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Letter from the Chairman of the Management Board

Dear Shareholders (handwriting)

2009 was a year of considerable achievement for Deutsche Bank. Financially, we delivered a significant turnaround after the exceptionally difficult conditions of 2008, and strategically, we laid a firm basis for success in the post-crisis era.

Dr. Josef Ackermann (photo)

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

For the global economy, 2009 was a year of stabilisation, after the exceptionally turbulent final months of 2008. In the first quarter of 2009, financial markets witnessed high volatility, volumes and margins, while the rest of the year saw a steady trend toward normalisation. As the year progressed, mature economies showed signs of recovery, and in economies in emerging markets, including in Asia, healthier growth rates returned. Equity markets rallied worldwide. Nonetheless, the economic environment in mature markets remained fragile in 2009, with high levels of unemployment and continued reliance on the external stimulus measures taken by governments around the world in the wake of the financial crisis.

Against this backdrop, our financial results for the year 2009 demonstrate just how far we have progressed in re-positioning Deutsche Bank. Pre-tax profits were € 5.2 billion, versus a loss before income taxes of € 5.7 billion in 2008. Net income was 5.0 billion, or € 7.59 per share on a diluted basis, compared to a net loss of € 3.9 billion in the previous year, or € 7.61 per share on a diluted basis. Pre-tax return on average active equity, as per our target definition, was 15 %. Furthermore, 2009’s profit figures include the absorption of significant write-downs and trading losses from legacy positions impacted by the crisis. We also did more with less. We delivered substantial profitability with a significantly lower balance sheet, while risk-weighted assets declined steadily from their peak at the end of the first quarter. As a result, we strengthened our capital base. Our Tier 1 capital ratio improved from 10.1 % to 12.6 %, its best level since the introduction of the Basel capital framework. Our ‘core’ Tier 1 ratio, which excludes hybrid instruments, improved from 7.0 % to 8.7 %. We also reduced our leverage ratio to 23 (per target definition) by the end of the year, compared to 28 a year ago and 37 at its peak. Thus on three critical dimensions – profitability, capital strength, and risk profile – Deutsche Bank at the end of 2009 was a much stronger bank from a year earlier. Our share price rose 78 % during 2009, far outperforming the DAX index, which rose 24 %, and the STOXX banks index, which rose 47 %.

At our Annual General Meeting on 27 May, the Management Board and Supervisory Board will recommend an annual dividend of 75 cents per share - up from 50 cents for the year 2008. This reflects our confidence in the future, but above all our firm conviction that in the current environment, our shareholders’ interests are best served by further strengthening our capital base.

The Corporate and Investment Bank, or CIB, turned in a pre-tax profit of € 4.3 billion for the year, compared to a loss before income taxes of € 7.4 billion in 2008. Our investment banking business, Corporate Banking and Securities, delivered a pre-tax profit of € 3.5 billion, versus a loss before income taxes of € 8.5 billion in the prior year. This result reflects supportive market conditions of the first half of 2009, but also our success in re-orienting our sales and trading platform towards liquid, customer-driven ‘flow’ businesses. Our foreign exchange, interest rate and money market trading businesses delivered revenues that were higher than in pre-crisis years, while key investment areas – commodities trading and emerging markets debt trading – turned in record years. Our equities derivatives business also benefited from a successful recalibration, while in both fixed income and in equities we captured market share gains in the all-important U.S. market. Simultaneously, we reduced risk: balance sheet, risk-weighted assets and value at risk have all been taken down considerably from peak levels, while proprietary trading activities have been either considerably scaled back or discontinued altogether. Corporate Finance remained impacted by low levels of market activity in the wake of market turbulence. Global Transaction Banking turned in pre-tax profits of € 776 million, significantly below 2008’s record performance, reflecting the combined impact of historically low interest rates and equity market valuations which remain lower than pre-crisis.

Private Clients and Asset Management, or PCAM, delivered pre-tax profits of € 660 million, up from € 420 million in 2008. This development principally reflected a turnaround in Asset and Wealth Management, which recorded pre-tax profits of € 202 million in 2009, compared to a loss before income taxes of € 525 million in 2008, due mainly to a non-recurrence of the specific charges in the prior year, together with significantly lower non-interest expenses. Asset and Wealth Management also attracted net money inflows of € 16 billion in the year, compared to outflows of € 13 billion in 2008. Private & Business Clients produced profits of € 458 million, significantly lower than in 2008, reflecting a rise in severance charges associated with efficiency measures and lower revenues in deposit products as a result of low interest rates, and lower revenues in investment products, reflecting wariness on the part of retail investors.

2009 was also a defining year for Deutsche Bank’s strategy. We defined in detail how we aim to turn strong relative performance through the crisis into profitable growth for our shareholders in the post-crisis environment. In December, at an Investor Day in Frankfurt, we launched ‘Phase four’ of our Management Agenda. Taking account of environmental and internal assumptions which we outlined at our Investor Day, we believe ‘Phase four’ has a pre-tax profit potential of € 10 billion from our core businesses in 2011, whilst continuing to meet our targets of a Tier 1 capital ratio of around 10 % and a leverage ratio of 25 per target definition. Our overall strategic goal is clear: to be a leading global corporate and investment bank, supported by a private client franchise with undisputed leadership in our home market and a strong Asian growth engine. We have identified four priorities:

First, to increase CIB profitability with renewed risk and balance sheet discipline. Through the crisis, we have cemented our position as a global leader in corporate and investment banking, and in 2009 we made an excellent start in delivering substantial profits with a lower risk profile. As we build on this, and as governments and regulators around the world seek to strengthen the financial system, efficiency in risk, leverage and capital usage will be critical. Our strategy takes full account of this.

Second, to focus on core PCAM businesses and home market leadership. We have created decisive optionality to achieve this goal. Our minority stake in Deutsche Postbank, with an exclusive option to take a majority position, would give us a commanding lead in retail banking in Germany. During 2009, we started our strategic co-operation with Postbank, and the results of this collaboration have exceeded our expectations. In October, we signed an agreement to purchase Sal. Oppenheim, a well renowned German private wealth manager with a long tradition – giving us a leading position in serving wealthy clients in our home market. Worldwide, we rigorously re-focused our Asset Management business on core activities, resulting in substantial cost savings.

Third, to focus on Asia as a key driver of revenue growth. Through the crisis, the Asian region has emerged as an increasingly important constituent of the global economy. Our goal is to capitalise and build on the investments we have made, and our China strategy clearly illustrates this. We have a substantial minority stake in Hua Xia, China’s 10th largest bank, and via our 30 % stake in Harvest Fund Management, we are partners in the largest sino-western asset management joint venture in China. Through our Zhong De joint venture, we can now also issue bonds and handle IPOs on the Chinese stock exchange. Across Asia, we aim to double our revenues in the next two years.

Fourth, to reinvigorate our performance culture. We will focus on cost and improve infrastructure efficiency. We have significantly enhanced the way in which we measure performance, aligning this more closely with shareholder value. We will continue to drive capital efficiency, reducing capital consumption of non-core assets and rigorously assessing capital demand when evaluating growth investments. We have also aligned our compensation plan more closely to the creation of sustainable value for shareholders. The rigour and discipline of this plan has been confirmed by our discussions with our major supervisory authorities. We are strongly committed to compensation which rewards and retains top talents in the service of shareholders, but which is performance-oriented, proportionate and responsible.

Looking ahead, we see challenges and opportunities. Economic recovery remains fragile. Unemployment, and the recovery of housing markets in the United States and some European economies, will be key challenges in the year ahead. Sovereign risk, and the timing of the withdrawal of economic and fiscal stimulus measures by governments around the world, will be important factors in the post-crisis environment. Nevertheless, Deutsche Bank is very well positioned not only to meet these challenges but also to seize opportunities. We have moved swiftly and decisively to reposition our business, acquired highly important strategic leverage through targeted investments, and demonstrated profitability, capital strength and risk discipline. Our strategy is clear; we have all the resources we need to deliver it.

Much in our environment may change. However, my colleagues and I are absolutely determined that Deutsche Bank’s commitment to its stakeholders will not change. We continue to commit ourselves to the communities in which we operate, and right through the crisis, we kept up our financial donations, and contributed our expertise and our time to these communities. We continue to believe that our long-term success lies in delivery of outstanding service to our clients. We continue to invest in the skills and the future development of our uniquely diverse employee base, and to create for them an environment of true meritocracy. And we will continue to strive to deliver sustainable value for you, our shareholders. Thank you for your loyalty and support.

Yours sincerely,

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

Frankfurt am Main, March 2010

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