Letter from the Chairman of the Management Board

Dear Shareholders (handwriting)

2011 was again a very difficult year for the world economy. In Europe, the sovereign debt burdens of some nations, and the potential for contagion across the wider Eurozone, caused a widespread loss of market confidence and triggered comprehensive efforts by governments and central banks to stabilise the situation. The United States economy faced a weakening pace of recovery, the loss of its sovereign AAA credit rating, and concerns arose over the capacity of the U.S. government to effectively reduce its debt burden. In Asia, concerns over the emergence of asset bubbles in China gave rise to fears of a wider economic slowdown in the region. In this sharply-deteriorating global economic environment, the world’s financial markets experienced levels of volatility, liquidity stress and risk aversion which we had not seen since the immediate aftermath of the collapse of Lehman Brothers.

Inevitably, this tough environment had its impact both on Deutsche Bank’s performance and on our share price, although on both measures we fared better than many peers. Nevertheless, our performance in 2011 also reflects the resilience of our earnings power in challenging conditions and the strength of the customer franchise we have built.

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

Group net income was € 4.3 billion, up from € 2.3 billion in 2010, on pre-tax profits of € 5.4 billion, up from € 4.0 billion in the prior year. In our core businesses, the Corporate & Investment Bank (CIB) and Private Clients and Asset Management (PCAM), pre-tax profits were € 6.6 billion, after specific charges related to litigation expenses and the impairment of a VAT claim in Germany. Before these charges, profits in these businesses were close to € 8 billion. Simultaneously, we strengthened our Tier 1 and Core Tier 1 capital ratios. We managed this despite an increase in our risk-weighted assets year-on-year, primarily driven by the implementation of Basel 2.5. We built up our liquidity reserve to its highest-ever level, and further improved both the size and the quality of our funding base. We also re-balanced our business, building up powerful earnings streams, which complement our leading investment banking platform.

In Corporate Banking & Securities (CB&S), pre-tax profits were € 2.9 billion, after specific charges related to litigation and German VAT impairment of nearly € 1 billion. The business was significantly impacted by a slowdown in market activity in the second half of the year. Nevertheless, the recalibration of our investment banking business since 2009 yielded considerable benefits. Our repositioning toward ‘flow’ products and solutions for clients boosted revenues, producing a record year for commodities trading, and strong performances in foreign exchange, money markets and interest rate trading. The strength of our customer franchise also came to the fore: we were ranked No. 1 in global fixed income, as measured by market share, by Greenwich Associates, No. 1 in global foreign exchange by Euromoney, and Best Bond House by International Financing Review. Simultaneously, we achieved € 500 million of efficiency gains, on a run-rate basis, from the closer integration of our corporate and investment banking platform. Additionally, CB&S successfully mitigated the tighter market risk capital requirements of Basel 2.5 by reducing risk-weighted assets.

In our PCAM and GTB businesses – Asset and Wealth Management, Private & Business Clients and Global Transaction Banking – we turned in the best result ever. Pre-tax profits in these businesses in total were up 78 % year-on-year to € 3.7 billion, and thus accounted for more than half our Group result. This reflects the success of our strategy to grow by acquisition in these areas, together with disciplined execution of the post-merger integration process, combined with efficiency gains.

Global Transaction Banking produced profits of € 1.1 billion, up 16 % versus 2010 and at record levels, boosted by market share growth in both Cash Management and Trade Finance. Since the onset of the financial crisis in 2008, customer cash under management has more than doubled – a clear signal of confidence in Deutsche Bank, and reinforced by the accolade of ‘Global Bank of the Year for Cash Management’ from Treasury Management International.

Our PCAM businesses – Asset and Wealth Management and Private & Business Clients – also more than doubled pre-tax profits, to € 2.5 billion, versus € 1.1 billion in 2010. Asset and Wealth Management produced pre-tax profits of € 767 million, up from € 210 million in 2010, thanks in part to a turnaround in Private Wealth Management, from a loss of € 57 million in 2010 to a pre-tax profit of € 321 million, reflecting a positive performance from the acquisition of Sal. Oppenheim.

Private & Business Clients produced record pre-tax profits of € 1.8 billion, despite charges of over € 400 million related primarily to write-downs on Greek government bond holdings in Postbank, and costs to achieve the Postbank acquisition. This reflects successful cooperation with Postbank, which is proceeding at or ahead of plan, together with the successful implementation of efficiency measures in PBC and tight management of risk costs.

Our capital ratios at the end of 2011 were the highest for any year end. Our Tier 1 capital ratio improved from 12.3 % to 12.9 % during the year. The very important Core Tier 1 ratio likewise improved, from 8.7 % to 9.5 % during the year, thus comfortably exceeding European Banking Authority requirements in advance. Liquidity reserves improved during the year by € 69 billion to € 219 billion, their highest ever level, and composed predominantly of cash, cash equivalents and other highly liquid securities. Deutsche Bank is now better equipped than ever to withstand a period of scarce liquidity.

There is a great deal to be proud of in our 2011 results. I am proud not only of what we achieved, but also, how we achieved it. The financial crisis has thrown a sharp spotlight on the role of banks in society, and at Deutsche Bank, we take our responsibilities as corporate citizens extremely seriously. We firmly believe that the best way for us to create sustainable value for our shareholders, is by committing ourselves to all the constituencies around us who have a stake in our success. We demonstrated this commitment in several ways during 2011.

The ongoing process of integrating Postbank was successful – not only because it delivered financial returns, but also because it reflected careful discussion, and successful agreement, with the representatives of the staff members involved. In our home market, Germany, we actually increased lending to our customers by 7 % during 2011, despite pressure on the banking industry to conserve capital and reduce risk. We also continued to exercise discipline in compensation. We not only reduced our bonus in 2011 pool by 17 %, but also aligned compensation more tightly to the long-term interests of our shareholders by deferring a greater proportion of compensation to future years.

It is frequently said that banks have moved into a parallel world and no longer add value to the real economy, the community and people. At Deutsche Bank we take such criticism very seriously, because it has a negative impact on general trust in banks and is therefore very relevant for our business, as no industry is more reliant on trust than the financial industry. A public opinion of this kind also includes the risk that lawmakers will introduce increasingly more restrictive and potentially dysfunctional rules for banking. For me it is clear: We can only be and remain successful over the long term if people have trust in us. We have to earn that trust day in day out by acting and behaving responsibly.

Looking ahead into 2012, the outlook for the global economy remains uncertain. In the United States, the economy has recently shown signs of strengthening. The Chinese economy now appears more likely to avoid a sharp slowdown that was feared during 2011. In the Eurozone, governments, central bankers and regulators have shown considerable determination in tackling the debt crisis. Europe’s leaders have also embraced the very important challenge of developing a more integrated approach to fiscal issues facing the single currency union. At Deutsche Bank, we have closely monitored these constructive developments; but we also remain alert to the risks in our environment – economic, political, and social. These risks remain considerable.

Deutsche Bank is very well-equipped – not only to face up to challenges, but also to seize opportunities. We strengthened our core capital, liquidity and funding positions in 2011, preparing us for potential market uncertainties and for tighter regulation. We have successfully managed a transition to a better balanced, more diversified and lower-risk business model. We have significantly expanded our customer footprint in our private client businesses in Germany. Simultaneously, we reinforced our strong client franchise across a wide range of corporate and investment banking businesses. This gives us excellent prospects for market share gains, and profitable growth, across all our core businesses in a stabilizing environment. We will continue to approach both challenges and opportunities with the same fundamental principle: in every situation, and in every part of our business, we seek to build sustainable value for our clients; our people; the communities in which we serve; and 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 (signature)

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

Frankfurt am Main, March 2012

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Deutsche Bank Annual Report 2011