The third quarter 2008 was characterized by a considerable intensification of the credit crisis in September. Conditions in credit markets, already very difficult, deteriorated further, and liquidity in the financial system became scarcer than at any point in the crisis. The collapse of a major U.S. investment bank deeply affected market confidence. Equity markets, which had so far performed somewhat better than credit markets, suffered some of the steepest falls on record. These exceptionally difficult conditions persisted in October. In response, governments and central banks across the world intervened on an unprecedented scale to recapitalize major banks, inject liquidity into markets, reduce interest rates, provide or improve protection for depositors, stimulate inter-bank lending, and purchase troubled assets. The authorities also facilitated a wave of consolidation, as large banks took over other institutions which had been severely affected by the environment. We have welcomed, and will continue to support, efforts by governments and international bodies to develop coordinated responses to systemic issues.

Despite these extraordinary conditions, Deutsche Bank reported a profit for the quarter. Net income was € 414 million, or 83 cents per share (diluted), including certain tax benefits, after a pre-tax profit of € 93 million. Our Corporate Banking & Securities Division recorded a pre-tax loss of € 789 million, reflecting write-downs on legacy exposures and trading losses in extremely difficult markets. Pre-tax profits were € 449 million in our other divisions – Global Transaction Banking, Asset and Wealth Management, and Private & Business Clients – while Corporate Investments reported a pre-tax profit of € 238 million. We continue to apply the fair value accounting option only to a very small proportion of our own debt, which resulted in a gain of only € 146 million in the quarter. If we had applied the fair value option more consistent with common industry practice, we would have reported a gain in excess of € 2 billion in this quarter’s result.

Deutsche Bank continued to bolster its solid capital position and strong funding base. These are both vital in times of acute market stress. Our Tier 1 capital ratio at the end of the quarter was 10.3 %, up from 9.3 % at the end of the second quarter, while our unsecured funding base stood at € 521 billion, of which over 86 % was from high-quality sources including deposits and capital market funding. Only 14 % was from short-term wholesale sources, and this is well protected by our liquidity reserve.

After a period of exceptional market turbulence, the outlook for our business remains challenging. It will be some time before the full benefit of measures recently taken by governments and central banks takes effect. Recessionary pressures are increasing in the global economy. In the United States and some European economies, house prices continue to fall, unemployment is rising and consumer demand has weakened. Growth in leading Asian economies and energy-producing nations remains positive, but slower than in recent years.

This deteriorating economic environment adversely affects conditions for all our client segments. Capital market issuance remains substantially below the levels of 2006 and early 2007, while M&A and leveraged buy-out activity is also lower. The credit environment is already becoming tougher. Corporate default rates are rising, as are delinquencies in consumer and credit card lending. Meanwhile, both institutional and private investors remain very cautious. Conditions in the equity and credit markets remain extremely challenging, and we continue to monitor our exposures in these areas.

So far, we have weathered the credit crisis better than some of our peers. Since the second half of 2007, when the credit crisis began, we have generated cumulative net income of € 3.5 billion. Thanks to active loan exposure management, we are well-positioned to withstand deterioration in the credit environment. Our business model, which combines a world-leading investment bank with ‘stable’ businesses, has been proved to be robust; our ‘stable’ businesses have provided both earnings diversification and a good quality funding base. As a strong institution in uncertain times, we stand to gain from a ‘flight to quality’ on the part of clients. As a result, we see significant challenges, but also opportunities, for Deutsche Bank.

We have the potential to strengthen all our core businesses. In investment banking, we face fewer competitors, and have captured market share in some ‘flow’ trading products, such as foreign exchange, which have remained strong throughout the credit crisis. We see scope to invest in growth areas while reducing our exposure to structured or ‘inventory’ businesses. In Global Transaction Banking, we can capitalize on the very strong profit growth over the past five years by making further investment, both in organic growth and by acquisition. In Private Wealth Management, we have continued to attract new money inflows, and can turn these inflows into revenues. In Private & Business Clients, the next phase of our growth program involves strengthening our advisory banking platform in our core European markets, while simultaneously building up a complementary consumer banking capability, and achieving new levels of back-office efficiency.

We also made a highly important investment during the quarter: we agreed to acquire a stake in Deutsche Postbank. We plan to close this transaction in the first quarter of next year. We also sealed a co-operation agreement with Deutsche Postbank and will work together in several areas, including the marketing of home finance products and investment products, joint purchasing, and infrastructure projects. This co-operation has the potential to reach nearly 30 million customers between our two platforms. We also gain significant strategic optionality. We are not obligated to purchase a controlling stake in Deutsche Postbank – however, if we were to take this step in the future, we would gain significant strategic advantages.

We would be undisputed leader in our home market, Germany; we would count among the leading retail banks in continental Europe, and we would almost double our deposits. To finance this purchase, and strictly for that purpose, we raised € 2.2 billion of new equity, and I would like to take this opportunity to thank investors for their confidence in us.

We will continue to exercise strong discipline in our management of cost, capital, liquidity and risk. We raised our target Tier 1 capital ratio to 10 %. We also reaffirmed our firm commitment to reduce the size of our balance sheet, thereby improving our leverage ratio. I am confident that by the end of this year, we will see meaningful progress on this high-priority initiative. Furthermore, we will balance our dividend policy with our commitment to conserving capital strength in a highly uncertain environment.

Deutsche Bank has proved its ability to withstand extreme market stress, but we are conscious of the negative and regrettable impact which the credit crisis has had, both on financial performance and on our share price. My colleagues and I all feel a strong sense of duty to steer Deutsche Bank through this exceptionally difficult environment. In these circumstances, the Group Executive Committee has decided to make itself ineligible for bonuses this year. The Supervisory Board has taken a similar step.

Despite exceptionally difficult market conditions in recent months, and a challenging near-term outlook, we remain absolutely focused on the interests of our clients and shareholders. Deutsche Bank has a robust business model, a solid capital and funding base, and strong franchises in core businesses. We are determined to confront the challenges we face, but also, to capture opportunities to build on our platform and create lasting value for our shareholders. We greatly appreciate your loyalty and support.

Yours sincerely,

Josef Ackermann
Chairman of the Management Board and the Group Executive Committee

Frankfurt am Main, October 2008