The world economy proved to be very robust last year, growing by 4.5%. In the European Union the economy grew by 1.5%. Only Germany lagged significantly behind the other countries and regions with a growth rate of 0.9%. The capital markets developed better than expected. The Nikkei index gained 40%, and the DAX an impressive 27%. Confidence in the international financial markets has returned.
We took full advantage of this environment, thanks to our global positioning. In fact, Deutsche Bank enjoyed a record year in 2005. We were highly successful in further developing the bank, and we achieved a 25% pre-tax return on average active equity according to our target definition. Credit for this success goes to more than 63,000 highly motivated staff.
We delivered a remarkable improvement in our performance thanks to strict control of costs, modest requirements for risk provisioning and continued revenue growth. Deutsche Bank’s net revenues grew by 17% versus 2004, to nearly €26 billion. Pre tax profit grew even faster, rising by 52%, or € 2.1 billion, to € 6.1 billion. These results include special expenses totaling € 1.5 billion for restructuring and for legal provisions and also for the “grundbesitz-invest” case. These expenses are counterbalanced by one-time gains of € 800 million primarily from the further reduction of our stake in DaimlerChrysler. Net income increased by an outstanding 43% to € 3.5 billion.
Earnings per share growth was even stronger, rising by 53% to € 6.95 on a diluted basis. Our shareholders will enjoy the benefits of this increase. First, because we have continued our share-buy-backs. Second, because we recommend to the Annual General Meeting on 1 June 2006 an increase of the dividend by 80 cents to € 2.50 per share. This would mean the dividend will have nearly doubled in three years.
All businesses and regions contributed to the excellent performance of 2005. Our Group Division Corporate and Investment Bank (CIB) generated record revenues and profits. Revenues were € 15.9 billion or 19% up versus 2004. Underlying pre-tax profit grew even more, by 57% to € 4.8 billion. Several factors contributed to these good results. In sales and trading we increased revenues by 21%. Here our unique business model, which emphasizes high-value and customized solutions, performed very well – not only in good market conditions but also in challenging markets, both of which we experienced in 2005. We were also very successful with our origination and corporate advisory businesses, where revenues increased by 19%. Results in Global Transaction Banking, the third pillar of our CIB franchise, were particularly gratifying. With close client relationships and stable revenues in this area, this division of CIB represents an especially attractive business. Its underlying profitability nearly doubled in 2005.
In recognition of our outstanding performance in CIB, Deutsche Bank was awarded – for the second time since 2003 – the title “Bank of the Year” by International Financing Review. Furthermore, in the important Asian markets, we were named “Asia Bank of the Year” by IFR Asia, while Risk Magazine named us “Derivatives House of the Year”. All our staff members have every right to be proud of these awards.
Our Group Division Private Clients and Asset Management (PCAM) grew underlying net revenues by 6% to € 8.5 billion in 2005. Underlying pre-tax profit grew strongly, by 16% to € 1.7 billion. Last year, net revenues from investment management were up 10% to € 5 billion. We grew assets by 16%, with asset growth coming above all from private clients rather than institutional clients. Last year’s reorganization of Asset Management, comprising our mutual fund and institutional asset management businesses, clearly moved us forward and improved the quality of our earnings. Here as well, we received accolades for our performance. DWS was awarded the title of “Best German Mutual Fund Company”, for the eleventh year in a row.
Deutsche Bank is exceptionally well equipped to face the future. We have the right strategy and the right growth dynamics. And we have clear targets for our core businesses. In CIB we aim to build on our strong global position, expanding our leading position in Europe, and reaching a top position in the U.S. For this reason, we intend to further expand our coverage for global corporate clients and specific industry sectors. In transaction banking, the acquisition of JPMorgan’s depository and clearing business in the United Kingdom ideally supplements the platform of our trust and securities services business.
Furthermore, we are expanding our CIB presence in growth regions. For example, we signed an agreement to acquire a 49% stake in the Mexican mortgage bank Fincasa Hipotecaria. In Turkey we bought the remaining 60% in the brokerage firm Bender Securities, and in Russia the remaining 60% of United Financial Group, making us one of the leading investment banks in both countries. In Saudi Arabia we formed a joint venture with Al Azizia Commercial Investment Company. In Australia we entered into a joint venture with Wilson HTM, one of that country’s leading investment advisors.
In Asset Management and Private Wealth Management we also have global objectives. Our aim is to continue to grow and to position Deutsche Bank as one of the leading asset managers in the world. Last year we established a global, product-oriented business model. In particular we see further potential in higher margin products. In China, we entered into a joint venture with Harvest Asset Management, one of the leading local asset managers in this important growth market. As part of the restructuring of Asset Management, we sold our institutional franchise in the United Kingdom and smaller units in the U.S.
Our mutual fund business in the United States has operated until now as Scudder Investments. In order to better exploit Scudder’s potential, we are now restructuring it and integrating it into our global mutual funds business. Given the tremendous success DWS has enjoyed in Germany and Europe, we plan to operate our entire global mutual fund business under the DWS brand from now on. The new brand name DWS Scudder was launched at the beginning of 2006.
In our business with high net worth private clients we are well positioned for further growth. We intend to expand our market share in the more mature markets of Western Europe and North America. At the same time, we will strive to capture new clients in the emerging markets of Asia, the Middle East and Eastern Europe, and seize opportunities for growth in Latin America. To ensure high quality client coverage, we will continue to invest in training for our staff and selected hiring of experienced advisors.
In our retail banking business we follow a multi-country strategy. In Germany, we strengthened our distribution power with 750 new client advisors. We are the first bank in this country to offer loans to students with the aim of retaining this promising target group as long-term clients. We concluded an exclusive partnership agreement with ADAC, Germany’s leading automobile club. Initially, we are offering special savings products to ADAC’s 15 million-plus members. Furthermore, we aim to continue our growth in consumer finance. We are already very successful in this business in Italy, and accordingly we have established our center of competence for consumer finance in that country. In Poland we will nearly double our branch network. In India we opened eight branches in the five largest cities in the fourth quarter of 2005. We hired 435 staff members, including 270 financial advisors, and we have made a very promising start to our business there. In China we gained access to the enormous growth potential of the retail market through our cooperation with Hua Xia Bank.
Deutsche Bank is well positioned, both in its home market Germany and globally. We have a presence, and a competitive position, in all important growth markets. This has already delivered very good results. We will continue down this path. With our global reach, our financial strength, and the expertise of our staff we will maintain and build out Deutsche Bank’s position as one of the world’s leading global financial institutions.
Our target is to achieve, over the cycle, a sustainable profitability of 25% pre-tax return on equity as well as a double-digit growth rate of earnings per share. Based on our current outlook for the world’s capital markets and global economy, we are confident of maintaining, in 2006, the good progress we made last year.
Yours sincerely,
Josef Ackermann
Chairman of the Management Board and
the Group Executive Committee
Frankfurt am Main, March 2006
