Letter from the Chairman of the Management Board

Dear Shareholders (handwriting)

During the third quarter 2011, conditions in the global economy were more difficult than at any time since the collapse of Lehman Brothers in late 2008. The outlook in the eurozone deteriorated sharply. Increased concerns over the sustainability of Greek sovereign debt led to heightened concerns over contagion in other eurozone economies and the eurozone banking system. The German economy remained resilient, but was increasingly impacted by weakness in the wider eurozone. The momentum of U.S. economic recovery weakened, while in emerging economies growth remained robust, but concerns arose over inflation and potential asset bubbles. Financial markets experienced highly volatile conditions as investors retreated from riskier assets; equity and commodity markets experienced their worst quarterly performance for three years. In mature markets, bank stocks came under intense pressure, reflecting fears over exposure to peripheral eurozone economies and consequently over capital adequacy, access to liquidity, and funding quality in conditions of market stress.

Inevitably, Deutsche Bank’s performance, and share price, were negatively impacted by these conditions. Nevertheless, we benefited from the strategic decisions we took in response to the onset of this crisis in 2008. The recalibration of our investment banking business has significantly reduced our risk profile; our strategy of balancing our earnings mix, by building up our ‘classic’ banking businesses, proved to be sound; and thanks to our success in strengthening our capital, liquidity and funding resources, we are better prepared than ever to confront the twin challenges of turbulent business conditions and more demanding regulation.

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

Third quarter pre-tax profit was € 942 million, after an impairment of € 228 million related to Greek sovereign bond holdings in Private & Business Clients, versus a pre-tax loss of € 1.0 billion, after charges of € 2.3 billion related to the majority acquisition of Postbank, in the third quarter of 2010. Net income was € 777 million, versus a net loss of € 1.2 billion in the prior year quarter; diluted earnings per share were 74 cents. Our Core Tier 1 capital ratio of 10.1 %, and Tier 1 ratio at 13.8 %, remain close to their all-time high points; and we further reduced our leverage ratio to 22 by the end of the quarter. The impact on our results from adjustments in the fair value of our own debt was small relative to some peers.

In the Corporate & Investment Bank (CIB), pre-tax profit was € 329 million. In exceptionally tough markets, Corporate Banking & Securities (CB&S) recorded a pre-tax profit of € 70 million, versus a pre-tax profit of € 1.1 billion in the third quarter of 2010. Our sales and trading businesses were negatively impacted by lower client volumes in very turbulent markets, with equities trading affected by extremely volatile equity markets and credit trading experiencing losses due to widening credit spreads as risk aversion increased. CB&S additionally suffered a specific charge of € 310 million relating to the impairment of a German VAT claim. These factors were partly counterbalanced by record third quarter revenues in foreign exchange trading, in an environment of significant exchange rate movements, solid revenues in interest rate trading, and our best-ever third-quarter revenues in commodities. Revenues in Corporate Finance were, however, affected by lower issuance volumes and reduced corporate activity in uncertain markets.

Global Transaction Banking (GTB) turned in a pre-tax profit of € 259 million, up 14 % versus the third quarter of 2010, reflecting some improvement in the interest rate environment in Europe and Asia, solid fee income across all business lines and record revenues in Trade Finance. We were also named ‘Best Cash Management House in Western Europe’ by Euromoney Magazine.

In Asset and Wealth Management (AWM), pre-tax profit was € 186 million, more than double the third quarter 2010 result, despite the negative impact of unfavorable equity market conditions on revenues from management fees and commissions in both Asset Management and Private Wealth Management (PWM).

Private & Business Clients (PBC) delivered pre-tax profit of € 310 million, after absorbing mark-to-market losses of € 185 million on Greek sovereign bonds, predominantly held by Postbank. Apart from this specific charge, operating performance across PBC remained very solid, despite lower revenues in Advisory Banking from investment products, reflecting heightened risk aversion among private clients.

For the first nine months of 2011, Group pre-tax profits were € 5.7 billion, versus € 3.3 billion in 2010, after charges related to the acquisition of Postbank, in 2010. Net income was € 4.1 billion, versus € 1.7 billion in the first nine months of last year. In our core businesses, CIB and PCAM, nine-month pre-tax profits were € 6.3 billion – ahead of the same period in 2010 despite much more challenging conditions, and with a considerably better balance. CB&S’s year-to-date pre-tax profits of € 3.3 billion reflect a successful recalibration of our investment banking platform, which delivered healthy profits in the first half of the year, and remained profitable, thanks to successful risk reduction, in the extreme market turbulence of the third quarter. Our GTB and PCAM businesses together produced year-to-date pre-tax profits of € 3.0 billion – their best-ever nine-month result, and up 80 % versus 2010. This confirms our strategy of balancing our earnings with strategic acquisitions in the ‘classic’ banking businesses, at favorable prices, in the past few years.

In October we communicated that reaching our Phase 4 target of € 10 billion in pre-tax profit from our core businesses now seems out of reach, given that certain assumptions underlying this target have not materialized: specifically, the global macro-economic situation has not stabilized as anticipated; high levels of turbulence have returned to financial markets; and asset valuations have deteriorated. These factors primarily impact operating conditions for CB&S, which therefore cannot meet its 2011 profit potential.

Naturally, we were disappointed to see the business environment evolve in this way; however, relative to the extremely difficult conditions, we nonetheless delivered very solid results in the third quarter. Furthermore, in terms of capital, liquidity and funding – factors which become critically important in turbulent markets – Deutsche Bank has never been stronger than it is today.

Our liquidity reserves have increased further to approximately € 180 billion, and the growth during the third quarter comfortably exceeded increases in our unsecured wholesale funding. Deutsche Bank continued to enjoy unrestricted access to the wholesale funding markets during this turbulent period – indeed, it was Deutsche Bank’s 2-year floating rate note which re-opened the senior unsecured market in late September.

Our funding quality has also improved significantly since the onset of the crisis. Out of a total funding base of over € 1,100 billion, approximately 55 % now consists of stable sources, including deposits from retail and transaction banking clients, equity, and other capital market funding. The maturity profile of our funding is also very well-balanced. Deutsche Bank experienced no involuntary reduction in U.S. dollar funding in the third quarter, and by the end of the quarter, we had already completed our total 2011 funding plan at very favorable prices, and commenced pre-funding of 2012.

Our capital position, likewise, is very robust. Our Core Tier 1 and Tier 1 ratios of 10.1 % and 13.8 %, respectively, have strengthened considerably, from a Core Tier 1 ratio of 8.7 % at the beginning of the year. Although risk-weighted assets increased by more than € 18 billion during the quarter to € 338 billion, this was primarily driven by credit risk movement and FX volatility. We are well prepared for the introduction of Basel 2.5 and Basel III. Our exposure to sovereign debt of peripheral eurozone countries is low, with Greek sovereign bond exposure marked to market levels, at 46 % overall. We welcome the efforts of governments and regulators to strengthen bank capital requirements. This initiative contributes to rebuilding confidence in the banking sector, and thus helps stabilize the financial system in the eurozone and beyond – which is an absolute pre-requisite for economic recovery. Deutsche Bank is very well placed to meet these more demanding capital requirements, within or ahead of the designated timeframe. Our capital formation strategy includes a wide array of measures which have already delivered significant results, and this underlines our confidence in meeting the required levels of capital strength.

Looking ahead, significant uncertainties persist, for the world economy and financial markets. The near-term outlook for the eurozone remains highly dependent on decisive solutions for the sovereign debt problems of some states, and on preventing contagion into the wider eurozone economy and banking system. Uncertainty around the pace of U.S. recovery, potential turbulence in emerging economies, and future regulation of our industry, will all continue to create challenges for the banking sector.

We have all the strength we need to overcome these near-term challenges. Furthermore, we are well-positioned to reap the benefits from longer-term trends in our business environment: global asset accumulation, an increasingly interconnected global economy, and the growing integration of financial markets. Given our global business model, which combines world-class investment banking with European leadership in retail asset management, and unparalleled distribution to private clients in our home market, these trends present significant, long-term profitable growth opportunities for us.

We remain absolutely committed to navigating near-term challenges; to seizing longer-term opportunities; and, at all times, to furthering the interests of our shareholders. We thank you for your continued loyalty and support.

Yours sincerely,

Signature of Josef Ackermann (handwriting)

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

Frankfurt am Main, October 2011

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