Letter from the Chairman of the Management Board

In the third quarter 2009, we saw further signs of stabilization returning to the world’s financial markets. Equity markets continued to rally; liquidity continued to return, in an atmosphere of lower volatility, and corporations and institutions around the world continued to return to the capital markets for both debt and equity funding. Nevertheless, challenges remain in the wider economy. Unemployment remains high, and continues to climb in some countries and industries. Consumer spending is subdued in a difficult credit environment. In North America, the housing market is still weak. In important emerging economies, economic momentum has returned, but in some important developed economies, the pace of recovery remains fragile. In addition, the main lines of the post-crisis regulatory framework for the banking industry are becoming clearer, particularly since the G-20 summit meeting of world leaders in Pittsburgh in September.

In this quarter, we again delivered a solid profit, whilst maintaining strict balance sheet discipline and further bolstering our capital strength; in addition, we took important steps in expanding our platform; and we defined the broad lines of the next phase of our strategy.

Pre-tax profit for the quarter was € 1.3 billion, and pre-tax return on average active equity was 15 %. Net income was € 1.4 billion, or € 2.10 per share on a diluted basis, slightly higher than pre-tax profits, due primarily to the positive outcome of tax audit settlements relating to earlier years. Our capital ratios are now at their highest since the introduction of the Basel II capital framework: Tier 1 capital ratio rose to 11.7 %, from 11.0 % at the end of the previous quarter and comfortably ahead of our target of 10 %, while our ‘core’ Tier 1 ratio increased from 7.8 % to 8.1 %. We also reduced risk-weighted assets by € 8 billion in the quarter. Provisions for credit losses were € 544 million, down from € 1 billion in the second quarter.

All our business segments were profitable in the quarter. In the Corporate and Investment Bank (CIB), pre-tax profit was € 1.2 billion, up 17 % versus the second quarter and compared to a loss of 507 million in the third quarter 2008. In Corporate Banking and Securities (CB&S), pre-tax profits were € 988 million, versus € 828 million in the second quarter, and a loss of € 789 million in the third quarter last year. In our sales and trading businesses, revenues were a record for any third quarter; in markets which continued to normalize, volumes and margins in important ‘flow’ products, such as foreign exchange and interest rate trading, were lower than in the first two quarters of the year, but this was counterbalanced by market share gains in both fixed income and equity in the all-important U.S. market, strength in credit trading and equities prime brokerage, and substantial year-on-year growth in emerging market debt trading. Across our sales and trading platform, we maintained and extended the reductions in balance sheet and risk-weighted assets which reflect our strategic decision to reduce levels of trading risk, even at the expense of short-term revenue gains in some business areas. Origination revenues were € 542 million, versus a loss of € 284 million, after mark-downs related to leveraged loans and loan commitments, in the third quarter last year. Levels of both debt and equity origination were strong versus the prior year, reflecting both favorable issuance demand from clients and market share gains: we ranked No. 1 in All International Bond issuance in the quarter and No. 2 globally in High Yield Debt issuance.

Pre-tax profits in Global Transaction Banking (GTB) were € 194 million, up from the second quarter but below the levels of the third quarter last year, as the low interest rate environment impacted revenues in our Global Cash Management business, while lower equity valuations impacted revenues in our
Trust & Securities Services activities. These were to some extent offset by revenue growth in our Trade Finance business.

Our Private Clients and Asset Management (PCAM) business turned in a pre-tax profit of € 283 million, after several quarters of losses which reflected specific charges, notably in Asset and Wealth Management (AWM). AWM delivered a pre-tax profit of € 134 million in the quarter, due in part to a non-recurrence of charges related to impairments, support for money-market funds and severance payments. Revenues improved in retail asset management, against a background of improving equity markets and tightening credit spreads, which boosted performance fees in yield-guaranteed money market funds. AWM also attracted net inflows of new money of € 10 billion during the quarter.

Private and Business Clients (PBC) delivered pre-tax profits of € 149 million, an improvement over the second quarter this year but down from € 262 million in the third quarter last year. Revenues in deposit products continued to be impacted by an environment of lower interest rates, and revenues in investment products were impacted by continued wariness on the part of retail investors. These impacts were, to some extent, offset by revenue growth in credit products.

Looking back over the first nine months of 2009, the full extent of our progress since last year becomes clear. We have delivered significant improvements in profitability. Pre-tax profits were € 4.4 billion, compared to € 481 million in the first nine months of 2008; net income was € 3.6 billion, compared to € 918 million; Tier 1 capital has risen to 11.7 % from 10.3 % as of September 30, 2008. We have also made considerable progress in asset efficiency, delivering much-improved profits with a balance sheet (according to target definition) which is 31 % smaller than a year ago. Our leverage ratio of 25 is in line with our stated objective, and compares to a ratio of 32 a year ago.

Deutsche Bank has proved its resilience in an exceptionally tough environment, and has indeed emerged stronger from the crisis: more profitable, more sharply focused in its core businesses, better capitalized, less leveraged, and having both reduced key risks and maintained our independence. This creates opportunities for us to bolster our long-term competitive position, and we have taken good advantage of such opportunities with two recently-announced strategic moves.

We have reached heads of agreement to acquire certain corporate banking assets of ABN AMRO in the Netherlands, after discussions which were initiated last year. This allows us to expand our transaction banking business in an important European market, particularly in the small and medium-sized corporate client segment. We would capture a leading position in commercial banking in the Netherlands, thereby complementing and accelerating GTB’s very strong organic growth of the past five years.

We have also reached a framework agreement to acquire Sal. Oppenheim S.C.A., the leading German private bank as measured by assets under management. This represents a significant step forward for our private wealth management platform. It would reinforce our leadership position in our home market, Germany, and secure a top-four position in this business in Europe, by assets under management. We expect to complete this transaction in the early part of 2010. Taken together, these strategic moves support our strategy of expanding our non-investment banking businesses, thus diversifying our earnings mix and growing core businesses by focused acquisitions.

Looking ahead, we see challenges and opportunities in the environment. We are well-prepared for both. We see financial markets continuing to normalize: both liquidity and trading volumes continue to recover, as does client confidence and demand. This favors those firms which have demonstrated strength through the financial crisis – such as Deutsche Bank. Looking across the world, the pace of economic recovery differs by region. We see stronger momentum in some important emerging markets, notably in Asia. Leading Asian economies will assume greater importance in the post-crisis world, and this plays to Deutsche Bank’s strengths. Our extensive local network across the Asian region will prove a key asset in the post-crisis environment. On the other hand, areas of risk remain. In some businesses, and asset classes, the legacy of the crisis is still clearly felt. For this reason, our initiative to further reduce the risk profile of our trading businesses will prove a valuable investment. Furthermore, challenges persist in the wider economy, despite indications of stabilization and improvement in some sectors. Interest rates may remain low in the near-term. In this context, the cost-efficiency gains we have made across our non-investment banking businesses leave us not only well-prepared for near-term pressure on revenues, but also well-positioned to reap benefits as the interest rate cycle stabilizes.

Deutsche Bank is well-positioned to prosper in this new phase. We will seize opportunities to expand our business, building on the strengths that have served us well through the crisis, and adapting to the new demands of a changing competitive, regulatory and commercial environment. However, there are some aspects of our culture which will not change. We will remain a profoundly diverse and multicultural organization. A culture of performance remains essential to who we are. And we will remain firmly committed to the communities in which we operate around the world. I am proud, and pleased, that even in the toughest periods of the crisis, we maintained levels of financial support for our citizenship activities. Last, but by no means least: nothing has changed in our commitment to delivering value for you, our shareholders. We greatly appreciate your loyal support, and remain absolutely determined to continue to earn it.

Yours sincerely,

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

Frankfurt am Main, October 2009