing, intentional interference with contract, negligence, bad faith denial of contract, constructive fraud, reformation, unfair business practices and declaratory relief, and seeking unspecified compensatory and punitive damages and certain other relief. The Superior Court of the State of California denied the demurrers of Bankers Trust Company's second amended model complaints and certified the class in the second amended model class action complaint. Two other individual actions brought on behalf of other structured settlement payees are pending in Montana. The court in those cases denied Bankers Trust Company's motion to dismiss the complaints. The Corporation believes that Bankers Trust Company has meritorious defenses in these actions and intends to defend these matters vigorously. In addition to the matters described above, various legal actions and proceedings involving Bankers Trust and various of its subsidiaries are currently pending. Management, after discussions with counsel, does not anticipate that losses, if any, resulting from such actions and proceedings would be material to the financial condition of the Corporation. Bankers Trust Corporation and its Subsidiaries 55 Form 10-K Signatures Pursuant to the requirements of Section 13 or 15(d) 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 April 1, 2002. Bankers Trust Corporation By /S/ JAMES T. BYRNE, JR. ------------------------------------- (James T. Byrne, Jr., Secretary) - -------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on April 1, 2002. JUERGEN FITSCHEN* Chairman of the Board, - ------------------------------------- (Juergen Fitschen) Chief Executive Officer, and Director (Principal Executive Officer) DOUGLAS R. BARNARD* Chief Financial Officer - ------------------------------------- (Douglas R. Barnard) (Principal Financial Officer and Principal Accounting Officer) ROBERT B. ALLARDICE III* Director - ------------------------------------- (Robert B. Allardice III) HANS H. ANGERMUELLER* Director - ------------------------------------- (Hans H. Angermueller) GEORGE B. BEITZEL* Director - ------------------------------------- (George B. Beitzel) JESSICA P. EINHORN* Director - ------------------------------------- (Jessica P. Einhorn) WILLIAM R. HOWELL* Director - ------------------------------------- (William R. Howell) JOHN A. ROSS* Director - ------------------------------------- (John A. Ross) MAYO A. SHATTUCK III* Director - ------------------------------------- (Mayo A. Shattuck III) *By /S/ JAMES T. BYRNE, JR. --------------------------------- (James T. Byrne, Jr., Attorney-in-Fact) 56 Bankers Trust Corporation and its Subsidiaries UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 EXHIBITS TO FORM 10-K Filed Under THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 BANKERS TRUST CORPORATION Bankers Trust Corporation and its Subsidiaries 57 BANKERS TRUST CORPORATION EXHIBIT INDEX TO FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 3. Articles of Incorporation and By-laws, as amended (i) Restated Certificate of Incorporation of the Registrant filed with the State of New York on June 4, 1999 (18) (ii) By-laws as in effect June 22, 1999 (18) (iii) By-laws as in effect May 18, 2001 * 4. Instruments Defining the Rights of Security Holders, Including Indentures (ii) Long-Term Debt Indentures (1) 10. Material Contracts (ii) (D) Leases for Principal Premises Described on Page 55 Lease Agreement relating to the seven stories of a 37-story building located at 14-16 Wall Street (2) Lease Agreement relating to the eight-story building located in Jersey City, New Jersey (3) Lease Agreement relating to the eight-story building located in London, England (4) Lease Agreement relating to the three-story building in Nashville, Tennessee (5) Lease abstract relating to Four World Trade Center, New York (iii) (A) Management Contracts and Compensation Plans (16) (1) Employment Contract for Frank N. Newman (11) (2) Severance agreement with B.J. Kingdon (12) (3) Employment agreements in connection with the Agreement and Plan of Merger between Bankers Trust and Deutsche Bank (a) Frank N. Newman (16) (b) Mary Cirillo (16) (c) Mayo A. Shattuck III (16) (d) Yves C. de Balmann (16) (4) 1994 Stock Option and Stock Award Plan (7) (5) 1991 Stock Option and Stock Award Plan (8) (6) 1985 Stock Option and Stock Award Plan (9) January, 1989 amendments thereto (6) (7) Additional Capital Accumulation Plan (10) (8) The Supplemental Executive Retirement Plan (4) (9) Deferred Compensation Plan for Directors (1) (10) January, 1989 amendments to the Deferred Compensation Plan for Directors and The Supplemental Executive Retirement Plan (7) (11) Partnership for One-Hundred Plan II (13) (12) Bankers Trust New York Corporation Change in Control Severance Plan I (16) (13) Split Dollar Insurance Agreement (14) (14) Alex. Brown Incorporated 1996 Equity Incentive Plan (14) (15) Stock Option Agreement, dated as of November 30, 1998 between Bankers Trust Corporation and Deutsche Bank A.G. (15) (16) Severance Agreement with Frank N. Newman (17) (17) Severance Agreement with Richard H. Daniel (17) (18) Severance Agreement with Yves C. de Balmann (19) (19) Severance Agreement with Rodney A. McLauchlan (19) 58 Bankers Trust Corporation and its Subsidiaries 12. Statements Re Computation of Ratios Computation of Consolidated Ratios of Earnings to Fixed Charges * 23. Consents of Experts * 24. Power of Attorney * *Filed herewith. (NOTE: FOOTNOTE REFERENCES FOR THIS INDEX APPEAR ON THE NEXT PAGE.) Bankers Trust Corporation and its Subsidiaries 59 BANKERS TRUST CORPORATION EXHIBIT INDEX TO FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 FOOTNOTE REFERENCES (1) This document is incorporated by reference from Bankers Trust Corporation's Form 8-K dated November 10, 1995, file number 1-5920. (2) This document is incorporated by reference from Bankers Trust Corporation's Form 10-K for the year ended December 31, 1986, file number 1-5920. (3) This document is incorporated by reference from Bankers Trust Corporation's Form 10-K for the year ended December 31, 1983, file number 1-5920. (4) This document is incorporated by reference from Bankers Trust Corporation's Form 10-K for the year ended December 31, 1987, file number 1-5920. (5) This document is incorporated by reference from Bankers Trust Corporation's Form 10-K for the year ended December 31, 1992, file number 1-5920. (6) This document is incorporated by reference from Bankers Trust Corporation's Form 10-K for the year ended December 31, 1993, file number 1-5920. (7) This document is incorporated by reference from Bankers Trust Corporation's Registration Statement on Form S-8 (No. 33-54971) as filed on August 9, 1994. (8) This document is incorporated by reference from Bankers Trust Corporation's Registration Statement on Form S-8 (No. 33-41014) as filed on June 10, 1991. (9) This document is incorporated by reference from Bankers Trust Corporation's Proxy Statement dated as of March 21, 1988, file number 1-5920. (10) This document is incorporated by reference from Bankers Trust Corporation's Form 10-K for the year ended December 31, 1989, file number 1-5920. (11) This document is incorporated by reference from Bankers Trust Corporation's Form 10-K for the year ended December 31, 1995, file number 1-5920. (12) This document is incorporated by reference from Bankers Trust Corporation's Form 10-Q dated May 15, 1997, file number 1-5920. (13) This document is incorporated by reference from Bankers Trust Corporation's Form 10-Q dated August 14, 1997, file number 1-5920. (14) This document is incorporated by reference from Bankers Trust Corporation's Form 10-Q dated November 14, 1997, file number 1-5920. (15) This document is incorporated by reference from Bankers Trust Corporation's Form 8-K dated November 30, 1998, file number 1-5920. (16) This document is incorporated by reference from Bankers Trust Corporation's Form 10-K for the year ended December 31, 1998, file number 1-5920. (17) This document is incorporated by reference from Bankers Trust Corporation's Form 10-Q dated August 16, 1999, file number 1-5920. (18) This document is incorporated by reference from Bankers Trust Corporation's Form 10-K for the year ended December 31, 1999, file number 1-5920. (19) This document is incorporated by reference from Bankers Trust Corporation's Form 10-K for the year ended December 31, 2000, file number 1-5920. 60 Bankers Trust Corporation and its Subsidiaries EX-3.IIII 3 ex-3iii.txt BY-LAWS AS IN EFFECT MAY 18, 2001 BY-LAWS MAY 18, 2001 Bankers Trust Corporation (Incorporated under the New York Business Corporation Law) BANKERS TRUST CORPORATION BY-LAWS ARTICLE I SHAREHOLDERS SECTION 1.01 Annual Meetings. The annual meetings of shareholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held in January of each year. SECTION 1.02 Special Meetings. Special meetings of the shareholders, except those regulated otherwise by statute, may be called at any time by the Board of Directors, or by any person or committee expressly so authorized by the Board of Directors and by no other person or persons. SECTION 1.03 Place of Meetings. Meetings of shareholders shall be held at such place within or without the State of New York as shall be determined from time to time by the Board of Directors or, in the case of special meetings, by such person or persons as may be authorized to call a meeting. The place in which each meeting is to be held shall be specified in the notice of such meeting. SECTION 1.04 Notice of Meetings. A copy of the written notice of the place, date and hour of each meeting of shareholders shall be given personally or by mail, not less than ten nor more than fifty days before the date of the meeting, to each shareholder entitled to vote at such meeting. Notice of a special meeting shall indicate that it is being issued by or at the direction of the person or persons calling the meeting and shall also state the purpose or purposes for which the meeting is called. SECTION 1.05 Record Date. For the purpose of determining the shareholders entitled to notice of or to vote any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than fifty nor less than ten days before the date of such meeting, nor more than fifty days prior to any other action. SECTION 1.06 Quorum. The presence, in person or by proxy, of the holders of a majority of the shares entitled to vote thereat shall constitute a quorum at a meeting of shareholders for the transaction of business, except as otherwise provided by statute, by the Certificate of Incorporation or by the By-Laws. The shareholders present in person or by proxy and entitled to vote at any meeting, despite the absence of a quorum, shall have power to adjourn the meeting from time to time, to a designated time and place, without notice other than by announcement at the meeting, and at any adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. SECTION 1.07 Business at Annual Meeting. At an annual meeting of shareholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors or by any shareholder of the corporation. ARTICLE II BOARD OF DIRECTORS SECTION 2.01 Number and Qualifications. The business of the corporation shall be managed by its Board of Directors. The number of directors constituting the entire Board of Directors shall be not less than seven nor more than fifteen, as shall be fixed from time to time by vote of a majority of the entire Board of Directors. Each director shall be at least 21 years of age. Directors need not be shareholders. No Officer-Director who shall have attained age 65, or earlier relinquishes his responsibilities and title, shall be eligible to serve as a director. SECTION 2.02 Election. At each annual meeting of shareholders, directors shall be elected by a plurality of the votes to hold office until the next annual meeting. Subject to the provisions of the statute, of the Certificate of Incorporation and of the By-Laws, each director shall hold office until the expiration of the term for which elected, and until his successor has been elected and qualified. SECTION 2.03 Nomination and Notification of Nomination. Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, nominations for the election of directors may be made by the Board of Directors or to any committee appointed by the Board of Directors or by any shareholder entitled to vote in the election of directors generally. 2 SECTION 2.04 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such places and times as may be fixed from time to time by resolution of the Board and a regular meeting for the purpose of organization and transaction of other business shall be held each year after the adjournment of the annual meeting of shareholders. SECTION 2.05 Special Meetings. The Chairman of the Board, the Chief Executive Officer, the President, any Co-President or any Vice Chairman may, and at the request of three directors shall, call a special meeting of the Board of Directors, two days' notice of which shall be given in person or by mail, electronic mail, telephone or via facsimile transmission. Notice of a special meeting need not be given to any director who submits a signed waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him. SECTION 2.06 Place of Meeting. The directors may hold their meetings, have one or more offices, and keep the books of the corporation (except as may be provided by law) at any place, either within or without the State of New York, as they may from time to time determine. SECTION 2.07 Quorum and Vote. At all meetings of the Board of Directors the presence of one-third of the entire Board, but not less than two directors, shall constitute a quorum for the transaction of business. Any one or more members of the Board of Directors or of any committee thereof may participate in a meeting of the Board of Directors or a committee thereof by means of a conference telephone, video conference or similar communications equipment which allows all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at such a meeting. The vote of a majority of the directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board of Directors, except as may be otherwise provided by statute or the By-Laws. SECTION 2.08 Vacancies. Newly created directorships resulting from increase in the number of directors and vacancies in the Board of Directors, whether caused by resignation, death, removal or otherwise, may be filled by vote of a majority of the directors then in office, although less than a quorum exists. 3 ARTICLE III EXECUTIVE AND OTHER COMMITTEES SECTION 3.01 Designation and Authority. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members an Executive Committee and other committees, each consisting of three or more directors, except for the Transaction Authorization Committee which shall consist of at least two directors. Each such committee, to the extent provided in the resolution or the By-Laws, shall have all the authority of the Board, except that no such committee shall have authority as to: (i) the submission to shareholders of any action as to which shareholders' authorization is required by law. (ii) the filling of vacancies in the Board of Directors or any committee. (iii) the fixing of compensation of directors for serving on the Board or on any committee. (iv) the amendment or appeal of the By-Laws, or the adoption of new By-Laws. (v) the amendment or repeal of any resolution of the Board which by its terms shall not be so amendable or repealable. The Board may designate one or more directors as alternate members of any such committee, who may replace any absent member or members at any meeting of such committee. Each such committee shall serve at the pleasure of the Board of Directors. SECTION 3.02 Procedure. Except as may be otherwise provided by statute, by the By-Laws or by resolution of the Board of Directors, each committee may make rules for the call and conduct of its meetings. Each committee shall keep a record of its acts and proceedings and shall report the same from time to time to the Board of Directors. 4 ARTICLE IV OFFICERS SECTION 4.01 Titles and General. The Board of Directors shall elect from among their number a Chairman of the Board and a Chief Executive Officer, and may also elect a President, two or more Co-Presidents, one or more Vice Chairmen, one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Directors, one or more Vice Presidents, a Secretary, a Controller, a Treasurer, a General Counsel, a General Auditor, and a General Credit Auditor, who need not be directors. The officers of the corporation may also include such other officers or assistant officers as shall from time to time be elected or appointed by the Board. The Chairman of the Board or the Chief Executive Officer or, in their absence, the President, any Co-President or any Vice Chairman, may from time to time appoint assistant officers. All officers elected or appointed by the Board of Directors shall hold their respective offices during the pleasure of the Board of Directors, and all assistant officers shall hold office at the pleasure of the Board or the Chairman of the Board or the Chief Executive Officer or, in their absence, the President, any Co-President or any Vice Chairman. The Board of Directors may require any and all officers and employees to give security for the faithful performance of their duties. SECTION 4.02 Chairman of the Board. The Chairman of the Board shall preside at all meetings of the shareholders and of the Board of Directors. Subject to the Board of Directors, he shall exercise all the powers and perform all the duties usual to such office and shall have such other powers as may be prescribed by the Board of Directors or the Executive Committee or vested in him by the By-Laws. SECTION 4.03 Chief Executive Officer. The Board of Directors shall designate the Chief Executive Officer of the corporation, which person may also hold the additional title of Chairman of the Board, or President, or Co-President. Subject to the Board of Directors, he shall exercise all the powers and perform all the duties usual to such office and shall have such other powers as may be prescribed by the Board of Directors or the Executive Committee or vested in him by the By-Laws. SECTION 4.04 Chairman of the Board, President, Co-Presidents, Vice Chairmen, Executive Vice Presidents, Senior Vice Presidents, Directors and Vice Presidents. The Chairman of the Board or, in his absence or incapacity the President or any Co-President or, in his absence or incapacity, the Vice Chairmen, the Executive Vice Presidents, or in their absence, the Senior Vice Presidents, in the order established by the Board of Directors shall, in the absence or incapacity of the Chief Executive Officer perform the duties of the Chief Executive Officer. The President, the Co-Presidents, the Vice Chairmen, the Executive Vice Presidents, the Senior Vice Presidents, the Directors, and the Vice Presidents shall also perform such other 5 duties and have such other powers as may be prescribed or assigned to them, respectively, from time to time by the Board of Directors, the Executive Committee, the Chief Executive Officer, or the By-Laws. SECTION 4.05 Controller. The Controller shall perform all the duties customary to that office and except as may be otherwise provided by the Board of Directors shall have the general supervision of the books of account of the corporation and shall also perform such other duties and have such powers as may be prescribed or assigned to him from time to time by the Board of Directors, the Executive Committee, the Chief Executive Officer, or the By-Laws. SECTION 4.06 Secretary. The Secretary shall keep the minutes of the meetings of the Board of Directors and of the shareholders and shall have the custody of the seal of the corporation. He shall perform all other duties usual to that office, and shall also perform such other duties and have such powers as may be prescribed or assigned to him from time to time by the Board of Directors, the Executive Committee, the Chairman of the Board, the Chief Executive Officer, or the By-Laws. ARTICLE V INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS SECTION 5.01 The corporation shall, to the fullest extent permitted by Section 721 of the New York Business Corporation Law, indemnify any person who is or was made, or threatened to be made, a party to an action or proceeding, whether civil or criminal, whether involving any actual or alleged breach of duty, neglect or error, any accountability, or any actual or alleged misstatement, misleading statement or other act or omission and whether brought or threatened in any court or administrative or legislative body or agency, including an action by or in the right of the corporation to procure a judgment in its favor and an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the corporation is serving or served in any capacity at the request of the corporation by reason of the fact that he, his testator or intestate, is or was a director or officer of the corporation, or is serving or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement, and costs, charges and expenses, including attorneys' fees, or any appeal therein; provided, however, that no indemnification shall be provided to any such person if a judgment or other final adjudication adverse to the director or officer establishes that (i) his acts were committed in bad faith or were the result of active and 6 deliberate dishonesty and, in either case, were material to the cause of action so adjudicated, or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled. SECTION 5.02 The corporation may indemnify any other person to whom the corporation is permitted to provide indemnification or the advancement of expenses by applicable law, whether pursuant to rights granted pursuant to, or provided by, the New York Business Corporation Law or other rights created by (i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an agreement providing for such indemnification, it being expressly intended that these By-Laws authorize the creation of other rights in any such manner. SECTION 5.03 The corporation shall, from time to time, reimburse or advance to any person referred to in Section 5.01 the funds necessary for payment of expenses, including attorneys' fees, incurred in connection with any action or proceeding referred to in Section 5.01, upon receipt of a written undertaking by or on behalf of such person to repay such amount(s) if a judgment or other final adjudication adverse to the director or officer establishes that (i) his acts were committed in bad faith or were the result of active and deliberate dishonesty and, in either case, were material to the cause of action so adjudicated, or (ii) he personally gained in fact a financial profit or other advantage to which he was not legally entitled. SECTION 5.04 Any director or officer of the corporation serving (i) another corporation, of which a majority of the shares entitled to vote in the election of its directors is held by the corporation, or (ii) any employee benefit plan of the corporation or any corporation referred to in clause (i), in any capacity shall be deemed to be doing so at the request of the corporation. In all other cases, the provisions of this Article V will apply (i) only if the person serving another corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise so served at the specific request of the corporation, evidenced by a written communication signed by the Chairman of the Board, the Chief Executive Officer, the President, any Co-President or any Vice Chairman, and (ii) only if and to the extent that, after making such efforts as the Chairman of the Board, the Chief Executive Officer, the President or any Co-President shall deem adequate in the circumstances, such person shall be unable to obtain indemnification from such other enterprise or its insurer. SECTION 5.05 Any person entitled to be indemnified or to the reimbursement or advancement of expenses as a matter of right pursuant to this Article V may elect to have the right to indemnification (or advancement of expenses) interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or 7 events giving rise to the action or proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time indemnification is sought. SECTION 5.06 The right to be indemnified or to the reimbursement or advancement of expenses pursuant to this Article V (i) is a contract right pursuant to which the person entitled thereto may bring suit as if the provisions hereof were set forth in a separate written contract between the corporation and the director or officer, (ii) is intended to be retroactive and shall be available with respect to events occurring prior to the adoption hereof, and (iii) shall continue to exist after the rescission or restrictive modification hereof with respect to events occurring prior thereto. SECTION 5.07 If a request to be indemnified or for the reimbursement or advancement of expenses pursuant hereto is not paid in full by the corporation within thirty days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled also to be paid the expenses of prosecuting such claim. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of or reimbursement or advancement of expenses to the claimant is proper in the circumstances, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses, shall be a defense to the action or create a presumption that the claimant is not so entitled. SECTION 5.08 A person who has been successful, on the merits or otherwise, in the defense of a civil or criminal action or proceeding of the character described in Section 5.01 shall be entitled to indemnification only as provided in Sections 5.01 and 5.03, notwithstanding any provision of the New York Business Corporation Law to the contrary. ARTICLE VI SEAL SECTION 6.01 Corporate Seal. The corporate seal shall contain the name of the corporation and the year and state of its incorporation. The seal may be altered from time to time at the discretion of the Board of Directors. 8 ARTICLE VII SHARE CERTIFICATES SECTION 7.01 Form. The certificates for shares of the corporation shall be in such form as shall be approved by the Board of Directors and shall be signed by the Chairman of the Board, the Chief Executive Officer, the President, any Co-President or any Vice Chairman and the Secretary or an Assistant Secretary, and shall be sealed with the seal of the corporation or a facsimile thereof. The signatures of the officers upon the certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the corporation itself or its employees. ARTICLE VIII CHECKS SECTION 8.01 Signatures. All checks, drafts and other orders for the payment of money shall be signed by such officer or officers or agent or agents as the Board of Directors may designate from time to time. ARTICLE IX AMENDMENT SECTION 9.01 Amendment of By-Laws. The By-Laws may be amended, repealed or added to by vote of the holders of the shares at the time entitled to vote in the election of any directors. The Board of Directors may also amend, repeal or add to the By-Laws, but any By-Laws adopted by the Board of Directors may be amended or repealed by the shareholders entitled to vote thereon as provided herein. If any By-Law regulating an impending election of directors is adopted, amended or repealed by the Board, there shall be set forth in the notice of the next meeting of shareholders for the election of directors the By-Laws so adopted, amended or repealed, together with concise statement of the changes made. 9 ARTICLE X SECTION 10.01 Construction. The masculine gender, when appearing in these By-Laws, shall be deemed to include the feminine gender. I, Lea Lahtinen, Assistant Secretary of Bankers Trust Corporation, New York, New York, hereby certify that the foregoing is a complete, true and correct copy of the By-Laws of Bankers Trust Corporation, and that the same are in full force and effect at this date. /S/ LEA LAHTINEN ------------------- Assistant Secretary Dated: March 27, 2002 10 EX-12 4 ex-12.txt STATEMENTS RE COMPUTATION OF RATIOS EXHIBIT 12 BANKERS TRUST CORPORATION AND SUBSIDIARIES COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES (dollars in millions)
Year Ended December 31, - ---------------------------------------------------------------------------------------------------------------------------------- 1997 1998 1999 2000 2001 - ---------------------------------------------------------------------------------------------------------------------------------- Earnings: 1. Income (loss) before income taxes $ 1,239 $ (77) $(1,415) $ 900 $ 333 2. Add: Fixed charges excluding capitalized interest (Line 10) 5,959 6,954 3,654 3,027 1,928 3. Less: Equity in undistributed income of unconsolidated subsidiaries and affiliates (117) 15 75 42 264 - ---------------------------------------------------------------------------------------------------------------------------------- 4. Earnings including interest on deposits 7,315 6,862 2,164 3,885 1,997 5. Less: Interest on deposits 2,076 2,195 1,424 998 641 - ---------------------------------------------------------------------------------------------------------------------------------- 6. Earnings excluding interest on deposits $ 5,239 $ 4,667 $ 740 $2,887 $1,356 ================================================================================================================================== Fixed Charges: 7. Interest expense $ 5,926 $ 6,919 $ 3,612 $2,988 $1,912 8. Estimated interest component of net rental expense 33 35 42 39 16 9. Amortization of debt issuance expense -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- 10. Total fixed charges including interest on deposits and excluding capitalized interest 5,959 6,954 3,654 3,027 1,928 11. Add: Capitalized interest -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- 12. Total fixed charges 5,959 6,954 3,654 3,027 1,928 13. Less: Interest on deposits (Line 5) 2,076 2,195 1,424 998 641 - ---------------------------------------------------------------------------------------------------------------------------------- 14. Fixed charges excluding interest on deposits $ 3,883 $ 4,759 $ 2,230 $2,029 $1,287 ================================================================================================================================== Consolidated Ratios of Earnings to Fixed Charges: Including interest on deposits (Line 4/Line 12) 1.23 .99 N/A 1.28 1.04 ================================================================================================================================== Excluding interest on deposits (Line 6/Line 14) 1.35 .98 N/A 1.42 1.05 ==================================================================================================================================
For the years ended December 31, 1999 and 1998, earnings, as defined, did not cover fixed charges, including and excluding interest on deposits by $1,490 million and $92 million, respectively, as a result of a net loss recorded during the period. N/A--Not Applicable. Bankers Trust Corporation and its Subsidiaries 61 EX-23.1 5 ex23-1.txt CONSENTS OF EXPERTS EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-3 Nos. 33-13278, 33-58340, 33-50395, 33-51615, 33-65301, 333-15089, 333-15089-01 through -04, 333-32909, Form S-4 Nos. 333-22733, 333-22733-01 and Form S-8 Nos. 333-12181, 333-19963, 333-57427 and 333-74999) of our report dated January 31, 2002, with respect to the consolidated balance sheet of Bankers Trust Corporation and Subsidiaries (a wholly owned indirect subsidiary of Deutsche Bank AG) as of December 31, 2001 and 2000, and the related consolidated statements of income, comprehensive income, changes in stockholder's equity and cash flows for each of the years in the three-year period ended December 31, 2001 and all related financial statement schedules, which report appears in the December 31, 2001 Annual Report on Form 10-K of Bankers Trust Corporation. /S/ KPMG LLP ------------ KPMG LLP New York, New York March 29, 2002 62 Bankers Trust Corporation and its Subsidiaries EX-24 6 ex-24.txt POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and officers of Bankers Trust Corporation hereby constitute and appoint Juergen Fitschen, John A. Ross, Douglas R. Barnard and James T. Byrne, Jr., or any one of them, their true and lawful attorney or attorneys and agent or agents, with the power and authority to sign the names of the undersigned to the Annual Report on Form 10-K for the year 2001 of Bankers Trust Corporation pursuant to Section 13 of the Securities and Exchange Act of 1934 and any amendments thereto and each of the undersigned does hereby ratify and confirm all that said attorney or attorneys and agent or agents or any one of them shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has subscribed these presents. March 25, 2002 Bankers Trust Corporation By /S/ JUERGEN FITSCHEN --------------------------------- Juergen Fitschen Chairman of the Board /S/ JUERGEN FITSCHEN - ---------------------------------------- Juergen Fitschen Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer) /S/ DOUGLAS R. BARNARD - ---------------------------------------- Douglas R. Barnard Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /S/ ROBERT B. ALLARDICE III - ---------------------------------------- Robert B. Allardice III Director Bankers Trust Corporation and its Subsidiaries 63 March 25, 2002 /S/ HANS H. ANGERMUELLER - ---------------------------------------- Hans H. Angermueller Director /S/ GEORGE B. BEITZEL - ---------------------------------------- George B. Beitzel Director /S/ JESSICA P. EINHORN - ---------------------------------------- Jessica P. Einhorn Director /S/ WILLIAM R. HOWELL - ---------------------------------------- William R. Howell Director /S/ JOHN A. ROSS - ---------------------------------------- John A. Ross Director /S/ MAYO A. SHATTUCK III - ---------------------------------------- Mayo A. Shattuck III Director 64 Bankers Trust Corporation and its Subsidiaries -----END PRIVACY-ENHANCED MESSAGE-----