3
Thanks to our strong global presence, especially in corporate and 
investment banking and our investment management businesses, we took advantage of the generally favorable economic and market environment. We generated higher revenues in most business areas which, combined with some expense growth and a similar level of loan loss provisions, resulted in significant bottom-line profit growth.
Income before income tax expense increased from € 4.0 billion in 2004 to € 6.1 billion, including restructuring charges of € 767 million related to the Business Realignment Program (“BRP”) (similar charges in 2004 amounted to € 400 million). We reported a pre-tax return on average active equity of 24% in 2005 – a substantial improvement over 16% in 2004 (pre-tax return on average total shareholders’ equity was 22% and 15%, respectively, for these years). Net income for 2005 increased 43% to € 3.5 billion compared to € 2.5 billion in 2004, and diluted earnings per share grew 53% to € 6.95.
Compared to 2004, total net revenues excluding the provision for loan losses increased by € 3.7 billion, or 17%, to € 25.6 billion. Revenues grew in all major categories. Net interest and trading revenues were up € 819 million, or 16%, and € 1.2 billion, or 20%, respectively. This growth was primarily attributable to our Sales & Trading businesses, which achieved total revenues (net interest, trading, fee and other revenues) of € 10.6 billion, up 21% from 2004 to a new record level. Our business model, which emphasizes high-value ‘intellectual capital’ products and customized solutions, performed strongly – in both the good and challenging market conditions in 2005. Commission and fee revenues improved by € 582 million to € 10.1 billion in 2005, driven by strong results in both our origination/advisory and investment management businesses. Also contributing to higher revenues in 2005 was an increase of € 821 million in gains on sales from our portfolio of securities available for sale, mainly reflecting gains from the further reduction of our stake in DaimlerChrysler AG.
Our total noninterest expenses were € 19.2 billion compared to € 17.5 billion in 2004. Noninterest expenses reflected restructuring expenses of € 767 million in 2005 and € 400 million in 2004, increased provisions in 2005 related to legal exposures for legacy issues, and € 203 million in 2005 related to grundbesitz-invest, an open-end property fund sponsored and managed by a German subsidiary of ours. Declines in noninterest expenses due to headcount reductions and other additional measures were offset by higher performance-related bonuses, in line with strong business results, as well as by investments in growth businesses.
In 2005 the provision for loan losses was € 374 million compared to € 372 million in 2004. The level in 2005 partly reflects growth in our consumer lending business, consistent with our stated strategy. At the end of 2005, problem loans were € 3.9 billion, down 20% from € 4.8 billion at the end of 2004, reflecting the quality of our loan book, tight credit risk management, the positive results of workout processes and the overall benign credit environment.
The following table presents our condensed consolidated statement of income for 2005 and 2004.
| 2005 increase (decrease) from 2004 | ||||
|---|---|---|---|---|
| in € m. | 2005 | 2004 | in € | in % |
| Net interest revenues | 6,001 | 5,182 | 819 | 16 |
| Provision for loan losses | 374 | 372 | 2 | 1 |
| Net interest revenues after provision for loan losses | 5,627 | 4,810 | 817 | 17 |
| Commissions and fee revenues | 10,089 | 9,506 | 582 | 6 |
| Trading revenues, net | 7,429 | 6,186 | 1,243 | 20 |
| Net gains on securities available for sale | 1,055 | 235 | 821 | N/M |
| Net income from equity method investments |
418 | 388 | 30 | 8 |
| Other noninterest revenues | 648 | 421 | 227 | 54 |
| Total noninterest revenues | 19,639 | 16,736 | 2,903 | 17 |
| Total net revenues | 25,266 | 21,546 | 3,719 | 17 |
| Compensation and benefits | 10,993 | 10,222 | 771 | 8 |
| Goodwill impairment/impairment of intangibles |
– | 19 | (19) | N/M |
| Restructuring activities | 767 | 400 | 367 | 92 |
| Other noninterest expenses | 7,394 | 6,876 | 518 | 8 |
| Total noninterest expenses | 19,154 | 17,517 | 1,637 | 9 |
| Income before income tax expense and cumulative effect of accounting changes | 6,112 | 4,029 | 2,083 | 52 |
| Income tax expense | 2,039 | 1,437 | 602 | 42 |
| Reversal of 1999/2000 credits for tax rate changes | 544 | 120 | 424 | N/M |
| Income before cumulative effect of accounting changes, net of tax | 3,529 | 2,472 | 1,056 | 43 |
| Cumulative effect of accounting changes, net of tax | – | – | – | – |
| Net income | 3,529 | 2,472 | 1,056 | 43 |
| N/M – Not meaningful |
Our net income included the effects of reversing income tax credits related to 1999 and 2000 tax law changes, as described in “Effects of 1999/2000 German Tax Reform Legislation and Accounting for Income Taxes” and the cumulative effect of accounting changes as described in Note [2] to our consolidated financial statements. The following table shows our net income excluding these effects.
| in € m. (except per share amounts) | 2005 | Per share (basic) |
Per share (diluted) |
2004 | Per share (basic) |
Per share (diluted) |
|---|---|---|---|---|---|---|
| Net income | 3,529 | 7.62 | 6.95 | 2,472 | 5.02 | 4.53 |
| Add (deduct): | ||||||
| Reversal of 1999/2000 credits for tax rate changes | 544 | 1.18 | 1.07 | 120 | 0.24 | 0.23 |
| Cumulative effect of accounting changes, net of tax | – | – | – | – | – | – |
| Net income before reversal of 1999/2000 credits for tax rate changes and cumulative effect of accounting changes, net of tax | 4,073 | 8.80 | 8.02 | 2,592 | 5.26 | 4.76 |
Net income above included pre-tax gains of € 750 million in 2005, € 140 million in 2004 and € 222 million in 2003 on sales of securities that generated the reversal of the 1999/2000 credits fortax rate changes.
