The Deutsche Bank Group

This environment will create substantial challenges for all Deutsche Bank’s businesses, and these are described in detail below. In 2008, the Bank took significant steps to mitigate these challenges including strengthening capital ratios, reducing legacy trading-book exposures in key areas such as leveraged finance and commercial real estate, making reductions in non-derivative trading assets, reducing costs in certain areas, and maintaining a substantial funding base. All of these factors will likely contribute positively to the bank’s financial strength in 2009. Reductions in balance sheet, while lowering risk profile, may entail some ‘opportunity cost’ in respect of 2009 revenues.

Continuing adverse market conditions may also affect revenues in Deutsche Bank’s core businesses, thus creating the need for cost-saving measures in addition to those already implemented. Such cost-saving measures could potentially include headcount reductions, which could in turn create the need for severance or other related costs in the near term.

Deutsche Bank will also be affected by the political, regulatory and organizational challenges described above. In some areas, the impact on Deutsche Bank will be less than on some peers, since Deutsche Bank did not undergo major merger activity, nor did it receive direct government funds. Organizational disruptions from merger integration or restructuring at other banks, or restrictions placed on the activities of other banks which have received direct government aid, may therefore present an opportunity for Deutsche Bank to gain market share in key businesses, or to invest selectively in its business either by attracting new talent or by making bolt-on acquisitions, subject to managing its capital and key ratios in line with market conditions and requirements. Conversely, Deutsche Bank will be impacted by any future regulatory changes, and has already initiated a review of its compensation procedures.

If the global economy, financial markets, legal and regulatory environment, and competitive environment develop as foreseen, Deutsche Bank expects to return to profitability in 2009.

In 2010, Deutsche Bank is positioned to benefit from the above-mentioned positive impact of measures taken by governments and central banks to stabilize the global financial system and stimulate economic recovery in major industrialized nations. Deutsche Bank will also likely experience the benefit of measures taken by Deutsche Bank management in response to the financial crisis, which are discussed in detail elsewhere in this report. On the other hand, further deterioration of the global economy and/or financial markets, or ineffectiveness of the above-mentioned corrective and stimulative measures, would negatively impact the outlook for Deutsche Bank in 2010.