Capital Management

Our Treasury function manages both capital at Group level and locally in each region. Treasury implements our capital strategy, which itself is developed by the Capital and Risk Committee and approved by the Management Board, including the issuance and repurchase of shares. We are fully committed to maintain our sound capitalization both from an economic and regulatory perspective. We continually monitor and adjust our overall capital demand and supply in an effort to achieve the optimal balance of the economic and regulatory considerations at all times and from all perspectives. These perspectives include book equity based on IFRS accounting standards, regulatory and economic capital as well as specific capital requirements from rating agencies.

Regional capital plans covering the capital needs of our branches and subsidiaries across the globe are prepared on an annual basis and presented to the Group Investment Committee. Most of our subsidiaries are subject to legal and regulatory capital requirements. Local Asset and Liability Committees attend to those needs under the stewardship of our regional Treasury teams. Local Asset and Liability Committees further safeguard compliance with all requirements such as restrictions on dividends allowable for remittance to Deutsche Bank AG or regarding the ability of our subsidiaries to make loans or advances to the parent bank. In developing, implementing and testing our capital and liquidity, we take such legal and regulatory requirements into account.

Our core currencies are Euro, US Dollar and Pound Sterling. Treasury manages the sensitivity of our capital ratios against swings in core currencies. The capital invested into our foreign subsidiaries and branches in the other non-core currencies is largely hedged against foreign exchange swings. Treasury determines which currencies are to be hedged, develops suitable hedging strategies in close cooperation with Risk Management and finally executes these hedges.

Treasury is represented on the Investment Committee of the largest Deutsche Bank pension fund which sets the investment guidelines. This representation is intended to ensure that pension assets are aligned with pension liabilities, thus protecting our capital base.

Treasury constantly monitors the market for liability management trades. Such trades represent an anticyclical opportunity to create Common Equity Tier 1 capital by buying back our issuances below par.

In the second quarter of 2013, we raised capital by issuing 90 million new shares from authorized capital excluding pre-emptive rights. As a consequence, the total number of shares issued increased to 1,019,499,640. The new shares were placed with institutional investors by way of an accelerated book build offering on April 30, 2013. The aggregate gross proceeds of the share issuance amounted to € 3.0 billion. The purpose of the capital increase was to further strengthen the regulatory capitalization of the bank.

Starting 2013, we refined our allocation of average active equity to the business segments to reflect the further increased regulatory requirements under CRR/CRD 4 and to align the allocation of capital with the communicated capital and return on equity targets. Regulatory capital demand currently exceeds the demand from an economic perspective. Under the new methodology, our internal demand for regulatory capital is derived based on a Common Equity Tier 1 ratio of 10.0 % at a Group level assuming full implementation of CRR/CRD 4 rules. Consequently, our book equity allocation framework is currently driven by risk-weighted assets and certain regulatory capital deduction items pursuant to CRR/CRD 4 (fully-loaded). As a result, the amount of capital allocated to the segments has increased, predominantly in CB&S and NCOU. The figures for 2012 were adjusted to reflect this effect. In 2012, we derived our demand for regulatory capital assuming a Core Tier 1 ratio of 9.0 % (under Basel 2.5 rules). If our average active equity exceeds the higher of the overall economic risk exposure or the regulatory capital demand, this surplus is assigned to Consolidation & Adjustments. Effective July 1, 2013, the definition of active equity has been aligned to the CRR/CRD 4 framework so that accumulated other comprehensive income (loss) excluding foreign currency translation, net of taxes, is now part of active equity.

The 2012 Annual General Meeting granted our management board the authority to buy back up to 92.9 million shares before the end of November 2016. Thereof 46.5 million shares can be purchased by using derivatives. As of the 2012 Annual General Meeting, the number of shares held in Treasury Stock from buybacks totaled 10.9 million. During the period from the 2012 Annual General Meeting (May 31, 2012) until the 2013 Annual General Meeting (May 23, 2013), 16.8 million share were purchased, of which 6.8 million via equity derivatives. In the same period, 27.7 million shares were used for equity compensation purposes. The number of shares held in Treasury Stock from buybacks was thus close to zero as of the 2013 Annual General Meeting.

The 2013 Annual General Meeting granted our Management Board the authority to buy back up to 101.9 million shares before the end of April 2018. Thereof 51.0 million shares can be purchased by using derivatives. These authorizations replaced the authorizations of the 2012 Annual General Meeting. During the period from the 2013 Annual General Meeting until December 31, 2013, 20.0 million shares were purchased, of which 5.4 million through equity derivatives. The shares purchased were used for equity compensation purposes in the same period so that the number of shares held in Treasury Stock from buybacks remained close to zero as of December 31, 2013.

The 2013 Annual General Meeting further replaced an existing authorized capital with a face value of € 230.4 million (90 million shares) by a new authorization in the same amount, but with broader scope also allowing for share issuance excluding pre-emptive rights. The total face value of available authorized capital amounts to € 922 million (360 million shares). In addition, the conditional capital available to the management board has a total face value of € 691 million (270 million shares).

Total outstanding Additional Tier 1 capital according to Basel 2.5 rules (substantially all noncumulative trust preferred securities) as of December 31, 2013 amounted to € 12.2 billion compared with € 12.5 billion as of December 31, 2012. This decrease was mainly due to the foreign exchange effects on US Dollar denominated Additional Tier 1 capital. In 2013, we neither raised nor redeemed any Additional Tier 1 capital.

Profit participation rights according to Basel 2.5 rules amounted to € 0.8 billion compared with € 1.1 billion as of December 31, 2012. Total lower Tier 2 capital according to Basel 2.5 rules as of December 31, 2013 amounted to € 7.3 billion compared with € 9.1 billion as of December 31, 2012. Redemptions and regulatory maturity deductions were partially offset by the issuance of US Dollar 1.5 billion of subordinated Tier 2 notes in the second quarter of 2013. Cumulative preferred securities according to Basel 2.5 rules amounted to € 287 million as of December 31, 2013, compared with € 292 million as of December 31, 2012.


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