Dear Shareholders (handwriting)
Dr. Josef Ackermann, Chairman of the Management Board and the Group Executive Committee (photo)

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

In the second quarter of 2009, financial markets rallied around the world. The banking sector showed further signs of stability, with interbank lending continuing to improve, and on global capital markets, volumes of customer activity were healthy and volatility subsided. However, conditions in the wider global economy remained challenging. Unemployment continued to rise, while real estate prices, notably in the United States, continued to deteriorate. Stress on the corporate sector remained clearly evident with rising defaults, and the credit environment remained difficult. Private investors remained wary in an environment of economic uncertainty.

In conditions which contained both opportunities and challenges, Deutsche Bank turned in very satisfactory results. We not only took advantage of positive conditions on financial markets, but also strengthened our platform against future uncertainties. We delivered pre-tax profits of € 1.3 billion, more than double the second quarter last year, despite absorbing € 1.4 billion in specific charges, which were to some extent offset by around € 750 million of specific positive effects. Net income was € 1.1 billion, or € 1.64 per share on a diluted basis. We reduced balance sheet and balance sheet leverage, and reduced risks in critical areas, with ‘level 3’ assets coming down by € 16 billion, or 20 %. Our Tier 1 capital ratio reached its highest-ever level since the introduction of the Basel capital framework, while our funding and liquidity position remained strong. For the first six months of the year, we have delivered net income of € 2.3 billion, or € 3.53 per share on a diluted basis – a considerable improvement over the first half of 2008. Pre-tax return on average active equity was 19 %, compared with 3 % in the first six months of 2008; as per our target definition, the figure was 20 %, compared with a negative 4 % in the first six months of last year.

Our investment banking business, Corporate Banking & Securities, took good advantage of stabilizing markets and strong franchises in key products. Pre-tax profit was € 828 million, despite absorbing write-downs and other specific charges of over € 800 million. Our debt sales & trading business produced revenues of € 2.6 billion, reflecting strong performances in ‘flow’ trading businesses including foreign exchange, money markets and interest rate trading. Our credit trading business benefited both from healthy client demand and from a non-recurrence of losses arising from legacy trading positions. Revenues of € 903 million in equity sales and trading were the best for the last 6 quarters, against a backdrop of rallying markets and improved levels of primary equity issuance.

We reaped the benefits of continued investments in our North American equities platform, and saw significantly improved results in equity derivatives trading. In equity prime brokerage, we benefited from a ‘flight to quality’ on the part of clients over recent quarters, and were delighted that for the second year running, we were voted top prime broker in the industry journal, Global Custodian. We continued to recalibrate our sales and trading platform by reducing risks and trading losses in areas most directly affected by the market dislocations of late 2008, and reducing balance sheet. Our corporate finance business also delivered revenues which were significantly better than in the first quarter. In the second quarter 2009, worldwide M&A activity was the lowest for nearly five years, and this inevitably affected our advisory revenues; nevertheless, we maintained our global M&A ranking of 5th, and first in EMEA, as measured by announced volume, according to Thomson Reuters. Origination revenues were almost three times higher than in the first quarter of the year, in an environment where corporates and financial institutions took advantage of more stable financial markets to strengthen their balance sheets by raising significant volumes of both debt and equity.

Our Global Transaction Banking business generated pre-tax profits of € 181 million. We made market share gains in core products and won some important new mandates, which to some extent offset the negative impact on our revenues of lower interest rates around the world. Operating expenses reflected the cost of investments in our platform, underscoring our determination to continue to build out this important business. Shortly after the end of the quarter, we were very pleased to be voted ‘Best at Cash Management, Western Europe’ in the 2009 Euromoney Awards for Excellence.

Our Asset and Wealth Management business recorded a loss before taxes of € 85 million, an improvement versus the first quarter of this year, but nonetheless disappointing. The loss was driven predominantly by specific impairments of € 110 million in our alternatives asset management business, RREEF, driven by further declines in the value of real estate assets in major markets. By contrast, our retail asset management business, DWS, saw improved revenues in Europe compared with the first quarter of this year. Our Private Wealth Management business was profitable, although revenues were again negatively affected by relatively low levels of client activity, reflecting continued wariness on the part of high net worth investors. We continue to devote all possible efforts to making the necessary adjustments to the cost and risk profile of Asset and Wealth Management, and to restoring healthy profitability at lower market levels.

Our Private & Business Clients business delivered a pre-tax profit of € 55 million, down from € 206 million in the first quarter. This development predominantly reflects severance expenses in the second quarter of € 150 million, as we continued to realign our cost base as part of our previously-announced Growth and Efficiency Program, and incremental pension and deposit insurance costs of approximately € 15 million. We also saw rising provisions for credit losses in certain credit portfolios outside Germany, and have introduced measures to substantially reduce risk in these portfolios. Revenues in investment products remain subdued, but revenues in credit and deposit products were better than in the first quarter, while operating expenses, excluding severance, reflected the benefits of tight cost discipline. Our collaboration with Deutsche Postbank, which covers sales, purchasing and common approaches to technology solutions, continued to make good progress during the quarter.

Our focus on strict capital and balance sheet management paid off during the quarter. Our Tier 1 capital ratio improved to 11.0 %, reflecting both fresh capital from retained earnings and a reduction of € 21 billion, or 7 %, in risk-weighted assets during the quarter. Our balance sheet, as reported under IFRS, declined by € 371 billion, or 18 %, primarily reflecting lower derivatives volumes resulting from reduced volatility, while on a pro-forma U.S. GAAP basis, which takes account of the netting of derivatives and some other traded instruments, we reduced our balance sheet by 6 %. Compared with the end of the second quarter last year, the full extent of our balance sheet reduction efforts becomes clear: on a U.S. GAAP pro-forma basis, we have reduced total assets by nearly one third, or € 410 billion since 30 June 2008, partly reflecting the success of risk reduction efforts in our sales and trading businesses. Whilst we continue to maintain strict balance sheet discipline, we also remain committed to supporting customers in a difficult credit environment. For private customers of Deutsche Bank branches in Germany, new mortgage lending is up by over 50 % since a year ago, and our volume of loans to ‘Mittelstand’ companies is now around € 3 billion higher than at the onset of the crisis in late 2007.

The outlook for the remainder of 2009 is strongly influenced by progress in the global economy. We have witnessed stabilization of the world’s banking industry and financial markets, thanks in part to resolute action by politicians, regulators and central bankers, and these have benefited us. Increased liquidity and lower volatility in financial markets are both supportive for our business. However, we remain cautious on the outlook for the global economy, notably employment and real estate markets, while we also foresee continued pressure on the credit environment. These factors will influence business conditions in the remainder of 2009.

In this uncertain environment, Deutsche Bank is well prepared. We have reduced costs and balance sheet risks, and strengthened our capital and liquidity base, all of which leaves us well-placed to confront near-term challenges. Our strategic focus and proven business model, our leading franchises in critical areas, and our financial strength, all position us well to take full advantage of opportunities, as and when business conditions improve. While maintaining our cost, risk and capital discipline, we will also invest further in growth businesses, regions and customer segments. We will continue to commit both human and capital resources to businesses with attractive returns for our shareholders. And in uncertain times, we will remain loyal and supportive to our customers, while sustaining our citizenship commitments in the communities in which we operate.

We held our Annual General Meeting on 26 May, in the Frankfurt Festhalle. Over 40 % of our voting equity was represented at this meeting, a significant increase over last year, and I was delighted to see that over 6,000 investors attended in person. We discussed many aspects of Deutsche Bank’s strategy and performance through the financial crisis, and our prospects and objectives for the future. All resolutions were passed by large majorities, and I would like to thank you for your continued support.

As you know, at the beginning of this quarter, I agreed to extend my contract as Chairman of the Management Board by three years, and thus remain in office until 2013. Since then I have been touched by the many expressions of support and encouragement I have received from investors around the world. Let me express my most sincere gratitude for these messages, and assure you of my absolute commitment to serving your interests, and to building, together with my colleagues, the long-term success of Deutsche Bank.

Yours sincerely,

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

Frankfurt am Main, July 2009