UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number: 1-6522
BANKBOSTON CORPORATION
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2471221
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Federal Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (6l7) 434-2200
Securities registered pursuant to Section 12(b) of the Act:
-------------------------------------
Title of each class
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Common Stock, par value $1.00 per share
Preferred Stock Purchase Rights
Name of each exchange on which registered:
---------------------------
Each class is registered on the New York Stock Exchange and the Boston Stock
Exchange
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 ((S) 229.405 of this chapter) 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. [ ]
Aggregate market value of shares of common Number of shares of common
stock held by non-affiliates of stock outstanding as of
Registrant as of March 1, 1999 March 1, 1999
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$12,027,433,486 296,482,247
Documents Incorporated by Reference:
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1. Pertinent extracts from Registrant's 1998 Annual Report to Stockholders
(Parts I, II and IV).
2. Pertinent extracts from Registrant's Proxy Statement in connection with the
Registrant's 1999 Annual Meeting of Stockholders (Part III).
INDEX
Name of Item Page
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PART I
Item 1. Business..................................................... 3
Statistical Disclosure by Bank Holding Companies........... 13
Item 2. Properties................................................... 18
Item 3. Legal Proceedings............................................ 18
Item 3A. Executive Officers of the Corporation........................ 19
Item 4. Submission of Matters to a Vote of Security Holders.......... 20
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters................................ 20
Item 6. Selected Financial Data...................................... 20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 20
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk................................................ 20
Item 8. Financial Statements and Supplementary Data.................. 20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................ 21
PART III
Item 10. Directors and Executive Officers of the Registrant........... 21
Item 11. Executive Compensation....................................... 21
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................. 21
Item 13. Certain Relationships and Related Transactions............... 21
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K................................................ 22
SIGNATURES
Signatures................................................... II-1
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PART I
Item 1. Business.
THE CORPORATION
BankBoston Corporation (the "Corporation") is a registered bank holding
company, organized in 1970 under Massachusetts law with both national and
international operations. The Corporation, through its subsidiaries and, in
certain cases, joint ventures, is engaged in consumer, small business and
corporate banking in New England, delivers sophisticated financial solutions to
corporations and governments nationally and internationally, and provides full-
service banking in leading Latin American markets. As of December 31, 1998,
approximately 68% of the Corporation's total loan volume consisted of domestic
loans and leases, and the balance was overseas. As of December 31, 1998, the
Corporation's subsidiaries employed, in the aggregate, approximately 24,500
full-time equivalent employees in their domestic and foreign operations.
The Corporation's principal subsidiary is BankBoston, N.A. (the "Bank"), a
national bank with its headquarters in Massachusetts. The Bank maintains
branches in Massachusetts, Connecticut, Rhode Island and New Hampshire and,
through its subsidiaries, operates a network of offices across the United States
and in Latin America, and has a presence in Asia and Europe. During 1998, Rhode
Island Hospital Trust National Bank, a former banking subsidiary of the
Corporation, was merged into the Bank.
The executive office of the Corporation and the head office of the Bank
are located at 100 Federal Street, Boston, Massachusetts 02110
(Telephone (617) 434-2200).
BUSINESS OF THE CORPORATION
The Corporation is managed through the Office of the Chief Executive
Officer (the "OCEO"), which is the senior decision-making group of the
Corporation. The OCEO consists of five members, including Chairman and Chief
Executive Officer Charles K. Gifford, President and Chief Operating Officer
Henrique de Campos Meirelles, Vice Chairman, Chief Financial Officer and
Treasurer Susannah M. Swihart, Vice Chairman, Wholesale Banking, Paul F. Hogan
and Vice Chairman, Regional Banking, Bradford H. Warner. The OCEO meets
periodically to discuss strategy and to review the operating performance of the
Corporation's businesses. It maintains close contact with key administrative
heads and business managers throughout the Corporation, including the management
teams in Argentina and Brazil.
The Corporation groups its principal revenue-producing businesses into the
following major business lines: the Wholesale Bank, the Regional Bank, Argentina
and Brazil. For a description of these four business lines and other businesses
for 1998 and 1997, including their operating results and other key financial
measures, as well as discussions of the Corporation's business activities,
including its lending activities, its cross-border outstandings and its
management of off-balance-sheet exposure and of the risks inherent in its
businesses, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which is incorporated by reference from pages 23 through
54 of the Corporation's 1998 Annual Report to Stockholders (the "Annual
Report").
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Activities in which the Corporation and its subsidiaries are presently
engaged or which they may undertake in the future are subject to certain
statutory and regulatory restrictions. Banks and bank holding companies are
extensively regulated under both federal and state law. There are various legal
limitations on the extent to which bank subsidiaries of the Corporation can
finance or otherwise supply funds to the Corporation or certain of its
affiliates. See "Supervision and Regulation."
For financial information on the Corporation's revenue, net income and
assets attributable to its domestic and international operations, see "Business
Segment Information," which is incorporated by reference from Note 26 on pages
83 and 84, "Line of Business Information," which is incorporated by reference
from pages 28 through 34, and "Cross-Border Outstandings," which is incorporated
by reference from pages 44 through 47, of the Annual Report.
COMPETITION AND INDUSTRY CONSOLIDATION
The Corporation's subsidiaries compete with other major financial
institutions, including commercial banks, investment banks, mutual savings
banks, savings and loan associations, credit unions, consumer finance companies
and other nonbank institutions, such as insurance companies, major retailers,
brokerage firms, and investment companies in New England, throughout the United
States and internationally. The principal methods of competing effectively in
the financial services industry include improving customer service through the
quality and range of services provided, improving efficiencies and pricing
services competitively.
One outgrowth of the competitive environment discussed above has been
significant consolidation within the financial services industry on a global,
national and regional level. The Corporation continues to implement strategic
initiatives focused on expanding its core businesses and to explore, on an
ongoing basis, acquisition, divestiture and joint venture opportunities. The
Corporation analyzes each of its businesses in the context of customer demands,
competitive advantages, industry dynamics and growth potential. Consistent with
this strategy, in 1998, the Corporation engaged in the following transactions
and other strategic initiatives:
Acquisitions and Business Expansions
During 1998, the Corporation further expanded its presence and distribution
capacity in Latin America, primarily through its branch expansion programs in
Argentina and Brazil; its acquisition in January 1998 of Deutsche Bank Argentina
S.A. ("Deutsche Argentina"), including approximately $1 billion in loans and
$1.5 billion in deposits; and its acquisition in July 1998 of the OCA Companies,
a credit card and consumer finance business in Uruguay with loans of
approximately $65 million at the date of acquisition.
In addition, the Corporation pursued initiatives to build various Wholesale
Bank businesses, including the expansion of its investment banking and other
capital markets-related capabilities. In August 1998, the Corporation acquired
the investment banking operations of Robertson Stephens from BankAmerica
Corporation for $400 million in cash. The Corporation merged the acquired
operations into its subsidiary, BancBoston Securities Inc., which was renamed
BancBoston Robertson Stephens Inc. ("BancBoston Robertson Stephens"). In
connection with the acquisition, the Corporation established a bonus pool based
on employee
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performance of approximately $400 million, consisting of $300 million in cash to
be paid over three and one-half years and stock options valued at $100 million,
which will vest over time. This acquisition combined the capital markets debt
products that had previously been offered by the Wholesale Bank with the equity
underwriting, distribution and research capability of Robertson Stephens.
Divestitures and Strategic Alliances
In November 1998, the Corporation sold its Berkshire County, Massachusetts,
franchise, including approximately $300 million in deposits and $1 billion of
Private Bank assets under management, for a pre-tax gain of approximately $51
million. In October 1998, the Corporation sold its domestic institutional
custody business for a pre-tax gain of approximately $38 million, and outsourced
the settlement and depository functions of its asset management business. In
February 1998, the Corporation completed the sale of its 26% ownership interest
in HomeSide, Inc. for a pre-tax gain of approximately $165 million. In January
1998, the Corporation completed an agreement to form a credit card venture,
under which it contributed its $1.2 billion national credit card portfolio in
exchange for cash, at par. The Corporation also received 19 percent of the
common stock and $50 million of the preferred stock of the new company and an
additional $5 million in cash.
Other Initiatives
In October 1997, the Corporation announced an initiative aimed at
redesigning the way it does business, with the goals of making the Corporation
more customer-focused and improving business retention. During 1998, the
Regional Bank introduced a number of organizational, strategic and personnel
changes in support of this initiative. Business functions across southern New
England have been integrated to better enable individual sub-businesses to
leverage from each other's strengths and increase cross-marketing opportunities.
Other actions, including the expansion of certain product lines and improving
the efficiency of certain delivery channels, are expected to be implemented
during 1999.
During 1998, the Corporation realigned its strategy in Asia to focus on
capital markets, including debt underwriting and trading, foreign exchange and
derivatives. The Corporation also continues to offer trade finance and cash
management services in Asia. In connection with this realignment, in October
1998, the Corporation announced the closing of its representative office in
India and its branch offices in Japan, the Philippines and Taiwan. In addition,
in January 1998, the Corporation announced its plan to restructure its European
operations by centralizing those operations in London. In connection with this
restructuring plan, in June 1998, the Corporation closed its offices in Paris
and Frankfurt.
The Corporation intends to continue to explore strategic opportunities as
they arise in order to expand its businesses in its selected markets, divest
non-strategic businesses and improve service to its customers.
Federal legislation was enacted in 1994 which permits certain interstate
banking transactions. This legislation has facilitated, and is expected to
continue to facilitate, consolidation within financial institutions that have
separate operations in two or more states and within the financial services
industry in general. See "Supervision and Regulation" for a discussion of the
impact of this legislation upon the Corporation and its subsidiaries.
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SUPERVISION AND REGULATION
The business in which the Corporation and its subsidiaries are engaged is
subject to extensive supervision, regulation and examination by various bank
regulatory authorities and other governmental agencies in the states and
countries where the Corporation and its subsidiaries operate. The supervision,
regulation and examination to which the Corporation and its subsidiaries are
subject are often intended by the regulators primarily for the protection of
depositors or are aimed at carrying out broad public policy goals, rather than
for the protection of security holders.
Several of the more significant regulatory provisions applicable to banks
and bank holding companies to which the Corporation and its subsidiaries are
subject are discussed below, along with certain regulatory matters concerning
the Corporation and its subsidiaries. To the extent that the following
information describes statutory or regulatory provisions, it is qualified in its
entirety by reference to the particular statutory provisions. Any change in
applicable law or regulation may have a material effect on the business and
prospects of the Corporation and its subsidiaries.
The Corporation
The Corporation, as a bank holding company under the Bank Holding Company
Act of 1956, as amended (the "BHCA"), is registered with the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") and is regulated
under the provisions of the BHCA. The BHCA requires every bank holding company
to obtain the prior approval of the Federal Reserve Board before it may acquire
substantially all of the assets of any bank, or ownership or control of any
voting shares of any bank, if, after such acquisition, it would own or control,
directly or indirectly, more than 5% of the voting shares of such bank.
Under the BHCA, the Corporation is prohibited, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing or controlling banks or furnishing
services to, or acquiring premises for, its affiliated banks. The Corporation
may, however, engage in, and own voting shares of, companies engaging in certain
activities determined by the Federal Reserve Board, by order or by regulation,
to be so closely related to banking or to managing or controlling banks "as to
be a proper incident thereto." The location of such "nonbank" subsidiaries of
the Corporation is not restricted geographically under the BHCA. The BHCA
requires the Corporation to file with the Federal Reserve Board periodic reports
and such additional reports as the Federal Reserve Board may require. The
Federal Reserve Bank of Boston performs periodic examinations of the Corporation
and certain of its subsidiaries.
Since the Corporation is also a bank holding company under the laws of
Massachusetts, the Commissioner of Banks for The Commonwealth of Massachusetts
has authority to require certain reports from the Corporation from time to time
and to examine the Corporation and each of its subsidiaries other than national
banks. Prior approval of the Massachusetts Board of Bank Incorporation also may
be required before the Corporation may engage in certain acquisitions or other
business expansions. Acquisitions by the Corporation of non-Massachusetts banks
or bank holding companies may be subject to the prior approval by both the
Massachusetts and the applicable state, federal or international banking
regulators. Massachusetts has an interstate bank acquisition law that permits
banking organizations outside Massachusetts to
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acquire Massachusetts banking organizations if the state law of the acquiror
permits acquisitions of banking organizations in that state by Massachusetts-
based banking organizations. In addition, federal interstate banking legislation
permits bank holding companies to acquire banks in any state and authorizes
interstate mergers by banks in any state. See "Legislation" below with respect
to federal interstate banking legislation.
Massachusetts has a business combinations law which provides that if any
acquiror buys 5% or more of a target company's stock without the prior approval
of the target company's board of directors, it generally may not (i) complete
the acquisition through a merger, (ii) pledge or sell any assets of the target
company, or (iii) engage in other self-dealing transactions with the target
company for a period of three years. The prior board approval requirement does
not apply if the acquiror buys at least 90% of the target company's outstanding
stock in the transaction in which it crosses the 5% threshold or if the
acquiror, after crossing the threshold, obtains the approval of the target
company's board of directors and two-thirds of the target company's stock held
by persons other than the acquiror. This legislation automatically applies to
Massachusetts corporations, including the Corporation, which did not elect to
"opt out" of the statute. Massachusetts law also provides for classified boards
of directors for most public companies incorporated in Massachusetts, unless the
company elected to "opt out" of the law. As a result of this law, the
Corporation's Board of Directors is divided into three classes of Directors and
the three-year terms of the classes are staggered.
Other Massachusetts legislation exists which is intended to provide limited
anti-takeover protection to certain Massachusetts corporations by preventing an
acquiror of certain percentages of such corporation's stock from obtaining
voting rights in such stock unless the corporation's other stockholders
authorize such voting rights. The legislation automatically applies to certain
Massachusetts corporations that have not elected to "opt out" of the statute.
The Corporation, by vote of its Board of Directors, has "opted out" of the
statute's coverage.
In 1990, the Board of Directors of the Corporation adopted a stockholder
rights plan and entered into a rights agreement (the "Rights Agreement") with
the Bank, as rights agent. Under the rights plan, each of the Corporation's
common stockholders received a dividend of one preferred stock purchase right (a
"Right") for each outstanding share of the Corporation's common stock that the
stockholder owned at the time of the Rights dividend. Each share of common stock
issued after stockholders received the Rights dividend has also received a
Right. As a result of the Corporation's two-for-one stock split in June 1998,
the Rights have been adjusted so that one-half of a Right is associated with
each currently outstanding share of the Corporation's common stock. Each newly
issued share of common stock will also have one-half of a Right associated with
it under the rights plan. The Rights trade automatically with shares of the
Corporation's common stock and become exercisable only under the circumstances
described below.
The purpose of the Rights is to encourage potential acquirors to negotiate
with the Corporation's Board of Directors prior to attempting a takeover bid and
to provide the Board with leverage in negotiating on behalf of all stockholders
the terms of any proposed takeover. The Rights may have certain anti-takeover
effects. They should not, however, interfere with any merger or other business
combination approved by the Board of Directors.
In general, the Rights will become exercisable a number of days after a
person or group (i) acquires 15% or more of the Corporation's common stock or
(ii) commences a tender offer or exchange offer that would result in their
owning 15% or more of the Corporation's common
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stock. Once it becomes exercisable, each Right will entitle its holder (other
than the acquiring person or group) to buy a unit equal to one one-thousandth of
a share of the Corporation's Series D Junior Participating Preferred Stock at an
exercise price of $50 per unit, subject to adjustment. In general, if a person
or group acquires 15% or more of the Corporation's outstanding common stock,
each Right will then entitle its holder (other than the acquiring person or
group) to purchase additional shares of the Corporation's common stock at a
substantially reduced price. In addition, if the Corporation is acquired after
the Rights have become exercisable, each Right will entitle its holder (other
than the acquiring person or group) to purchase the acquiring company's common
stock at a substantially reduced price.
In December 1998, the Corporation's Board of Directors adopted a renewed
Rights Agreement. The terms of the renewed Rights Agreement are substantially
similar to those of the existing Rights Agreement. Under the renewed Rights
Agreement, however, the exercise price will be $160 per unit and the beneficial
ownership percentage relating to the exercisability of the Rights will be 10%.
New Rights will be issued under the renewed Rights Agreement upon the expiration
or earlier termination of the existing Rights.
The above description is intended to present a general overview of the
rights plan. For a full description of the rights plan, see the existing Rights
Agreement, as amended through December 12, 1995, and the renewed Rights
Agreement. The existing Rights Agreement is incorporated by reference from the
Corporation's Registration Statement on Form 8-A dated July 2, 1990 and from the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1995.
The renewed Rights Agreement is incorporated by reference from the Corporation's
Current Report on Form 8-K dated December 17, 1998.
The Corporation's Subsidiaries
General
The Corporation's bank subsidiaries are national banks subject to the
supervision of, and regularly examined by, the Office of the Comptroller of the
Currency (the "OCC"). The domestic deposits of the Corporation's subsidiary
banks are insured (to the extent allowed by law) by the Bank Insurance Fund (the
"BIF") of the Federal Deposit Insurance Corporation (the "FDIC") and,
accordingly, those banks are subject to certain FDIC regulations. As members of
the Federal Reserve System, the Corporation's bank subsidiaries are also subject
to regulation by the Federal Reserve Board.
FIRREA
Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"), a bank can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in connection with (i) the
default of a commonly controlled bank or (ii) any assistance provided by the
FDIC to a commonly controlled bank in danger of default. The term "default" is
defined as the appointment of a conservator or receiver for such bank and "in
danger of default" as the existence of certain conditions indicating that a
"default" is likely to occur in the absence of regulatory assistance. In
addition, FIRREA broadened the enforcement powers of the federal banking
agencies, including the power to impose fines and penalties over all financial
institutions. Further, under FIRREA, the failure to meet capital guidelines
could subject a financial institution to a variety of regulatory actions,
including the termination of deposit insurance by the FDIC.
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FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") also provided for expanded regulation of financial institutions.
Under FDICIA, banks are placed in one of five capital categories, ranging from
"well-capitalized" to "critically undercapitalized," for which the federal
banking agencies have established specific capital ratio levels. Pursuant to the
agencies' regulations, an institution is considered "well capitalized" if it has
a total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital
ratio of at least 6%, a Tier 1 leverage ratio of at least 5% and is not subject
to a cease and desist order, formal agreement, capital directive, or prompt
corrective action directive that requires it to achieve or maintain a higher
level of capital. At December 31, 1998, all of the Corporation's banking
subsidiaries met the requirements of the "well capitalized" category. The
capital categories of the Corporation's bank subsidiaries are determined solely
for purposes of applying FDICIA's provisions, and such capital categories may
not constitute an accurate representation of the overall financial condition or
prospects of any of the Corporation's bank subsidiaries.
Other Regulatory Restrictions
The FDIC's deposit insurance assessments are based on a risk-based system.
The risk-based system places a bank in one of nine risk categories, principally
on the basis of its capital level and an evaluation of the bank's risk to the
BIF, and bases premiums on the probability of loss to the FDIC with respect to
each individual bank. During 1998, the assessment premiums for the BIF risk-
based system ranged from $0 to $.27 per $100 of insured deposits.
The Corporation's domestic subsidiary banks and the subsidiaries of such
banks are subject to a large number of other regulatory restrictions, including
certain restrictions upon: (i) any extensions of credit by such banks to, from
or for the benefit of the Corporation and the Corporation's nonbank affiliates
(collectively with the Corporation, the "Affiliates"), (ii) the purchase of
assets or services from, or the sale of assets or the provision of services to,
Affiliates, (iii) the issuance of a guarantee, acceptance or letter of credit on
behalf of, or for the benefit of, Affiliates, (iv) the purchase of securities of
which an Affiliate is a principal underwriter during the existence of the
underwriting and (v) investments in stock or other securities issued by
Affiliates or acceptance of those securities as collateral for an extension of
credit. The Corporation and all of its subsidiaries, including the Bank, are
also subject to certain restrictions with respect to engaging in the issue,
flotation, underwriting, public sale or distribution of certain types of
securities. The Federal Reserve Board permits subsidiaries of bank holding
companies to underwrite and deal in securities consistent with the provisions of
Section 20 of the Glass-Steagall Act of 1933. The Corporation's "Section 20"
subsidiary, BancBoston Robertson Stephens, offers corporate financing services
and investments, including underwriting and dealing in debt and equity
securities, loan syndications and private placements, as well as financial
advisory, research and other investment banking services. The activities of
BancBoston Robertson Stephens are subject to the rules and regulations of a
number of regulators, including the Securities and Exchange Commission, the
National Association of Securities Dealers, the New York Stock Exchange, the
Municipal Securities Rulemaking Board, the Federal Reserve Board and various
state securities commissions.
In addition, both the BHCA and regulations issued by the Federal Reserve
Board prohibit the Corporation and its subsidiaries from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale of
any property or the furnishing of any service. In
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operations in other countries, the Corporation and the Bank are also subject to
restrictions imposed by the laws and banking authorities of such countries.
The Corporation's bank subsidiaries are also required to maintain cash
reserves against deposits and are subject to limitations, among others, upon (i)
the nature and amount of loans which they may make to a borrower; (ii) the
nature and amount of securities in which they may invest; (iii) the amount which
may be invested in bank premises; (iv) the geographic location of their
branches; and (v) the nature and extent to which they can borrow money.
Dividends
The Corporation's Board of Directors determines the payment of dividends
based on the Corporation's liquidity, asset quality profile, capital adequacy
and recent earnings history, as well as economic conditions and other factors,
including applicable government regulations and policies and the amount of
dividends payable to the Corporation by its subsidiaries.
In 1998, the Corporation declared aggregate dividends on its common and
preferred stock of approximately $350 million. In each quarter of 1998, the
Corporation declared and paid a dividend on its common stock of $.29 per share,
as adjusted for the Corporation's two-for-one stock split in June 1998. In the
first quarter of 1999, the Corporation declared and paid a dividend on its
common stock of $.32 per share.
The Corporation is a legal entity separate and distinct from its subsidiary
banks and its other nonbank subsidiaries. The Corporation's revenues (on a
parent company only basis) result primarily from interest and dividends paid to
the Corporation by its subsidiaries. The right of the Corporation, and
consequently the right of creditors and stockholders of the Corporation, to
participate in any distribution of the assets or earnings of any subsidiary
through the payment of such dividends or otherwise is necessarily subject to the
prior claims of creditors of the subsidiary (including depositors, in the case
of banking subsidiaries), except to the extent that claims of the Corporation in
its capacity as a creditor may be recognized.
It is the policy of the OCC and the Federal Reserve Board that banks and
bank holding companies, respectively, should pay dividends only out of current
earnings and only if after paying such dividends the bank or bank holding
company would remain adequately capitalized. Federal banking regulators also
have authority to prohibit banks and bank holding companies from paying
dividends if they deem such payment to be an unsafe or unsound practice. In
addition, the Federal Reserve Board expects a bank holding company to act as a
source of financial strength to its subsidiary banks.
Various laws, regulations and policies limit the ability of the
Corporation's subsidiaries to pay dividends to the Corporation. Federal banking
law requires the approval of the OCC if the aggregate total of the dividends
declared by any of the Corporation's national bank subsidiaries in any calendar
year will exceed the bank's net profits, as defined by applicable regulation,
for that year combined with retained net profits for the preceding two years. In
1998, the Corporation's subsidiaries declared and paid to the Corporation an
aggregate of approximately $.7 billion of dividends. The payment of any future
dividends by the Corporation's subsidiaries will be determined based on a number
of factors, including the subsidiary's liquidity, asset quality profile, capital
adequacy and recent earnings history. Information concerning the Corporation and
its bank subsidiaries with respect to dividends is incorporated by reference
from Note 15 on page 74 of the Annual Report. See the related discussions set
forth below in "Capital" and "Legislation."
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Capital
Information concerning the Corporation and its bank subsidiaries with
respect to capital is incorporated by reference from Note 14 on page 73 and from
the section entitled "Capital Management" on page 53 of the Annual Report. See
also "Legislation" below and "Dividends" above.
Legislation
In addition to extensive existing government regulation, laws and
regulations in the states and countries where the Corporation and its
subsidiaries do business can change in unpredictable ways, often with
significant effects on the way in which financial institutions may conduct
business. The enactment of banking legislation such as FIRREA and FDICIA has
affected the banking industry by, among other things, broadening the powers of
the federal banking agencies in a number of areas. Subsequent banking
legislation, such as the Riegle Community Development and Regulatory Improvement
Act of 1994 and the Economic Growth and Regulatory Paperwork Reduction Act of
1996, have eased some of the regulatory burdens imposed on banks and bank
holding companies, including certain FDICIA requirements, and are intended to
make the bank regulatory system more efficient. Other legislation that has been
enacted in recent years has substantially increased the level of competition
among commercial banks, thrift institutions and non-banking institutions,
including insurance companies, brokerage firms, mutual funds, investment banks
and major retailers. In 1994, the Riegle-Neal Interstate Banking and Branching
Act of 1994 (the "Interstate Act") was enacted. The Interstate Act's provisions,
among other things: (i) permit bank holding companies to acquire control of
banks in any state, subject to (a) specified maximum national and state deposit
concentration limits; (b) any applicable state law provisions requiring that the
acquired bank has to have been in existence for a specified period of up to five
years; (c) any applicable nondiscriminatory state provisions that make an
acquisition of a bank contingent upon a requirement to hold a portion of such
bank's assets available for call by a state-sponsored housing entity; and (d)
applicable anti-trust laws; (ii) authorize interstate mergers by banks in
different states, including branching through bank mergers, subject to the
provisions noted in (i) and to any state laws that opt in as of an earlier date
or opt out of the provision entirely; (iii) authorize states to enact
legislation permitting interstate de novo branching; and (iv) provide for
certain additional limitations on foreign bank activities.
The Interstate Act has facilitated, and is expected to continue to
facilitate, consolidation within financial institutions that have separate
operations in two or more states and within the financial services industry.
Additional laws and regulations are considered from time to time that could
affect the business of the Corporation, including a number of significant
legislative proposals which, if adopted, would result in a fundamental
restructuring of the financial services industry. The effect of any such
legislation on the business of the Corporation and its subsidiaries cannot be
accurately predicted. See also "Supervision and Regulation -- The Corporation"
above.
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GOVERNMENTAL POLICIES AND ECONOMIC CONDITIONS
The U.S. economy is about to enter its ninth consecutive year of expansion.
In each of the past three years, U.S. output has grown well in excess of three
percent, a development that has lowered the nation's unemployment rate to about
4.5 percent. Moreover, contrary to most expectations and historical experience,
inflationary pressures have diminished. At about 1.5 percent, consumer prices
have advanced at a benign pace not seen since the 1960s.
While the U.S. economy is expected to remain firmly on an expansion path in
1999, it is likely that the pace of growth will slow in the year ahead. Consumer
spending has been growing well in excess of gains in income, and with the
savings rate recently at a negative level, consumers are expected to be turning
more cautious and conservative. Capital spending, rising at a double-digit pace
in recent years, is also expected to soften in the face of falling levels of
capacity utilization. Finally, recessions in Asia and Latin America are expected
to continue contributing to a deterioration in the U.S. trade position.
The Corporation's earnings and business are also affected by the policies
of various government and regulatory authorities in New England and throughout
the United States, as well as foreign governments and international agencies,
including, in the United States, the Federal Reserve Board. Important functions
of the Federal Reserve Board, in addition to those enumerated under "Supervision
and Regulation" above, are to regulate the supply of money and of bank credit,
to deal with general economic conditions within the United States and to be
responsive to international economic conditions. From time to time, the Federal
Reserve Board and the central banks of foreign countries have taken specific
steps to effect changes in the value of the United States dollar in foreign
currency markets, as well as to control domestic inflation and to control the
country's money supply. The instruments of monetary policy employed by the
Federal Reserve Board for these purposes (including interest rates and the level
of cash reserves banks are required to maintain against deposits) influence, in
various ways, the interest rates paid on interest bearing liabilities and the
interest received on earning assets, as well as the overall level of bank loans,
investments and deposits. Inflation has generally had a minimal impact on the
Corporation because substantially all of its assets and liabilities are of a
monetary nature and a large portion of its operations are in the United States
and other countries where inflation has been low. Prospective domestic and
international economic and political conditions and the policies of the Federal
Reserve Board and the central banks of Argentina and Brazil, as well as other
domestic and international regulatory authorities, may affect the future
business and earnings of the Corporation.
During 1998, world financial markets experienced significant volatility due
to the Asian and Russian crises. These crises also impacted the economies of
Latin America and, in particular, contributed to the economic and political
instability recently experienced by Brazil. It is expected that the economic
situation in Latin America, including the effect of the world financial markets
on Latin American economies, will continue to be unsettled. The Corporation will
continue to monitor the economic situation in those countries in which the
Corporation has local operations or cross-border exposure, particularly in Latin
America, and will take certain actions as it deems appropriate. Additional
information with respect to the countries where the Corporation has local
operations or cross-border exposure is incorporated by reference from the
section entitled "Cross-Border Outstandings" on pages 44 through 47 of the
Annual Report.
This section should be read in conjunction with "Management's Discussion
and Analysis of Financial Conditions and Results of Operations," which is
incorporated by reference from pages 23 through 54 of the Annual Report.
-12-
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
The Corporation is providing the information set forth below in accordance
with Industry Guide 3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
Average Balances and Interest Rates
The information required by this item is incorporated by reference from
pages 55 and 56 of the Annual Report.
Change in Net Interest Revenue-Volume and Rate Analysis: 1998 compared with
1997, and 1997 compared with 1996
The information required by this item is incorporated by reference from
page 57 of the Annual Report.
Securities
The following table sets forth the carrying values of securities held to
maturity on the dates indicated:
December 31 1998 1997 1996
(in millions)
U.S. Treasury $ 7 $ 6 $ 3
U.S. government agencies
and corporations -
mortgage-backed securities 439 520 535
States and political subdivisions 6
Foreign debt securities 13 11 11
----- ----- -----
$ 459 $ 537 $ 555
===== ===== =====
The following table sets forth the carrying values of securities available for
sale on the dates indicated:
December 31 1998 1997 1996
(in millions)
U.S. Treasury $ 711 $ 943 $1,675
U.S. government agencies
and corporations -
mortgage-backed securities 7,095 5,860 3,801
States and political subdivisions 34 54 173
Foreign debt securities 2,111 1,383 1,133
Other debt securities 1,145 887 256
Marketable equity securities 339 306 269
Other equity securities 640 513 622
------- ------ ------
$12,075 $9,946 $7,929
======= ====== ======
The following tables set forth the relative maturities and weighted average
interest rates of securities available for sale and held to maturity at December
31, 1998, excluding equity securities. Certain securities, such as mortgage-
backed securities, may not become due at a single maturity date. Such
securities have been classified within the category that encompasses the due
dates for the majority of the instrument. Rates for states and political
subdivisions are stated on a fully taxable equivalent basis assuming a 35%
federal income tax rate, adjusted for applicable state and local income taxes
net of related federal tax benefit.
-13-
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years Total
------------------ ------------------ ------------------ ---------------- ----------------
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
AVAILABLE FOR SALE
(dollars in millions)
U.S. Treasury $ 225 6.8% $ 146 6.3% $ 340 5.0% $ 711 5.8%
U.S. government agencies
and corporations -
mortgage-backed
securities 52 7.0 415 5.8 $1,233 5.2% 5,395 6.4 7,095 6.1
States and political
subdivisions 30 3.3 3 2.5 1 5.5 34 3.3
Foreign debt securities 1,291 10.0 585 10.9 42 8.5 193 6.6 2,111 9.9
Other debt securities 13 9.8 227 11.7 304 6.7 601 7.2 1,145 8.0
------ ------ ------ ------ -------
Total carrying value $1,611 9.3% $1,376 9.0% $1,580 5.6% $6,529 6.4% $11,096 7.0%
====== ====== ====== ====== =======
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years Total
------------------ ------------------ ------------------ ---------------- ----------------
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
HELD TO MATURITY
(dollars in millions)
U.S. Treasury $ 7 4.2% $ 7 4.2%
U.S. government agencies
and corporations -
mortgage-backed
securities $ 110 6.5% $ 217 7.1% $ 112 6.5% 439 6.8
Foreign debt securities 4 7.2 9 6.8 13 6.9
------ ------ ------ ------ -------
Total carrying value $ 7 4.2% $ 114 6.5% $ 226 7.1% $ 112 6.5% $ 459 6.7%
====== ====== ====== ====== =======
Loans and Leases
Except for the information presented below, the information required by this
item is incorporated by reference from page 38 of the Annual Report.
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table presents the maturities and interest rate sensitivity, based
on original contractual terms, of the Corporation's loans at December 31, 1998,
exclusive of domestic office loans secured by 1-4 family residential properties,
domestic office loans to individuals and lease financing:
After One
But
Within After
December 31, 1998 Within Five Five
(in millions) One Year Years Years Total
Commercial, industrial and financial $ 3,604 $ 9,125 $3,565 $16,294
Real estate
Construction 65 114 36 215
Other 1,066 2,471 334 3,871
Overseas offices 10,179 2,069 913 13,161
------- ------- ------ -------
$14,914 $13,779 $4,848 $33,541
======= ======= ====== =======
Loans with predetermined interest rates $ 6,059 $ 2,934 $1,307 $10,300
Loans with floating interest rates 8,855 10,845 3,541 23,241
------- ------- ------ -------
$14,914 $13,779 $4,848 $33,541
======= ======= ====== =======
The Corporation does not have an automatic renewal policy for maturing loans.
Rather, the Corporation renews loans at the maturity date only at the request of
those customers who the Corporation deems to be creditworthy. Additionally, the
Corporation reviews such requests in
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substantially the same manner as applications by new customers for extensions of
credit. The Corporation bases the maturity dates and interest terms of renewed
loans, in part, upon the needs of the individual customer and the Corporation's
credit review and evaluation of current and future economic conditions. Since
these factors have varied considerably, and will most likely continue to do so,
the Corporation believes it is impracticable to estimate the amount of loans in
the portfolio that it may renew in the future.
Nonaccrual Loans and Leases
Except for the information presented below, the information required by this
item is incorporated by reference from page 40 of the Annual Report.
The following table presents a five-year analysis of the Corporation's loans and
leases that were over ninety days past due and remained on accrual status:
December 31 1998 1997 1996 1995 1994
(in millions)
Loans and leases over ninety days past
due and on accrual status............... $ 41 $ 31 $ 41 $ 56 $ 49
===== ===== ===== ===== =====
Renegotiated Loans
Renegotiated loans at the end of each of the last five years were as follows:
December 31 1998 1997 1996 1995 1994
(in millions)
Renegotiated loans....................... $ 0.3 $ 0.3 $ 8 $ 33 $ 82
===== ===== ===== ===== =====
Cross-Border Outstandings
The information required by this item is incorporated by reference from pages 44
through 47 and pages 50 and 51 of the Annual Report.
Reserve for Credit Losses: Allocation of Reserve for Credit Losses and Analysis
of Reserve for Credit Losses
Except for the information presented below, the information required by this
item is incorporated by reference from pages 42 and 43 of the Annual Report.
Generally, the Corporation does not allocate its reserve for credit losses to
specific loan and lease categories, because management views the reserve as
being available for all categories of prospective loss. However, to be
responsive to the Securities and Exchange Commission's Guide for Statistical
Disclosure by Bank Holding Companies, the Corporation has allocated its year-
end reserve for credit losses to the major loan and lease categories.
The allocations result from giving consideration to management's evaluation of
risk in the portfolios, current economic conditions, recent years' loss
experience and levels of nonaccrual loans and leases. The following table
presents the allocation of the reserve for credit losses by loan and lease
financing category, with the excess between the total reserve and the amounts
specifically allocated to each loan category identified as ''unallocated.'' The
unallocated reserve is part of the general reserve of the Corporation and, as
such, is available for both domestic and international credit losses. The
percentage of loans outstanding in each category to total loans is incorporated
by reference from page 38 of the Annual Report.
-15-
DECEMBER 31 1998 1997 1996 1995 1994
(dollars in millions) Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
United States
Commercial, industrial and
financial.................. $ 367 48.7% $ 228 32.0% $ 230 26.0% $221 24.8% $284 34.3%
Commercial real estate, including
construction............... 38 5.0 35 4.9 83 9.4 158 17.8 194 23.5
Consumer related loans
Secured by 1-4 family
residential properties..... 6 0.8 9 1.3 13 1.5 36 4.0 34 4.1
Other 73 9.7 99 13.9 193 21.9 131 14.7 104 12.6
Lease financing...................... 13 1.7 10 1.4 16 1.8 22 2.5 21 2.5
----- ----- ----- ----- ----- ----- ---- ----- ---- -----
497 65.9 381 53.5 535 60.6 568 63.8 637 77.0
international........................ 227 30.1 189 26.6 217 24.6 171 19.2 99 12.0
----- ----- ----- ----- ----- ----- ---- ----- ---- -----
724 96.0 570 80.1 752 85.2 739 83.0 736 89.0
Unallocated.......................... 30 4.0 142 19.9 131 14.8 151 17.0 91 11.0
----- ----- ----- ----- ----- ----- ---- ----- ---- -----
$ 754 100.0% $ 712 100.0% $ 883 100.0% $890 100.0% $827 100.0%
===== ===== ===== ===== ===== ===== ==== ===== ==== =====
The allocation presented above reflects provisions for credit losses
attributable to international operations for the years ended December 31, 1998,
1997, 1996, 1995 and 1994 of $209 million, $23 million, $83 million, $116
million and $29 million, respectively. The provision for credit losses
attributable to international operations for 1998 was principally a result of
increases in international net credit losses, including Asian credit losses
resulting from the sustained economic crisis in that region; the charge-off of a
series of loans to related borrowers made by a former officer in the
International Private Bank; and increased credit losses from Argentina,
primarily a reflection of growth in the consumer-related portfolio and the
acquisition of Deutsche Argentina. In addition, in 1998, the Corporation's
acquisitions of Deutsche Argentina and the OCA Companies resulted in aggregate
additions to the overall reserve for credit losses of $26 million.
Deposits
Except for the information presented below, the information required by this
item is incorporated by reference from pages 55 and 56 of the Annual Report.
The aggregate amount of deposits by foreign depositors in domestic offices
averaged $1,660 in 1998, $1,580 million in 1997 and $1,412 million in 1996. The
following table presents the maturities of time certificates of deposit and
other time deposits issued by domestic offices in denominations of $100,000 or
more, at December 31, 1998:
Certificates Time
of Deposit Deposits Total
(in millions)
Maturing within three months $2,727 $ 26 $2,753
After three but within six months 561 24 585
After six but within twelve months 554 59 613
After twelve months 439 76 515
------ ---- ------
$4,281 $185 $4,466
====== ==== ======
The majority of foreign office deposits are in denominations of $100,000 or
more.
Return on Equity and Assets
The information required by this item is incorporated by reference from page 22
of the Annual Report.
-16-
Short-Term Borrowings
The following table summarizes the Corporation's short-term borrowings for each
of the three years ended December 31, 1998, 1997 and 1996:
Maximum Average Average
Weighted Amount Amount Interest
Balance Average Outstanding Outstanding Rate
(dollars in millions) At End of Interest During the During the During the
Category of Aggregate Short-Term Period Rate (1) Period Period Period
Borrowings
For the Year Ended December 31, 1998
Federal funds purchased (2) $ 628 4.86% $2,168 $1,329 5.35%
Term federal funds purchased (2) 1,468 5.40 2,475 1,822 5.65
Securities sold under agreements to
repurchase (3) 3,145 4.67 5,285 3,052 4.93
Demand notes issued to the U.S.
Treasury (4) 2,303 824 5.41
Commercial paper (5) 94 5.19 94 22 5.32
All other (6) 4,246 7.66 6,670 5,934 8.24
For the Year Ended December 31, 1997
Federal funds purchased (2) $1,003 6.07% $2,184 $1,782 5.40%
Term federal funds purchased (2) 2,530 5.78 2,530 1,834 6.91
Securities sold under agreements to
repurchase (3) 1,789 5.25 2,872 2,401 5.31
Demand notes issued to the U.S.
Treasury (4) 1,495 533 5.39
All other (6) 6,090 7.59 6,233 5,000 8.52
For the Year Ended December 31, 1996
Federal funds purchased (2) $ 527 5.21% $2,523 $1,348 5.35%
Term federal funds purchased (2) 1,442 5.51 2,140 1,413 7.35
Securities sold under agreements to
repurchase (3) 2,034 5.06 2,236 1,848 5.28
Demand notes issued to the U.S.
Treasury (4) 704 6.01 1,183 390 5.37
All other (6) 3,801 10.93 3,801 2,372 12.65
________________________________________________________________________________
(1) The weighted average interest rates at year-end are not necessarily
indicative of the Corporation's normal borrowing rates, since interest rates for
certain categories of borrowings are subject to short-term fluctuations.
(2) Federal funds purchased are overnight transactions while term federal funds
purchased have maturities in excess of one day. A large portion of federal funds
purchased arise because of money market activity in federal funds for regional
correspondent banks.
(3) The majority of securities sold under agreements to repurchase are by
domestic offices, mature within one year and are collateralized by U.S. Treasury
and U.S. government agency and corporate securities.
(4) Demand notes issued to the U.S. Treasury represent depository liabilities
that are not subject to reserve requirements and bear interest at one-quarter of
one percent below the weekly average federal funds effective interest rate as
published by the Federal Reserve Board.
(5) Commercial paper represents unsecured obligations with maximum maturities of
nine months.
(6) The majority of all other short-term borrowings represent short-term and
medium-term bank notes issued by the Bank and secured and unsecured obligations
of the Corporation's overseas branches and subsidiaries.
-17-
Item 2. Properties.
The head offices of the Corporation and the Bank are located in a 37-story
building at 100 Federal Street, Boston, Massachusetts. In 1998, the Bank leased
1.2 million of the building's approximately 1.3 million square feet. The Bank
also maintains headquarters for its regional operations in Rhode Island and
Connecticut at One BankBoston Plaza, Providence, Rhode Island, and 100 Pearl
Street, Hartford, Connecticut. In addition, the Bank maintains significant data
processing, record keeping and other operations centers in Boston, Canton,
Dedham and Waltham, Massachusetts, East Providence, Rhode Island and Windsor,
Connecticut.
Outside of the United States, the Bank maintains banking headquarters in
Buenos Aires, Argentina, and Sao Paulo, Brazil. The Bank's Argentine
headquarters are located in a 12-story building owned by the Bank, consisting of
approximately 256,000 square feet. The Bank's headquarters in Brazil are located
in three interconnected buildings, consisting of 126,000 square feet owned by
the Bank and 141,000 square feet of leased space. In 1997, the Bank entered into
a contract to construct a new headquarters building in Argentina of
approximately 500,000 square feet, to be located near the existing headquarters.
Construction began in the first quarter of 1998 and is expected to be completed
in the second quarter of 2000. In addition, in September 1998, the Bank acquired
a 172,000 square foot undeveloped site in Sao Paulo on which it will construct a
new corporate office building in Brazil.
None of these properties is subject to any material encumbrance. The
Corporation's subsidiaries also own or lease numerous other premises used in
their domestic and foreign operations.
Item 3. Legal Proceedings.
The Corporation and its subsidiaries were in 1998, or currently are,
parties to a number of legal proceedings that have arisen in connection with the
normal course of business activities of the Corporation, the Bank and the
Corporation's other subsidiaries, including the following matters:
Lender Liability Litigation. The Corporation's subsidiaries, in the normal
course of their business in collecting outstanding obligations, are named as
defendants in complaints or counterclaims filed in various jurisdictions by
borrowers or others who allege that lending practices by such subsidiaries have
damaged the borrowers or others. Such claims, commonly referred to as lender
liability claims, frequently request not only relief from repayment of the debt
obligation, but also recovery of actual, consequential and punitive damages.
Fidelity Acceptance Corporation Litigation. In 1997, the Corporation sold
Fidelity Acceptance Corporation, its consumer lending subsidiary. At the time of
the sale, Fidelity Acceptance Corporation and/or certain of Fidelity Acceptance
Corporation's subsidiaries (collectively referred to as "FAC") were defendants
in class action and other lawsuits brought in various states by FAC borrowers.
These lawsuits, which include claims for punitive damages, often for large
dollar amounts, challenge various of FAC's lending and insurance practices,
including, among others, the placing of collateral protection insurance,
calculating the amount of credit life insurance and the determination of
applicable interest rates. Pursuant to the terms of the sale of FAC, the
Corporation has indemnified the buyer for various liabilities, including certain
losses arising from such litigation pending at the time of the sale and for
certain claims that may arise out of the operation of FAC prior to the sale.
-18-
Robertson Stephens Litigation. As noted above, in August 1998, the
Corporation acquired the investment banking operations of Robertson Stephens
from BankAmerica Corporation. At the time of sale, Robertson Stephens was a
defendant in several lawsuits in various state and federal courts claiming
damages, some in large dollar amounts, arising out of Robertson Stephens'
actions in connection with the proposed or actual underwriting or placement of
securities. Pursuant to the terms of the sale, these lawsuits are now the
responsibility of the Corporation.
Management, after reviewing all actions and proceedings pending against the
Corporation and its subsidiaries, considers that the aggregate loss, if any,
resulting from the final outcome of these proceedings should not be material to
the Corporation's results of operations or financial condition.
Item 3A. Executive Officers of the Corporation.
Information with respect to the executive officers of the Corporation, as
of March 1, 1999, is set forth below. Executive Officers are generally elected
annually by the Board of Directors and hold office until the following year and
until their successors are chosen and qualified, unless they sooner resign,
retire, die or are removed. Except where otherwise noted, the positions listed
for the officers are for both the Corporation and the Bank.
Executive Officer
-----------------
Name Age Current Position Since
---- --- ---------------- -----
Charles K. Gifford 56 Chairman and Chief
Executive Officer 1987
Henrique de Campos Meirelles 53 President and Chief
Operating Officer 1994
Susannah M. Swihart 43 Vice Chairman, Chief
Financial Officer and
Treasurer of the Corporation
and Vice Chairman and Chief
Financial Officer of the
Bank 1993
Paul F. Hogan 54 Vice Chairman, Wholesale
Banking 1993
Bradford H. Warner 47 Vice Chairman, Regional
Banking 1989
Edward J. Bayone 44 Executive Vice President
and Chief Credit Officer December 1998
Melville E. Blake III 44 Executive Director,
Strategic Planning 1993
Geraldo J. Carbone 42 Regional President, Brazil 1997
Helen G. Drinan 51 Executive Vice President,
Human Resources 1993
Pamela D. Gormley 50 Director, Financial
Accounting and Operations December 1998
Karen B. Green 53 Executive Vice President,
Corporate Marketing 1997
Ira A. Jackson 50 Executive Vice President,
Corporate & Community
Affairs 1987
Robert T. Jefferson 51 Comptroller 1993
John A. Kahwaty 48 Executive Director,
Investor Relations 1996
Lindsey C. Lawrence 61 Executive Vice President,
Electronic Banking 1996
Peter J. Manning 60 Executive Vice President,
Mergers & Acquisitions 1990
John L. Mastromarino 45 Executive Vice President,
Risk Management 1995
Kathleen M. McGillycuddy 49 Executive Vice President,
Global Markets 1996
Manuel R. Sacerdote 56 Regional President,
Southern Cone 1994
Erich Schumann 49 Executive Vice President,
Finance 1997
Gary A. Spiess 58 Executive Vice President,
General Counsel & Clerk of
the Corporation and
Executive Vice President,
General Counsel, Secretary
& Cashier of the Bank 1987
-19-
All of these individuals have been officers of the Corporation or one of
its subsidiaries for the past five years, except for Mss. Gormley, Green and
Lawrence and Mr. Mastromarino. Ms. Gormley came to the Corporation in September
1998 from KeyCorp, where she had served as Executive Vice President and Chief
Financial Officer, Corporate Banking, from 1997 to September 1998 and as
Executive Vice President and Chief Financial Officer of two KeyCorp
subsidiaries, Great Lakes Regional Bank (from 1995 through 1996) and Society
National Bank (from 1993 through 1994). Ms. Green joined the Corporation in 1996
and prior to that time had been Director of Consumer Marketing of BayBanks in
1996, Director of Marketing of BayBanks from 1995 to 1996 and Director of New
York Retail Marketing of Citibank from 1993 to 1995. Prior to assuming her
current position with the Corporation, Ms. Lawrence was employed by BayBank
Systems, Inc., a BayBanks subsidiary, as President and Chief Operating Officer
from 1988 to 1994 and as President and Chief Executive Officer from 1994 to
1996. Mr. Mastromarino came to the Corporation in 1995 from the OCC, where he
had served as Examiner-in-Charge of the OCC's London office from 1993 to 1995,
and as the OCC's Examiner-in-Charge at the Bank from 1988 to 1993.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information required by this Item is incorporated by reference from
pages 21, 22 and 58 of the Annual Report.
Item 6. Selected Financial Data.
The "Consolidated Selected Financial Data" of the Corporation for the six
years ended December 31, 1998 is incorporated by reference from pages 21 and 22
of the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information in response to this Item is included in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," which
is incorporated by reference from pages 23 through 54 of the Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required by this Item is incorporated by reference from
pages 48 through 51 of the Annual Report.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data required by this Item are
incorporated by reference from the pages of the Annual Report indicated below.
-20-
Page of 1998 Annual
Report to Stockholders
Summary of Quarterly Consolidated Financial
Information and Common Stock Data................ 58
Report of Independent Accountants..................... 60
BankBoston Corporation:
Consolidated Balance Sheet as of December 31, 1998
and 1997......................................... 61
Consolidated Statement of Income for the years
ended December 31, 1998, 1997 and 1996........... 62
Consolidated Statement of Changes in Common
Stockholders' Equity for the three years
ended December 31, 1998.......................... 63
Consolidated Statement of Cash Flows for the years
ended December 31, 1998, 1997 and 1996........... 64
Notes to Financial Statements......................... 65 through 89
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information concerning the Executive Officers of the Corporation which
responds to this Item is incorporated by reference from Item 3A contained in
Part I of this Report. The information that responds to this Item with respect
to Directors is incorporated by reference from the section entitled "Election of
Directors" in the Corporation's definitive proxy statement for its 1999 Annual
Meeting of Stockholders, which is required to be filed pursuant to Regulation
14A under the Exchange Act and which will be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Corporation's
fiscal year (the "Proxy Statement"). Information with respect to compliance by
the Corporation's Directors and Executive Officers with Section 16(a) of the
Exchange Act is incorporated by reference from the section entitled "Compliance
with Section 16(a) of the Exchange Act" in the Proxy Statement.
Item 11. Executive Compensation.
The information required in response to this Item is incorporated by
reference from the section entitled "Compensation of Executive Officers" in the
Proxy Statement (other than the subsection entitled "Compensation Committee
Report on Executive Compensation").
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required in response to this Item is incorporated by
reference from the sections entitled "Election of Directors," "Security
Ownership of Directors and Executive Officers" and "Security Ownership of
Certain Beneficial Owners" in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required in response to this Item is incorporated by
reference from the section entitled "Interests of Directors and Executive
Officers in Certain Transactions" in the Proxy Statement.
-21-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) The financial statements required in response to this Item are
incorporated by reference from Item 8 of this Report.
(a)(2) Financial statement schedules have been omitted because the information
is either not required, not applicable, or is included in the financial
statements or notes thereto.
(a)(3) Exhibits
3(a) - Restated Articles of Organization of the Corporation, effective
as of November 18, 1998.
3(b) - By-Laws of the Corporation, as amended through January 1, 1998,
incorporated herein by reference to Exhibit 3(b) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997 (File No. 1-6522).
4(a) - There are no agreements with respect to the long-term debt of the
Corporation authorizing the issuance of securities in an amount
exceeding 10% of the total assets of the Corporation and its
subsidiaries on a consolidated basis. The Corporation agrees to
furnish a copy of any agreement defining the rights of the
holders of the Corporation's long-term debt to the Securities and
Exchange Commission upon request.
4(b) - Rights Agreement, as amended through December 12, 1995, between
the Corporation and the Bank, as Rights Agent, and the
description of the Rights, incorporated herein by reference to
the Corporation's registration statement on Form 8-A relating to
the Rights, Exhibit 1 to such registration statement and
Exhibit 4(g) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1995 (File No. 1-6522).
4(c) - Renewed Rights Agreement, dated as of December 17, 1998, between
the Corporation and the Bank, as Rights Agent, incorporated
herein by reference to Exhibit 4 to the Corporation's Current
Report on Form 8-K dated December 17, 1998 (File No. 1-6522).
10(a) - BankBoston Corporation 1982 Stock Option Plan, as amended through
October 23, 1997, incorporated herein by reference to Exhibit
10(a) to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997 (File No. 1-6522).*
- -----------------------------------------------
* Indicates that document is a management contract or compensatory plan or
arrangement that is required to be filed as an exhibit to this Report pursuant
to Item 14(c) of Form 10-K.
-22-
(a)(3) Exhibits (cont'd)
10(b) - BankBoston Corporation 1986 Stock Option Plan, as amended through
October 23, 1997, incorporated herein by reference to Exhibit
10(b) to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997 (File No. 1-6522).*
10(c) - BankBoston Corporation 1991 Long-Term Stock Incentive Plan,
as amended through October 23, 1997, incorporated herein by
reference to Exhibit 10(c) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997 (File No.
1-6522).*
10(d) - BankBoston Corporation 1996 Long-Term Incentive Plan, as amended
through June 25, 1998.*
10(e) - BankBoston Corporation and its Subsidiaries Performance
Recognition Opportunity Plan, as amended effective June 9, 1998.*
10(f) - BankBoston Corporation Executive Deferred Compensation Plan, as
amended, effective June 23, 1994, incorporated herein by
reference to Exhibit 10(d) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994 (File No.
1-6522).*
10(g) - BankBoston, N.A. Bonus Supplemental Employee Retirement Plan, as
amended through June 23, 1994, incorporated herein by reference
to Exhibit 10(e) to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No. 1-6522).*
10(h) - Description of the Corporation's Supplemental Life Insurance
Plan, incorporated herein by reference to Exhibit 10(h) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1988 (File No. 1-6522).*
10(i) - BankBoston, N.A. Excess Benefit Supplemental Employee Retirement
Plan, as amended, effective June 23, 1994, incorporated herein by
reference to Exhibit 10(g) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1994 (File No.
1-6522).*
10(j) - BankBoston Corporation Relocation Policy, as amended effective
January 1, 1999.*
- -----------------------------------------------
* Indicates that document is a management contract or compensatory plan or
arrangement that is required to be filed as an exhibit to this Report pursuant
to Item 14(c) of Form 10-K.
-23-
(a)(3) Exhibits (cont'd)
10(k) - Description of the Corporation's Supplemental Long-Term
Disability Plan, effective as of February 10, 1994, incorporated
herein by reference to Exhibit 10(l) to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1993 (File
No. 1-6522).*
10(l) - BankBoston Corporation's Director Stock Award Plan, as amended
effective July 1, 1998.*
10(m) - Form of Severance Agreement for members of the Office of the
Chief Executive Officer and certain other officers.*
10(n) - Form of Severance Agreement for other officers.*
10(o) - BankBoston Corporation Directors Deferred Compensation Plan,
effective March 28, 1991, incorporated herein by reference to
Exhibit 10(q) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1994 (File No. 1-6522).*
10(p) - BankBoston, N.A. Directors Deferred Compensation Plan, effective
March 28, 1991, incorporated herein by reference to Exhibit 10(r)
to the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-6522).*
10(q) - BankBoston Corporation 1997 Stock Option Plan for Non-Employee
Directors, effective as of April 1, 1997, incorporated herein by
reference to Exhibit 10(q) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997 (File No.
1-6522).*
10(r) - Description of the Corporation's Director Retirement Benefits
Exchange Program, incorporated herein by reference to Exhibit
10(r) to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997 (File No. 1-6522).*
10(s) - 1988 Stock Option Plan for Key Employees of BayBanks, Inc., and
Affiliates, as amended through October 23, 1987, incorporated
herein by reference to Exhibit 10.2 to BayBanks' Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994 (File
No. 0-959) and Exhibit 10(u) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1997 (File No.
1-6522).*
- -----------------------------------------------
* Indicates that document is a management contract or compensatory plan or
arrangement that is required to be filed as an exhibit to this Report pursuant
to Item 14(c) of Form 10-K.
-24-
(a)(3) Exhibits (cont'd)
10(t) - BayBanks Supplemental Executive Retirement Plan, as amended
through November 27, 1996, incorporated herein by reference to
Exhibit 19.6 to BayBanks' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991, Exhibit 10.8 to BayBanks' Annual
Report on Form 10-K for the year ended December 31, 1991, Exhibit
10.2 to BayBanks' Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994 and Exhibit 10.8 to BayBanks' Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994
(File No. 0-959) and to Exhibits 10(y) and 10(z) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 1-6522).*
10(u) - BayBanks Profit Sharing Excess Benefit Plan, as amended,
incorporated herein by reference to Exhibit 10.1 to BayBanks'
Quarterly Report on Form 10-Q for the quarter ended March 31,
1993 and Exhibit 10.1 to BayBanks' Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994 (File No. 0-959).*
10(v) - BayBanks Deferred Payment Plans Trust Agreement, as amended
through October 27, 1994, incorporated herein by reference to
Exhibit 19 to BayBanks' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992 and Exhibit 10.10 to BayBanks'
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994 (File No. 0-959).*
10(w) - Consulting Agreement, dated as of December 30, 1997, between the
Corporation and William M. Crozier, Jr., incorporated herein by
reference to Exhibit 10(aa) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997 (File No.
1-6522).*
10(x) - Letter Agreement, dated as of August 15, 1997, between the
Corporation and Henrique de Campos Meirelles, incorporated herein
by reference to Exhibit 10(bb) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1997 (File No.
1-6522).*
10(y) - Lease, as amended through October 1, 1997, between BankBoston,
N.A. and Equitable Federal Street Realty Company Limited
Partnership, incorporated herein by reference to Exhibit 10(l) to
the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1991, to Exhibits 10(gg), 10(hh), 10(ii), 10(jj) and
10(kk) to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1996, and to Exhibits 10(cc), 10(dd),
10(ee), 10(ff) and 10(gg) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997 (File No. 1-6522).
- -----------------------------------------------
* Indicates that document is a management contract or compensatory plan or
arrangement that is required to be filed as an exhibit to this Report pursuant
to Item 14(c) of Form 10-K.
-25-
(a)(3) Exhibits (cont'd)
12(a) - Computation of the Corporation's Consolidated Ratio of Earnings
to Fixed Charges (excluding interest on deposits).
12(b) - Computation of the Corporation's Consolidated Ratio of Earnings
to Fixed Charges (including interest on deposits).
13 Pages 21 through 58 and 60 through 89 of the Corporation's 1998
Annual Report to Stockholders.
21 - List of subsidiaries of BankBoston Corporation.
23 - Consent of Independent Accountants.
24 - Power of attorney of certain officers and directors
(included on pages II-1 through II-2).
27 - Financial Data Schedule
99 - Notice of Annual Meeting and Proxy Statement for the Annual
Meeting of the Corporation's Stockholders to be held April 22,
1999, incorporated herein by reference to the Corporation's
filing under Regulation 14A of the Exchange Act (File No.
1-6522). Pursuant to General Instruction G(3) to Form 10-K, the
information required to be filed by Part III hereof is
incorporated by reference from the Corporation's definitive proxy
statement which is required to be filed pursuant to Regulation
14A and which will be filed with the Securities and Exchange
Commission not later than 120 days after the end of the
Corporation's fiscal year.
(b) During the fourth quarter of 1998, the Corporation filed two Current
Reports on Form 8-K. The current reports, dated October 15, 1998 and
December 17, 1998, each contained information pursuant to items 5 and 7 of
Form 8-K. The Corporation also filed two Current Reports on Form 8-K,
dated January 21, 1999 and February 3, 1999, each of which contained
information pursuant to items 5 and 7 of Form 8-K.
-26-
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, in the City of Boston,
and the Commonwealth of Massachusetts, on the 5th day of March, 1999.
BANKBOSTON CORPORATION
By: /s/ CHARLES K. GIFFORD
--------------------------
(Charles K. Gifford)
(Chairman and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates listed below. By so signing, each of the undersigned, in his or her
capacity as a director or officer, or both, as the case may be, of the
Corporation, does hereby appoint Charles K. Gifford, Henrique de Campos
Meirelles, Susannah M. Swihart, Erich Schumann, Robert T. Jefferson and Gary A.
Spiess, and each of them severally, or if more than one acts, a majority of
them, his or her true and lawful attorneys or attorney to execute in his or her
name, place and stead, in his or her capacity as a director or officer or both,
as the case may be, of the Corporation, any and all amendments to said report
and all instruments necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission. Each of said attorneys
shall have full power and authority to do and perform in the name and on behalf
of each of the undersigned, in any and all capacities, every act whatsoever
requisite or necessary to be done in the premises as fully and to all intents
and purposes as each of the undersigned might or could do in person, hereby
ratifying and approving the acts of said attorneys and each of them.
Signature Title Date
--------- ----- ----
/s/ CHARLES K. GIFFORD Chairman and Chief
- -------------------------------- Executive Officer and
(Charles K. Gifford) Director (Chief Executive
Officer) March 5, 1999
/s/ HENRIQUE DE CAMPOS MEIRELLES President and Chief
- -------------------------------- Operating Officer and
(Henrique de Campos Meirelles) Director March 5, 1999
/s/ SUSANNAH M. SWIHART Vice Chairman, Chief
- -------------------------------- Financial Officer and
(Susannah M. Swihart) Treasurer (Chief
Financial Officer) March 5, 1999
/s/ ROBERT T. JEFFERSON Comptroller
- -------------------------------- (Chief Accounting
(Robert T. Jefferson) Officer) March 5, 1999
II-1
Signature Title Date
--------- ----- ----
/s/ WAYNE A. BUDD Director March 5, 1999
- --------------------------------
(Wayne A. Budd)
/s/ WILLIAM F. CONNELL Director March 5, 1999
- --------------------------------
(William F. Connell)
/s/ GARY L. COUNTRYMAN Director March 5, 1999
- --------------------------------
(Gary L. Countryman)
/s/ WILLIAM M. CROZIER, JR. Director March 5, 1999
- --------------------------------
(William M. Crozier, Jr.)
/s/ ALICE F. EMERSON Director March 5, 1999
- --------------------------------
(Alice F. Emerson)
/s/ THOMAS J. MAY Director March 5, 1999
- --------------------------------
(Thomas J. May)
/s/ DONALD F. MCHENRY Director March 5, 1999
- --------------------------------
(Donald F. McHenry)
/s/ PAUL C. O'BRIEN Director March 5, 1999
- --------------------------------
(Paul C. O'Brien)
/s/ THOMAS R. PIPER Director March 5, 1999
- --------------------------------
(Thomas R. Piper)
/s/ FRANCENE S. RODGERS Director March 5, 1999
- --------------------------------
(Francene S. Rodgers)
/s/ JOHN W. ROWE Director March 5, 1999
- --------------------------------
(John W. Rowe)
/s/ GLENN P. STREHLE Director March 5, 1999
- --------------------------------
(Glenn P. Strehle)
/s/ WILLIAM C. VAN FAASEN Director March 5, 1999
- --------------------------------
(William C. Van Faasen)
/s/ THOMAS B. WHEELER Director March 5, 1999
- --------------------------------
(Thomas B. Wheeler)
/s/ ALFRED M. ZEIEN Director March 5, 1999
- --------------------------------
(Alfred M. Zeien)
II-2