Report of the Supervisory Board

Global economic growth remained relatively weak in 2014 and was only slightly above the 2013 growth rate. Economic momentum reached its peak in the first quarter of 2014 and weakened over the course of the year. The global economy was supported by the monetary policies of the major central banks, which continued to be extremely expansive. However, the decline in private debt levels dampened economic growth, especially in the eurozone. Growth in the German economy in 2014 was somewhat higher than the year before. The German economy profited from the solid rise in consumption driven by a record employment level and a solid inflation-adjusted rise in incomes.

In this economic environment, we advised the Management Board on the management of the company and monitored its management of business. Last year, we extensively discussed the bank’s economic and financial development, its operating environment, risk management system, planning and internal control system. In 2014, as in previous years, we addressed numerous statutory and regulatory changes, which in some cases have a direct impact on our work, including in particular the new requirements for the Supervisory Board based on Section 25d of the German Banking Act. We discussed issues concerning the bank’s ongoing strategic development and its implementation in detail with the Management Board during a two-day workshop. The Management Board reported to us regularly, without delay and comprehensively on business policies and other fundamental issues relating to management and corporate planning, the bank’s financial development and earnings situation, the bank’s risk, liquidity and capital management along with material litigation cases and transactions and events that were of significant importance to the bank. We were involved in decisions of fundamental importance. Regular discussions concerning important topics and upcoming decisions were also held between the Co-Chairmen of the Management Board and the Chairman of the Supervisory Board. The chairmen of the Supervisory Board’s committees held regular discussions and consultations to enhance the overall coordination of the work of the Supervisory Board and its committees. Between meetings, we were kept informed in writing of important events. Resolutions were passed by circulation procedure when necessary between the meetings.

Meetings of the Supervisory Board

The Supervisory Board held six meetings in 2014.

At the first meeting of the year on February 28, 2014, we discussed the development of business in the fourth quarter of 2013 and the 2013 financial year, along with a comparison of the plan-actual figures. The dividend proposal for the year 2013 as well as the corporate planning for the years 2014 to 2016 were noted with approval. We received status reports from the Management Board on the bank’s material litigation cases and the regulatory investigations involving the bank, on the progress made in implementing the Operational Excellence program and cultural change, on the program to strengthen control functions and on the bank’s compensation systems in consideration of the statutory requirements. Based on the recommendation of the Chairman’s Committee and Audit Committee, we agreed to Mr. Cryan, Dr. Achleitner and Professor Trützschler being named financial experts in the Annual Report and to Dr. Achleitner and Professor Kagermann being named compensation experts on the Compensation Control Committee in accordance with Section 25d (12) of the German Banking Act. Furthermore, we confirmed the continued independence, as defined by U.S. regulations, of all members of the Audit Committee and determined that the Supervisory Board has what we consider to be an adequate number of independent members. Following a review of the appropriateness of the compensation system for the Management Board – and while taking the recommendations of the Compensation Control Committee into account as well as in consultation with the bank’s new Compensation Officer and independent external compensation experts – we determined the level of the variable compensation for the Management Board members for the 2013 financial year. Furthermore, we adjusted the Terms of Reference for the Compensation Control Committee, which has been required by law since January 1, 2014.

At the financial statements meeting on March 18, 2014, based on the Audit Committee’s recommendation and after a discussion with the auditor, we approved the Consolidated Financial Statements and Annual Financial Statements for 2013. Together with the Management Board, we discussed the status report on material litigation cases and regulatory investigations, the progress report on strengthening the control functions, the Human Resources Report and the Compensation Report 2013, which we noted with approval. Furthermore, we received reports on the risk management within the Group, on the Group Technology & Operations Business Division and on the status of the resolution plans and indicators called for by the regulatory authorities. Based on the proposal of the Compensation Control Committee, we approved adjustments to the Management Board’s compensation in accordance with the statutory and regulatory requirements and, in the process, specified the level of the total compensation of the individual Management Board members. Additionally, we approved, after intensive discussion, the compensation system for the Management Board including the main contract elements. Based on the proposal of the Integrity Committee, we resolved to monitor more closely in the future than in the past a few key matters that are the object of litigation cases or regulatory investigations based on the Supervisory Board’s heightened supervisory responsibility. Furthermore, we consented in principle to the issue of Additional Tier 1 capital based on the authorization from the General Meeting on May 31, 2012, and delegated responsibility for approving the resolutions in this context to the Chairman’s Committee.

At the meeting the day before the Ordinary General Meeting, we discussed the procedures for the meeting as well as the announced counterproposals. As necessary, resolutions were approved in this context.

At the meeting we held in London on July 29, 2014, we intensively addressed the bank’s business activities there. Together with the Management Board, we discussed the development of the bank’s business during the first six months of 2014, along with corporate planning, and the bank’s capital increase carried out in June 2014. We received another status report on material litigation cases and regulatory investigations as well as the strengthening of the control functions. Based on the proposal of the Chairman’s Committee and Nomination Committee, we elected Ms. Parent as member of the Risk Committee as Ms. Labarge’s successor and extended the Management Board appointments of Dr. Leithner, Mr. Lewis and Mr. Ritchotte, in each case until the end of May 31, 2020. Based on the proposal of the Compensation Control Committee, we adopted resolutions on the suspension of the disbursal of deferred variable compensation components of current and former Management Board members and on the effects of the capital increase on the Management Board’s undelivered share awards. Furthermore, we resolved to include two further bank matters that are the object of litigation cases or regulatory investigations in the Supervisory Board’s close monitoring approved by the Supervisory Board on March 18, 2014. Finally, we passed resolutions based on the proposal by the Chairman’s Committee and Integrity Committee on the claims to compensation for damages in connection with the Kirch proceedings and approved, based on the Audit Committee’s recommendation, the issue of the audit mandate to KPMG AG Wirtschaftsprüfungsgesellschaft, which had been elected statutory auditor and auditor of the consolidated financial statements for the 2014 financial year at the General Meeting on May 22, 2014.

At an extraordinary meeting on October 28, 2014, we resolved, based on a proposal by the Chairman’s Committee and Nomination Committee, to appoint two new Management Board members in line with the bank’s ongoing strategic, regulatory and legal priorities. Mr. Christian Sewing, with effect from January 1, 2015, and Dr. Marcus Schenck, with effect from the end of the General Meeting on May 21, 2015, were appointed members of the Management Board, each for a period of three years.

At the last meeting of the year on October 29, 2014, the Management Board reported to us on the development of business in the third quarter of 2014 and on developments in the regulatory and competitive environment. We also discussed the status reports on material litigation cases and regulatory investigations, on the program to strengthen control functions, on the “House of Governance” project to strengthen the bank’s business organization and on the structure of the bank’s directors and officers (D&O) insurance. We discussed the progress reports on cultural change and on the results of the European Central Bank’s Asset Quality Review as well as the measures to further develop the bank’s IT infrastructure. In addition, the Supervisory Board addressed criminal law aspects and recourse considerations in connection with the Kirch proceedings. Furthermore, we approved amendments to the Terms of Reference for the Management Board and for the Supervisory Board and issued the periodic Declaration of Conformity pursuant to Section 161 of the Stock Corporation Act. We also specified the amount of the statutory auditor’s remuneration based on the recommendation of the Audit Committee.

The Committees of the Supervisory Board

The Chairman’s Committee held thirteen meetings in the 2014 financial year. Between the meetings, the Chairman of the Chairman’s Committee spoke with the Committee members regularly about issues of major importance. While taking into account the recommendations of the Nomination Committee, the Committee addressed the extensions of the Management Board appointments of Dr. Leithner, Mr. Ritchotte and Mr. Lewis as well as the appointment to the Management Board of Mr. Sewing and Dr. Schenck. Discussions were held on the required amendments to the Terms of Reference and the Business Allocation Plan for the Management Board and to the terms of reference for the Supervisory Board and its committees. The Committee also discussed the capital actions and approved the relevant resolutions following the Supervisory Board’s delegation of responsibility for this. When necessary, resolutions were passed or recommendations made for the Supervisory Board’s approval. The Chairman’s Committee gave its approval for the current and former Management Board members’ ancillary activities and directorships in the bank’s interest at other companies, organizations and institutions.

At its seven regular meetings, the Risk Committee addressed in particular credit, liquidity, refinancing, country, market and operational risks, as well as the development of legal risks. The focus in the 2014 financial year was on monitoring the appropriateness of the bank’s capital resources, in particular in light of the ECB’s comprehensive Asset Quality Review and Stress Test, the further development of our model to measure operational risk, the initiatives aimed at remediating the weaknesses identified in our controls, the analysis of the possible effects of developments in Russia and Ukraine on our portfolio and our business operations as well as the further development of the recovery and resolutions plans (living will) called for by the regulatory authorities, along with an analysis of a crisis scenario. In-depth discussions also addressed strategic risk and capital planning, the effects of the prevailing interest rate environment, questions of IT security, several selected portfolios, including commercial real estate finance, leveraged finance, pension and insurance markets. The regular portfolio reports, along with the respective portfolio’s strategy and profitability, were presented by industry according to a schedule specified by the Risk Committee. In addition to the bank’s funding and liquidity positions, the Committee meetings examined the development of and various aspects of the bank’s risk provisions. The Risk Committee was regularly informed of the developments in material litigation cases and regulatory investigations, along with all audit findings. Independently from the meeting dates, the Risk Committee received information monthly on the development of the risk and capital profile, including the structure of the business terms and conditions in line with the bank’s overall risk appetite and strategy and monitored their corresponding implementation. Furthermore, the Committee discussed the ongoing further development of risk models and their monitoring. The Risk Committee reviewed, partly at joint meetings with the Compensation Control Committee, the compensation system, in particular with regard to whether the incentives set take into account the bank’s risk, capital and liquidity structure as well as the probability and timing of revenues. The exposures subject to mandatory approval under German law and the Articles of Association were discussed in detail. Where necessary, the Risk Committee gave its approval.

The Audit Committee held ten meetings in 2014. Representatives of the bank’s auditor attended all of these meetings. Subjects covered were the preliminary audit of the Annual Financial Statements and Consolidated Financial Statements for 2013, the interim reports, as well as the Annual Report on Form 20-F for the U.S. Securities and Exchange Commission. The Committee dealt with the proposal for the election of the auditor for the 2014 financial year, verified the auditor’s independence in accordance with the requirements of the German Corporate Governance Code and the rules of the U.S. Public Company Accounting Oversight Board (PCAOB), submitted a recommendation to the Supervisory Board on issuing of the audit mandate and the amount of the auditor’s remuneration. The Audit Committee is convinced that, as in previous years, there are no conflicts of interest on the part of the bank’s auditor. The Audit Committee specified three of its own audit areas of focus for 2014. In supporting the Supervisory Board, the Audit Committee assured itself of the effectiveness of the risk management system, in particular, of the system of internal controls and internal audit, and monitored the financial accounting process and the auditing of the financial statements. When necessary, resolutions were passed or recommendations made for the Supervisory Board’s approval. The Management Board presented the results of the European Central Bank’s Balance Sheet Assessment and Asset Quality Review to the Audit Committee before their publication and discussed them with the Committee. The Audit Committee had reports submitted to it regularly on the engagement of accounting firms, including the auditor, with non-audit-related services, on the work of Group Audit, on issues relating to compliance, on legal and reputational risks as well as on special audits and significant findings of regulatory authorities. Group Audit’s plan for the year was noted with approval. The Audit Committee did not receive any substantiated complaints in connection with accounting, internal accounting controls and auditing matters. Furthermore, the Audit Committee regularly dealt with the processing of audit findings issued by the auditor on the Annual and Consolidated Financial Statements for 2013, the measures to resolve other audit findings, the requirements relating to monitoring tasks pursuant to Section 107 (3) of the Stock Corporation Act, the measures to prepare for the audit of the Annual Financial Statements and the specified audit areas of focus.

The Integrity Committee met fifteen times and addressed, in particular, issues relating to corporate culture as well as the preventive monitoring and strategic analysis of legal and reputational risks. The topics covered at the meetings included, in particular, current litigation cases and regulatory investigations, with a focus on the proceedings the Supervisory Board had decided to closely monitor by way of its resolutions in March and July 2014. Additional topics of the meetings were the bank’s internal investigations, the monitoring of the implementation of cultural change and the examination of the distribution of tasks and cooperation between the Audit Committee, Risk Committee and Integrity Committee. The Committee addressed in particular the settlement in the Kirch case and the further consequences of the various proceedings in connection with Kirch. Additional topics included the use of social media, the bank’s “Three Lines of Defense” program to further strengthen the control structures as well as the “House of Governance” project to enhance the bank’s business organization.

The Compensation Control Committee held seven meetings in 2014. The Committee addressed in particular the compensation-related requirements arising in connection with implementation of European rules based on the Capital Requirements Directive IV (CRD IV) and the national transposition requirements pursuant to Germany’s CRD IV Implementation Act as well as the new requirements of the German Banking Act and the Regulation on Remuneration in Financial Institutions (InstitutsVergV). It monitored the appropriate structuring of the compensation systems for the Management Board and employees, in particular for the head of risk controlling and the head of the compliance function as well as for employees with a material impact on the overall risk profile. The Committee supported the Supervisory Board in monitoring the appropriate structuring of the compensation systems for employees. The Committee prepared proposals for the compensation of the Management Board, while taking into account, in particular, the bank’s risks and risk management, and supported the Supervisory Board in monitoring whether internal controls and other relevant areas had been properly involved in the structuring of the compensation systems. The Committee regularly addressed the determination and distribution of the total amount of variable compensation for the bank’s employees, also in consideration of the bank’s risk-bearing capacity. It also discussed the remediation of audit findings relating to the bank’s compensation system, the ongoing development of the compensation governance structure and the recommendations for resolutions to the Supervisory Board regarding its proposal for approval by the General Meeting on May 22, 2014, for the increase in the limit for variable compensation components for employees and for management body members of subsidiaries.

The Nomination Committee met five times in 2014 and dealt with Supervisory Board and Management Board succession and appointment issues. When necessary, resolutions were passed in this context on recommendations for the Supervisory Board’s approval. Furthermore, with the involvement of an external, independent advisor, the Nomination Committee, in accordance with its new tasks effective starting January 1, 2014, as set out in Section 25d (11) of the German Banking Act, intensively addressed the assessment of the Supervisory Board and of the Management Board.

Meetings of the Mediation Committee, established pursuant to the provisions of Germany’s Co-Determination Act (MitbestG), were not necessary in 2014.

The committee chairmen reported regularly to the Supervisory Board on the work of the committees.

In 2014, the Supervisory Board members participated in the meetings of the Supervisory Board and their respective committees as follows:

 

Meetings (incl. committees)

Meeting participation

in %

 

 

Meetings (incl. committees)

Meeting participation

in %

Achleitner

63

63

100

 

Löscher

21

18

85.71

Bsirske

31

29

93.54

 

Mark

16

14

87.50

Cryan

23

23

100

 

Parent

6

6

100

Dublon

13

13

100

 

Platscher

16

16

100

Garrett-Cox

6

6

100

 

Rose

16

15

93.75

Heider

21

21

100

 

Stockem

13

11

84.62

Herling

31

31

100

 

Szukalski

6

6

100

Irrgang

21

21

100

 

Teyssen

11

10

90.91

Kagermann

31

31

100

 

Thoma

21

21

100

Klee

21

20

95.24

 

Trützschler

15

14

93.33

Labarge

6

6

100

 

 

 

 

 

Corporate Governance

The Supervisory Board as well as the Audit Committee, Risk Committee, Nomination Committee and Compensation Control Committee, which are required by law as of January 1, 2014, addressed the new corporate governance requirements of Sections 25c and 25d of the German Banking Act. Of special importance here were the new tasks of these Supervisory Board committees.

At several meetings, the Nomination Committee and Supervisory Board addressed the implementation of the review of the efficiency of the Management Board and Supervisory Board, which was expanded beyond the scope of the German Corporate Governance Code pursuant to Section 25d of the German Banking Act. The results were discussed on January 28, 2015, by the Supervisory Board in plenary session. We are of the opinion that the Supervisory Board and the Management Board carry out their work efficiently and that a high standard was achieved in this context. However, the review also provided individual suggestions for improvement, several of which were already successfully implemented in 2014.

Furthermore, on several occasions, we addressed the regulations regarding the requirements for the qualifications and composition of the Supervisory Board, obligatory training measures and the upper limit on the number of board mandates.

The Declaration of Conformity pursuant to Section 161 of the Stock Corporation Act, last issued by the Supervisory Board and Management Board on October 29, 2013, was reissued at the meeting of the Supervisory Board on October 29, 2014. The Management Board and Supervisory Board stated that Deutsche Bank has complied and will continue to comply with the recommendations of the German Corporate Governance Code in the versions dated May 13, 2013, and June 24, 2014, with the specified exceptions. The text of the Declaration of Conformity 2014 issued on October 29, 2014, along with a comprehensive presentation of the bank’s corporate governance, can be found Corporate Governance Statement/Corporate Governance Report and on our website. The terms of reference for the Supervisory Board and its committees as well as for the Management Board are also published there, each in their currently applicable versions.

Training and Further Education Measures

Members of the Supervisory Board completed the training and further education measures required for their tasks on their own responsibility. Deutsche Bank provided the appropriate support to them in this context. A Bank-internal, one-day seminar for the members of the Supervisory Board was held on compensation and risk management in October 2014. In addition, members of the Supervisory Board were informed on a regular basis of new developments in corporate governance.

For members of the Audit Committee, an internal training session took place in December 2014. This covered current topics in financial accounting and possible effects on the Annual Financial Statements, regulatory developments as well as developments in connection with the adjustment of auditing standards and the effects on the statutory audit.

Conflicts of Interest and Their Handling

There were no conflicts of interest of individual Supervisory Board members in the year under review.

Litigation and Regulatory Investigations

In 2014, as in the preceding years, we regularly obtained information on important litigation cases and investigations by the regulatory authorities and deliberated on further appropriate courses of action. As indicated above, the Supervisory Board resolved in March and July 2014 to monitor more closely in the future than in the past a few key matters that are the object of litigation cases or regulatory investigations based on the Supervisory Board’s heightened supervisory responsibility.

These deliberations, including those of the Integrity Committee, also covered the consequences possibly to be drawn from the settlement of €925 million concluded in February 2014 with the heirs of Dr. Kirch (pursuit of recourse claims against Dr. Breuer, filing of D&O insurance claim). Furthermore, reports on the current status of litigation cases and regulatory investigations were presented on a regular basis to the Supervisory Board and – with different focal points – to the Integrity Committee, Audit Committee and Risk Committee.

Annual Financial Statements

KPMG Aktiengesellschaft Wirtschaftsprüfungsgesellschaft has audited the accounting, the Annual Financial Statements and the Management Report for 2014 as well as the Consolidated Financial Statements with the related Notes and Management Report for 2014. KPMG Aktiengesellschaft Wirtschaftsprüfungsgesellschaft was elected by the Ordinary General Meeting on May 22, 2014, as the auditor of the Annual Financial Statements and Consolidated Financial Statements. The audits led in each case to an unqualified opinion. The Audit Committee examined the documents for the Annual Financial Statements and Consolidated Financial Statements at its meeting on March 19, 2015, and KPMG reported on the audit processes. The Chairman of the Audit Committee reported to us on this at today’s meeting of the Supervisory Board. Based on the recommendation of the Audit Committee, which examined the Annual Financial Statements and Management Report for 2014 as well as the Consolidated Financial Statements with the related Notes and the Management Report for 2014 at its meeting on March 19, 2015, and after inspecting the Annual Financial Statements and Consolidated Financial Statements documents, we agreed with the results of the audits following an extensive discussion with the auditor at the financial statements meeting on March 20, 2015, and determined that, also based on the results of our inspections, there were no objections to be raised.

Today, we approved the Annual Financial Statements and Consolidated Financial Statements prepared by the Management Board; the Annual Financial Statements are thus established. We agree to the Management Board’s proposal for the appropriation of profits.

Personnel Issues

There were no personnel changes on the Management Board in 2014. Mr. Sewing became a member of the Management Board as of January 1, 2015, and is responsible for the Legal Department, Group Audit and Incident Management. With the conclusion of the General Meeting on May 21, 2015, Dr. Schenck will become a member of the Management Board and take on responsibility for Finance.

On the Supervisory Board, the following changes took place in 2014:

Ms. Labarge left the Supervisory Board on June 30, 2014. Ms. Parent was appointed by the court to succeed her with effect from July 1, 2014. We thank Ms. Labarge for her dedicated work and constructive assistance to the company over the years.

Frankfurt am Main, March 20, 2015

The Supervisory Board

Dr. Paul Achleitner
Chairman