Executive Summary


The Global Economy

The global economy was impacted by numerous negative factors in 2012: the sovereign debt crisis in Europe, the fiscal cliff in the U.S., geopolitical risks in the Middle East and rising commodities and food prices. In 2012, global economic growth continued to decline to an estimated 2.9 % after an already slower growth of 3.8 % in 2011.

As in 2011, the slowdown took place predominantly in the industrialized countries, which only expanded by an estimated 1.2 %. The industrialized countries still face major structural challenges. The reduction in state deficits and the cutting back of private debt led to lower growth in the eurozone in particular. In addition, the increased political uncertainties in the eurozone and the U.S. had a negative impact on the global economy. By contrast, growth was supported by the extremely expansive monetary policy of the major central banks, which lowered their key interest rates to historically low levels and also undertook extensive quantitative easing measures.

The eurozone went into recession in 2012 due to increased uncertainty over the further development of the sovereign debt crisis, fiscal consolidation and weakened demand for exports. Economic activity fell by an estimated 0.5 %, following 1.4 % growth in 2011. A stabilizing effect came from the announcement made by the European Central Bank in September 2012 that it would make unlimited purchases of sovereign bonds, subject to strict conditionality (Outright Monetary Transactions), as well as the clear commitment of eurozone governments for all current members to stay in the eurozone. The German economy weakened noticeably over the year due to reduced demand for exports and falling investment activity, and it likely contracted towards the end of 2012. As an annualized average, the German economy grew by an estimated 0.7 % following an increase of 3.0 % in 2011.

In the U.S. economy, growth was relatively robust with estimated 2.3 % in 2012, which was somewhat stronger than the 1.8 % in the previous year. Although the real estate market stabilized and unemployment gradually fell over the year, doubts over the resolution of the fiscal cliff are thought to have caused growth to slow towards the end of the year. In Japan, where the clean-up and rebuilding efforts in the wake of the tsunami and the nuclear catastrophe and the government’s economic stimulus measures had a positive effect on economic activity in the first half of 2012, economic output declined again from mid-year. For the year as a whole, Japan’s economy probably grew by 2.0 %.

Due to the close links between the financial and real economies, the global development had negative effects on economic activity in emerging markets. Growth in emerging markets cooled down to an estimated 4.7 %, but there are clear differences in growth between the regions. Growth in Asia (excluding Japan) slowed down from 7.5 % in 2011 to 5.9 % in 2012. China’s growth moderated considerably to 7.8 % year-on-year, the slowest since 1999, due to the confluence of stagnating external demand and a deliberate attempt to restrain stimulus with a view to rebalance the economic structure. India’s growth also slowed significantly to 4.6 % year-on-year, the lowest in a decade, as domestic demand was hit by tight liquidity and stubborn inflation. Economic activity in Latin America cooled off to 2.9 % in 2012, following 4.7 % growth in 2011. Brazilian economic growth continued to disappoint in 2012, slowing to an estimated 1 % from an already weak 2.7 % in 2011. While domestic demand and labor markets remained strong, investment was weak and exports were weighed down by stagnating global economic activity and lower prices for several commodities.

The Banking Industry

The banking industry in 2012 saw another year marked by high uncertainty, yet with sentiment gradually improving in the last six months due to retreating concerns about the future of European Monetary Union and about the global growth outlook.

Capital market developments closely echoed these trends. Overall, global M&A activity and equities issuance remained subdued, while debt issuance soared to record highs both in the investment-grade and the high-yield segment. This was particularly true in the second half of the year when investor risk appetite returned and bond yields came down significantly. Corporate bond issuance in 2012 was stronger than ever before. Total investment banking revenues declined slightly compared with the prior year, with Europe and Asia weakening and the fee volume in America rising. Similar to the advisory and underwriting business, equities trading activity was relatively low, with falling margins putting additional pressure on revenues. Fixed-income trading rebounded somewhat from a poor prior year result, though earnings remained below 2009/10 levels.

In commercial banking, Europe and the U.S. were diverging even more markedly than in the years before: U.S. banks continued their recovery and are now as profitable as at the pre-crisis peak. Lending volumes are growing, especially with companies borrowing more, but with the real estate market finally having turned the corner, household lending and particularly residential mortgages may have also bottomed out. In Europe, by contrast, corporate loans shrank throughout the year, with the pace of contraction accelerating rather than slowing down. Lending to households, at least, remained by and large stable. Deposit growth continued at moderate speed on both sides of the Atlantic, though it lost some momentum in the U.S. In addition, differences in asset quality developments were partly responsible for the diverging fortunes between European banks, which saw loan loss provisions rising again for the first time since 2009 and U.S. institutions, which recorded a further fall in provisions to their lowest level in five years.

Asset and wealth management benefited from rising equity and bond markets, particularly in the second half of the year, and from investors increasingly searching for yield in a close-to-zero interest rate environment. Globally, bond funds attracted the bulk of net new money, whereas many equity and money market funds recorded net outflows. As in the past few years, the passively managed segment grew faster than actively managed funds.

New regulation had a significant impact on the industry: While European banks still had to cope with the tightening effect of Basel 2.5, the foreshadowing of Basel 3 was felt throughout the banking sector as investors and analysts demanded early compliance. Furthermore, new consumer and investor protection rules and market infrastructure regulations such as the Markets in Financial Instruments Directive II and European Market Infrastructure Regulation (the former being drawn up and the latter taking effect) had a largely negative effect on banks’ earnings. In the eurozone, political leaders agreed on a transfer of supervisory powers over the largest banks from national authorities to the European Central Bank (ECB), as part of a more comprehensive shift towards a “Banking Union”. Finally, the banking industry in the U.S. as well as in Europe suffered steep fines and losses in confidence as litigation issues continued to mount.

Deutsche Bank

The market environment in 2012 continued to be difficult. A slowdown in economic growth could be observed predominantly in the industrialized countries, while conditions in the eurozone have stabilized only since mid-2012. Structural debt levels in mature economies were still high and were reflected in strong client demand. The macro-political environment, however, perpetuated low interest rate levels. Equity markets could not yet consistently profit from the stabilized environments, resulting in volatile market conditions, favoring only the derivative segment of the market. Many other markets and products saw competitive pressures, margin compression, declining volumes and macro-economic and regulatory uncertainties which caused volatility. As a result, this led to risk aversion among investors with especially private investors remaining wary for most of the year.

Despite this challenging environment, our revenue performance was resilient, with increases in almost every business division in the “Core Bank” (CB&S, GTB, AWM and PBC), and our provision for credit losses was lower than in the prior year. However, results especially in the second half of 2012 reflected the impact of several actions taken to mobilize our Strategy 2015+. These actions resulted mainly in higher noninterest expenses versus the full-year 2011, including cost-to-achieve related to our Operational Excellence Program (OpEx) and the integration of Postbank totaling € 0.9 billion. We met the savings objectives of OpEx for year-end 2012, achieving savings of € 0.4 billion in the second half of 2012. Expenses also included impairments of goodwill and other intangible assets (€ 1.9 billion) as well as significant litigation-related charges (€ 2.2 billion). In addition, our results in 2012 were impacted by further specific items of € 1.3 billion, such as charges related to turnaround measures in our commercial banking activities in the Netherlands, other net charges and results from de-risking in the NCOU.

In this context, we generated a 2012 net income of € 291 million (2011: € 4.3 billion) and income before income taxes of € 784 million compared with € 5.4 billion in 2011. Excluding the impairment of goodwill and other intangible assets as well as the significant litigation-related charges, full year income before income taxes for the Group would have been € 4.9 billion in 2012, to which the Core Bank contributed € 6.5 billion.

In 2012, we have reviewed our variable compensation levels and established a Compensation Panel. As a first result, though compensation and benefits expenses increased 3 % in 2012 from 2011, variable compensation has come down by 11 % versus 2011, and we reduced our deferral rate from 61 % to 47 %, thus reducing respective charges on future year’s results.

Overall, we considerably strengthened our capital position, liquidity reserves and refinancing sources and, thus, should be well prepared for further potential challenges caused by market turbulences and stricter regulatory rules. Due to the annual net income and the accelerated capital formation and de-risking activities, including measures taken in the NCOU, our Tier 1 capital ratio according to Basel 2.5 improved to a record level of 15.1 % and our Core Tier 1 capital ratio increased to 11.4 % as of December 31, 2012. The pro-forma Basel 3 fully-loaded Core Tier 1 capital ratio also increased substantially to 7.8 % up from less than 6 % in the preceding year and surpassed the communicated target of 7.2 %, reflecting strong delivery on portfolio optimization and de-risking of non-core activities, as well as model and process enhancements.

Risk-weighted assets at year-end 2012 were € 334 billion, versus € 381 billion at year-end 2011, largely due to management actions aimed at de-risking our business. In the second half of 2012, we achieved a reduction in pro-forma Basel 3 risk-weighted asset equivalents of € 80 billion, versus our communicated target of € 90 billion for March 31, 2013.

Our liquidity reserves were in excess of € 230 billion as of December 31, 2012, including reserves held on a Postbank AG level, which contributed in excess of € 25 billion at year-end (December 31, 2011: € 223 billion, excluding Postbank).

Condensed Consolidated Statement of Income

in € m.

 

 

 

2012 increase (decrease)
from 2011

2011 increase (decrease)
from 2010

(unless stated otherwise)

2012

2011

2010

in € m.

in %

in € m.

in %

N/M – Not meaningful

1

After provision for credit losses.

Net interest income

15,891

17,445

15,583

(1,554)

(9)

1,862

12

Provision for credit losses

1,721

1,839

1,274

(118)

(6)

565

44

Net interest income after provision for credit losses

14,170

15,606

14,309

(1,436)

(9)

1,297

9

Commissions and fee income

11,510

11,544

10,669

(34)

(0)

875

8

Net gains (losses) on financial assets/liabilities at fair value through profit or loss

5,599

3,058

3,354

2,541

83

(296)

(9)

Net gains (losses) on financial assets available for sale

301

123

201

178

145

(78)

(39)

Net income (loss) from equity method investments

159

(264)

(2,004)

423

N/M

1,740

(87)

Other income (loss)

281

1,322

764

(1,041)

(79)

558

73

Total noninterest income

17,850

15,783

12,984

2,067

13

2,799

22

Total net revenues1

32,020

31,389

27,293

631

2

4,096

15

Compensation and benefits

13,526

13,135

12,671

391

3

464

4

General and administrative expenses

15,016

12,657

10,133

2,359

19

2,524

25

Policyholder benefits and claims

414

207

485

207

100

(278)

(57)

Impairment of intangible assets

1,886

29

1,886

N/M

(29)

N/M

Restructuring activities

394

394

N/M

N/M

Total noninterest expenses

31,236

25,999

23,318

5,237

20

2,681

11

Income before income taxes

784

5,390

3,975

(4,606)

(85)

1,415

36

Income tax expense

493

1,064

1,645

(571)

(54)

(581)

(35)

Net income

291

4,326

2,330

(4,035)

(93)

1,996

86

Net income attributable to noncontrolling interests

54

194

20

(140)

(72)

174

N/M

Net income attributable to Deutsche Bank shareholders

237

4,132

2,310

(3,895)

(94)

1,822

79