The outlook for Deutsche Bank is favorably influenced by several factors. Against a backdrop of increasing globalization in the world economy, Deutsche Bank is very well-positioned, with a presence in 73 countries, significant regional diversification and substantial revenue streams from all the major regions of the world. We have established strong bases in all major emerging markets, and therefore have good prospects for business growth in fast-growing economies, including the Asia-Pacific region, Central and Eastern Europe, and Latin America. In Europe, we are well placed to benefit from the aforementioned resilient conditions in our home market, Germany, and from continued strong levels of corporate activity in the Eurozone.

As one of the world’s leading investment banks (as measured by publicly available revenue data), Deutsche Bank is also well-positioned to benefit from continued growth in the world’s capital markets. We command strong positions in emerging capital markets, notably in Asia, which continue to expand rapidly. Our corporate finance business is well-positioned to benefit from sustained high levels of corporate activity, both in M&A and in debt and equity issuance, including high yield debt and syndicated loans. Our sales and trading businesses stand to gain from sustained growth in more complex, high-value areas, including derivatives, securitization, and structured credit products. In periods of market uncertainty, the diversification of our investment banking business, spanning different client types, products and regions, mitigates the impact of challenging conditions in specific areas. As financial markets witness increasing levels of leverage and risk distribution, Deutsche Bank’s risk management competencies, including innovative techniques such as loan exposure management and dynamic hedging, are likely to play an increasingly important role in our business growth.

As invested assets continue to grow across the world, Deutsche Bank is likewise well-positioned to capture growth opportunities. At the end of 2006, Deutsche Bank managed €966 billion in assets for institutional clients, high net worth individuals and private customers. As mature economies see growing levels of private retirement funding and pension planning, Deutsche Bank’s mutual fund subsidiary, DWS, is well-placed to benefit, with a top-three position among European mutual fund providers (as measured by publicly available invested asset data), and clear leadership in the German market. As new wealth is created in emerging economies, the DWS franchise has favorable prospects for growth in these markets. As a leader in real estate asset management, Deutsche Bank is also poised to benefit from growing demand for alternative asset classes. Substantial investment in our Private Wealth Management platform during 2006, including the hiring of more than 400 new employees and the acquisition of Tilney Group in the UK, positions us well to capture growth in assets invested by wealthy individuals around the world.

In personal banking, Deutsche Bank is well-positioned to benefit from resilient economic conditions in our home market, Germany, and from the added capacity created by two acquisitions, Berliner Bank and norisbank. Our investments in India, China and Vietnam, including both organic expansion and local partnerships, also enable us to tap growth in demand for personal banking products and services in these fast-growing economies.

In the context of the outlook for the global economy and banking industry, several downside risks exist for Deutsche Bank. Fundamental trends continue to support the long-term growth of capital markets-related businesses, but due to the intrinsic unpredictability of financial markets, corrections and periods of increased volatility may occur. The aforementioned higher interest rates and provisioning levels (while mitigated by advances in risk management) as well as major geopolitical events and financial markets corrections or increased volatility could in turn impact the earnings prospects of the bank. These general risks are discussed in detail in the next section of this report. The specific risks affecting our businesses are outlined in the paragraphs below.

Deutsche Bank’s commitment to continued cost, risk, capital and regulatory discipline will play a critical role in the development of our business. As our core businesses expand, risk appetite and cost pressures will continue, and any increases will be subject to strict internal controls. Potential acquisitions are also rigorously monitored against strict criteria, both before and after completion. Against a backdrop of increasing regulatory and legal scrutiny, we will continue to operate a rigorous control environment, in order to minimize reputational, regulatory and litigation risk

On the back of increased regulation and complexity of the financial markets, efforts are repeatedly undertaken to subject financial services providers to increased responsibilities and liabilities. As a result, we need to devote additional resources to address these requirements and our exposure to legal risks such as litigation, arbitration and regulatory proceedings has increased, in particular in the U.S. We may settle such proceedings prior to a final judgment on the claim and its amount, even when we believe we have valid defenses against liability. This applies in particular where the potential economic, business, regulatory or reputational consequences of failing to prevail would be disproportionate to the cost of settlement. The ongoing financial impact of legal risks might be considerable but is impossible to estimate with confidence.

The outlook for Deutsche Bank is consistent with the Bank’s published financial objectives. We aim to deliver pre-tax profit (target definition) of € 8.4 billion for the Group in 2008, and to maintain, over the business cycle, a sustainable pre-tax return on average equity, per our target definition, of at least 25 %, together with double-digit growth in diluted earnings per share. Our commitment to sustained capital discipline is reflected in our target of a BIS Tier 1 capital ratio of between 8 and 9 %. The bank internal models for measuring credit risk which are necessary pursuant to the capital adequacy requirements under Basel II are being audited by the relevant regulators. To the extent that such process will be completed without substantial delays or changes, we currently expect the requirement for regulatory capital to generally decrease from 2008 onwards. As a result of the increased risk sensitivity of such capital adequacy requirements, however, capital requirements may also increase compared to current levels in times of economic downturn and increase our financing costs.