Deutsche Bank

Annual Report 2017

Our Business Strategy

We are a leading European bank with global reach supported by a strong home base in Germany, Europe’s largest economy. We provide services in commercial and investment banking and retail banking as well as wealth and asset management products to corporations, governments, institutional investors, small and medium-sized businesses, and private individuals.

In October 2015, we outlined a multi-year strategy to build on the core strengths of our business model and client franchise. The four goals were to be: simpler and more efficient, less risky, better capitalized and better run with more disciplined execution.

During the course of 2016, we made significant improvements to our control systems and reduced our legal risks, including some of our most significant litigation matters such as the then pending investigation by the U.S. Department of Justice (DOJ) of our U.S. residential mortgage-backed securities (RMBS) business. We also completed the disposal of several non-strategic assets, including the sale of our stake in the Hua Xia Bank and the sales of Abbey Life and the U.S. Private Client Services. Furthermore, we prepared or completed previously announced country exits and accelerated the wind down of Non-Core Operations Unit, which was then closed at the start of 2017.

In March 2017, we took additional measures to further strengthen the bank and place it in a better position to pursue growth opportunities. Most notably this included the raising of € 8 billion of additional equity capital through a rights offering. The main goals of these measures included:

  • maintaining high CET 1 capital, supported by the capital raise, as well as high levels of liquidity,
  • having a leading Corporate & Investment Bank (CIB) franchise with the scale and strength to successfully compete and grow globally,
  • occupying the number one private and commercial banking position in our home market of Germany, serving more than 20 million clients in with our Private & Commercial Bank (PCB)
  • giving our world class Deutsche Asset Management (Deutsche AM) division operational segregation that can support accelerated growth,
  • reducing the size of our corporate center and cost base in part through more front-to-back alignment and shifting large portions of infrastructure functions to the business divisions, and
  • shifting our earnings and business mix more towards stable businesses.

Geographically, we intend to retain our global capabilities where our management believes our franchise is the strongest, the growth potential the largest, and the potential risk adjusted returns the highest.

  • PCB is primarily focused in Germany, with wealth management businesses around the world.
  • Given the global nature of our core corporate clients, we intend to retain and build CIB capabilities across Germany and EMEA (ex-Germany), the U.S. and Canada, and in Asia Pacific (APAC). While we intend to have a global institutional client footprint, we expect to be focused primarily on Germany and EMEA (ex-Germany) where our competitive franchise is the strongest. We also intend to maintain a strong, but more focused U.S. footprint.
  • Deutsche AM continues to provide a full suite of investment management services in Germany and the wider EMEA region, while enhancing its specialist capabilities in the U.S. and APAC.

Our Financial Targets

Our financial targets are:

  • Adjusted costs of € 22 billion in 2018, and € 21 billion by 2021, which includes the adjusted costs of Postbank; we expect adjusted costs in 2018 to be approximately € 23 billion, which reflects our € 22 billion target plus the cost impact of the delayed and suspended business sales
  • Achieve a Post-tax Return on Average Tangible Equity of approximately 10 % in a normalized operating environment
  • Maintain a CRR/CRD 4 Common Equity Tier 1 capital ratio (fully loaded) of comfortably above 13 % at all times
  • Achieve a CRR/CRD 4 leverage ratio of 4.5 %, and
  • Targeting a competitive dividend payout ratio for the financial year 2018 and thereafter.

We are committed to our goal of further reducing our adjusted costs. In October 2015 we established a € 22 billion annual target in adjusted costs for 2018. Achieving that cost target assumed savings of € 900 million of annual expenses associated with planned business disposals. However, those disposals have been delayed or suspended and as a result the € 900 million in cost savings will not materialize in 2018 as originally planned. Therefore, we now expect to achieve adjusted costs of approximately € 23 billion in 2018. The € 900 million in adjusted costs associated with these businesses is expected to be more than offset by the corresponding revenues re-tained leading to a net positive IBIT impact in 2018.

Update on Strategy Execution

In 2017, we made material progress towards our goals announced at the start of the year. Major achievements in 2017 included:

  • We substantially strengthened our capitalization through a capital raise, resulting in net proceeds of approximately € 8 billion. Our Common Equity Tier 1 ratio (CRR/CRD 4, fully loaded) was 14.0 % at the end of 2017, up from 11.8 % at the end of 2016
  • We successfully reorganized our business divisions into three distinct units, with the goals of strengthening the businesses of each, enhancing client coverage, improving market share and driving efficiencies and growth:
    • The new Corporate & Investment Bank (CIB) that combines our markets, advisory, financing and transaction banking businesses
    • Private & Commercial Bank (PCB) that combines Postbank and our existing private, commercial and wealth management businesses
    • An operationally and legally segregated Deutsche Asset Management (Deutsche AM).
  • We are in the process of combining Postbank and our existing Private & Commercial Client business in Germany with the goal of creating a market leading retail presence in Germany, driving greater efficiency through scale and better earnings and funding stability for Deutsche Bank
  • Meanwhile, we continued the execution of existing strategic initiatives in PCB and we have virtually completed our target to close 188 retail branches in Germany
  • We are progressing well in the preparation of the planned initial public offering of Deutsche AM; we have aligned the organizational structure more closely by bringing our Active, Passive and Alternative capabilities into one globally integrated investment platform and created a single global coverage group. The majority of the dedicated Asset Management legal entities were already grouped under has been transferred under a common German Asset Management holding company DWS SE during the year 2017 and the first quarter of 2018 with the remaining Asset Management legal entities, including the U.S. holding company, to re-parented in the first half of 2018. The conversion of the holding company DWS SE into a partnership limited by shares has been completed successfully in the first quarter 2018. The DWS Group GmbH & Co. KGaA is managed by a general partner (DWS Management GmbH) whose managing directors have been formally appointed in March 2018. In addition, Asset Management business activities and employees were transferred to AM-dedicated entities and new European branches of DeAM International GmbH will be set-up in the course of 2018
  • We are progressing with our program of business disposals and have completed and signed a number of transactions in 2017, including the agreement to sell most of our Polish Private & Commercial Bank business in line with our effort to continue to sharpen our focus and reduce complexity
  • We also continued to reduce complexity in our IT landscape by decommissioning nearly 30 % of our key operating systems since 2015