20-F 1 d290504d20f.htm ANNUAL REPORT FOR THE FISCAL YEAR EDNDED DECEMBER 31, 2011 Annual Report for the Fiscal Year Ednded December 31, 2011
Table of Contents

As filed with the Securities and Exchange Commission on March 20, 2012

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 20-F

  ¨

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

  x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011

or

  ¨

            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

or

  ¨

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report……………………………….

Commission file number 1-15242

Deutsche Bank Aktiengesellschaft

(Exact name of Registrant as specified in its charter)

Deutsche Bank Corporation

(Translation of Registrant’s name into English)

Federal Republic of Germany

(Jurisdiction of incorporation or organization)

Taunusanlage 12, 60325 Frankfurt am Main, Germany

(Address of principal executive offices)

Karin Dohm, +49-69-910-33529, karin.dohm@db.com, Taunusanlage 12, 60325 Frankfurt am Main, Germany

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act

See following page

Securities registered or to be registered pursuant to Section 12(g) of the Act.

NONE

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

NONE

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

 

Ordinary Shares, no par value   904,610,641

(as of December 31, 2011)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes x              No ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ¨             No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x             No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨             No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer x    Accelerated filer ¨    Non-accelerated filer ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP     ¨    International Financial Reporting Standards    x    Other     ¨
   as issued by the International Accounting Standards Board   

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow

Item 17 ¨             Item 18 ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨                         No x


Table of Contents
Deutsche Bank       i
Annual Report 2011 on Form 20-F      
     
     

 

Securities registered or to be registered pursuant to Section 12(b) of the Act (as of February 29, 2012).

 

Title of each class

  Name of each exchange on which        
registered

Ordinary shares, no par value

  New York Stock Exchange

 

 

 

6.375 % Noncumulative Trust Preferred Securities of Deutsche Bank Capital Funding Trust VIII

  New York Stock Exchange

6.375 % Noncumulative Company Preferred Securities of Deutsche Bank Capital Funding LLC VIII*

 

Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*

 

 

 

 

6.55 % Trust Preferred Securities of Deutsche Bank Contingent Capital Trust II

  New York Stock Exchange

6.55 % Company Preferred Securities of Deutsche Bank Contingent Capital LLC II*

 

Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*

 

 

 

 

6.625 % Noncumulative Trust Preferred Securities of Deutsche Bank Capital Funding Trust IX

  New York Stock Exchange

6.625 % Noncumulative Company Preferred Securities of Deutsche Bank Capital Funding LLC IX*

 

Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*

 

 

 

 

7.350 % Noncumulative Trust Preferred Securities of Deutsche Bank Capital Funding Trust X

  New York Stock Exchange

7.350 % Noncumulative Company Preferred Securities of Deutsche Bank Capital Funding LLC X*

 

Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*

 

 

 

 

7.60 % Trust Preferred Securities of Deutsche Bank Contingent Capital Trust III

  New York Stock Exchange

7.60 % Company Preferred Securities of Deutsche Bank Contingent Capital LLC III*

 

Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*

 

 

 

 

8.05 % Trust Preferred Securities of Deutsche Bank Contingent Capital Trust V

  New York Stock Exchange

8.05 % Company Preferred Securities of Deutsche Bank Contingent Capital LLC V*

 

Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*

 

 

 

 

DB Agriculture Short Exchange Traded Notes due April 1, 2038

  NYSE Arca

 

 

 

DB Agriculture Long Exchange Traded Notes due April 1, 2038

  NYSE Arca

 

 

 

DB Agriculture Double Short Exchange Traded Notes due April 1, 2038

  NYSE Arca

 

 

 

DB Agriculture Double Long Exchange Traded Notes due April 1, 2038

  NYSE Arca

 

 

 

DB Commodity Short Exchange Traded Notes due April 1, 2038

  NYSE Arca

 

 

 

DB Commodity Long Exchange Traded Notes due April 1, 2038

  NYSE Arca

 

 

 

DB Commodity Double Long Exchange Traded Notes due April 1, 2038

  NYSE Arca

 

 

 

DB Commodity Double Short Exchange Traded Notes due April 1, 2038

  NYSE Arca

 

 

 

DB Gold Double Long Exchange Traded notes due February 15, 2038

  NYSE Arca

 

 

 

DB Gold Double Short Exchange Traded notes due February 15, 2038

  NYSE Arca

 

 

 

DB Gold Short Exchange Traded notes due February 15, 2038

  NYSE Arca

 

 

 

ELEMENTS “Dogs of the Dow” Linked to the Dow Jones High Yield Select 10 Total Return Index due November 14, 2022

  NYSE Arca

 

 

 

ELEMENTS Linked to the Morningstar® Wide Moat Focus(SM) Total Return Index due October 24, 2022

  NYSE Arca

 

 

 

PowerShares DB Base Metals Short Exchange Traded Notes due June 1, 2038

  NYSE Arca

 

 

 

PowerShares DB Base Metals Long Exchange Traded Notes due June 1, 2038

  NYSE Arca

 

 

 

PowerShares DB Base Metals Double Short Exchange Traded Notes due June 1, 2038

  NYSE Arca

 

 

 

PowerShares DB Base Metals Double Long Exchange Traded Notes due June 1, 2038

  NYSE Arca

 

 

 

PowerShares DB Crude Oil Short Exchange Traded Notes due June 1, 2038

  NYSE Arca

 

 

 

PowerShares DB Crude Oil Long Exchange Traded Notes due June 1, 2038

  NYSE Arca

 

 

 

PowerShares DB Crude Oil Double Short Exchange Traded Notes due June 1, 2038

  NYSE Arca

 

 

 

PowerShares DB German Bund Futures Exchange Traded Notes due March 31, 2021

  NYSE Arca

 

 

 

PowerShares DB Italian Treasury Bond Futures Exchange Traded Notes due March 31, 2021

  NYSE Arca

 

 

 

PowerShares DB Japanese Govt Bond Futures Exchange Traded Notes due March 31, 2021

  NYSE Arca

 

 

 

PowerShares DB Inverse Japanese Govt Bond Futures Exchange Traded Notes due November 30, 2021

  NYSE Arca

 

 

 

PowerShares DB US Deflation Exchange Traded Notes due November 30, 2021

  NYSE Arca

 

 

 

PowerShares DB US Inflation Exchange Traded Notes due November 30, 2021

  NYSE Arca

 

 

 

PowerShares DB 3x German Bund Futures Exchange Traded Notes due March 31, 2021

  NYSE Arca

 

 

 

PowerShares DB 3x Italian Treasury Bond Futures Exchange Traded Notes due March 31, 2021

  NYSE Arca

 

 

 

PowerShares DB 3x Japanese Govt Bond Futures Exchange Traded Notes due March 31, 2021

  NYSE Arca

 

 

 

PowerShares DB 3x Inverse Japanese Govt Bond Futures Exchange Traded Notes due November 30, 2021

  NYSE Arca

 

 

 

PowerShares DB 3x Long US Dollar Index Futures Exchange Traded Notes due June 30, 2031

  NYSE Arca

 

 

 

PowerShares DB 3x Short US Dollar Index Futures Exchange Traded Notes due June 30, 2031

  NYSE Arca

 

 

 

PowerShares DB 3x Long 25+ Year Treasury Bond Exchange Traded Notes due May 31, 2040

  NYSE Arca

 

 

 

PowerShares DB 3x Short 25+ Year Treasury Bond Exchange Traded Notes due May 31, 2040

  NYSE Arca

 

 

 

* For listing purpose only, not for trading.


Table of Contents
Deutsche Bank       ii
Annual Report 2011 on Form 20-F      
     
     

 

Table of Contents

 

Table of Contents – ii

PART I – 1

Item 1: Identity of Directors, Senior Management and Advisers – 1

Item 2: Offer Statistics and Expected Timetable – 1

Item 3: Key Information – 1

Selected Financial Data – 1

Dividends – 3

Exchange Rate and Currency Information – 4

Capitalization and Indebtedness – 6

Reasons for the Offer and Use of Proceeds – 6

Risk Factors – 6

Item 4: Information on the Company – 22

History and Development of the Company – 22

Business Overview – 24

Our Group Divisions – 28

Corporate & Investment Bank Group Division – 28

Corporate Banking & Securities Corporate Division – 29

Global Transaction Banking Corporate Division – 30

Private Clients and Asset Management Group Division – 31

Corporate Investments Group Division – 38

Infrastructure and Regional Management – 40

The Competitive Environment – 40

Regulation and Supervision – 43

Organizational Structure – 56

Property and Equipment – 57

Information Required by Industry Guide 3 – 57

Item 4A: Unresolved Staff Comments – 57

Item 5: Operating and Financial Review and Prospects – 58

Overview – 58

Significant Accounting Policies and Critical Accounting Estimates – 58

Recently Adopted Accounting Pronouncements and New Accounting Pronouncements – 58

Operating Results (2011 vs. 2010) – 59

Results of Operations by Segment (2011 vs. 2010) – 69

Group Divisions – 72

Operating Results (2010 vs. 2009) – 80

Results of Operations by Segment (2010 vs. 2009) – 83

Liquidity and Capital Resources – 89

Post-Employment Benefit Plans – 89

Update on Key Credit Market Exposures – 89

Special Purpose Entities – 93

Tabular Disclosure of Contractual Obligations – 98

Research and Development, Patents and Licenses – 98

Item 6: Directors, Senior Management and Employees – 99

Directors and Senior Management – 99

Board Practices of the Management Board – 111

Group Executive Committee – 111

Compensation – 112

Expense for Long-Term Incentive Components – 128

Employees – 128

Share Ownership – 130

Item 7: Major Shareholders and Related Party Transactions – 133

Major Shareholders – 133

Related Party Transactions – 134

Interests of Experts and Counsel – 136


Table of Contents
Deutsche Bank       iii
Annual Report 2011 on Form 20-F      
     
     

 

Item 8: Financial Information – 137

 

Consolidated Statements and Other Financial Information – 137

 

Significant Changes – 141

 

Item 9: The Offer and Listing – 142

 

Offer and Listing Details – 142

 

Plan of Distribution – 144

 

Selling Shareholders – 144

 

Dilution – 144

 

Expenses of the Issue – 144

 

Item 10: Additional Information – 145

 

Share Capital – 145

 

Memorandum and Articles of Association – 145

 

Material Contracts – 148

 

Exchange Controls – 148

 

Taxation – 149

 

Dividends and Paying Agents – 152

 

Statement by Experts – 152

 

Documents on Display – 153

 

Subsidiary Information Test – 153

 

Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – 154

 

Risk Management Executive Summary – 154

 

Risk Management Principles – 156

 

Risk Strategy and Appetite – 160

 

Risk Inventory – 161

 

Risk Management Tools – 163

 

Credit Risk – 166

 

Market Risk – 200

 

Operational Risk – 217

 

Liquidity Risk at Deutsche Bank Group (excluding Postbank) – 221

 

Capital Management – 228

 

Balance Sheet Management – 231

 

Overall Risk Position – 232

 

Item 12: Description of Securities other than Equity Securities – 234

 

PART II – 235

 

Item 13: Defaults, Dividend Arrearages and Delinquencies – 235

 

Item 14: Material Modifications to the Rights of Security Holders and Use of Proceeds – 235

 

Item 15: Controls and Procedures – 235

 

Disclosure Controls and Procedures – 235

 

Management’s Annual Report on Internal Control over Financial Reporting – 235

 

Report of Independent Registered Public Accounting Firm – 236

 

Change in Internal Control over Financial Reporting – 237

 

Item 16A: Audit Committee Financial Expert – 238

 

Item 16B: Code of Ethics – 238

 

Item 16C: Principal Accountant Fees and Services – 238

 

Item 16D: Exemptions from the Listing Standards for Audit Committees – 240

 

Item 16E: Purchases of Equity Securities by the Issuer and Affiliated Purchasers – 240

 

Item 16F: Change in Registrant’s Certifying Accountant – 241

 

Item 16G: Corporate Governance – 242

 

Item 16H: Mine Safety Disclosure – 245

 

PART III – 246

 

Item 17: Financial Statements – 246

 

Item 18: Financial Statements – 246

 

Item 19: Exhibits – 247

 

Signatures – 248

 

Financial Statements – F-2

 

Supplemental Financial Information – S-1

 


Table of Contents
Deutsche Bank       iv
Annual Report 2011 on Form 20-F      
     
     

 

Deutsche Bank Aktiengesellschaft, which we also call Deutsche Bank AG, is a stock corporation organized under the laws of the Federal Republic of Germany. Unless otherwise specified or required by the context, in this document, references to “we”, “us”, “our”, “the Group” and “Deutsche Bank Group” are to Deutsche Bank Aktiengesellschaft and its consolidated subsidiaries.

Due to rounding, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.

Our registered address is Taunusanlage 12, 60325 Frankfurt am Main, Germany, and our telephone number is +49-69-910-00.

Cautionary Statement Regarding Forward-Looking Statements

We make certain forward-looking statements in this document with respect to our financial condition and results of operations. In this document, forward-looking statements include, among others, statements relating to:

 

 

the potential development and impact on us of economic and business conditions and the legal and regulatory environment to which we are subject;

 

the implementation of our strategic initiatives and other responses thereto;

 

the development of aspects of our results of operations;

 

our expectations of the impact of risks that affect our business, including the risks of losses on our trading processes and credit exposures; and

 

other statements relating to our future business development and economic performance.

In addition, we may from time to time make forward-looking statements in our periodic reports to the United States Securities and Exchange Commission on Form 6-K, annual and interim reports, invitations to Annual General Meetings and other information sent to shareholders, offering circulars and prospectuses, press releases and other written materials. Our Management Board, Supervisory Board, officers and employees may also make oral forward-looking statements to third parties, including financial analysts.

Forward-looking statements are statements that are not historical facts, including statements about our beliefs and expectations. We use words such as “believe”, “anticipate”, “expect”, “intend”, “seek”, “estimate”, “project”, “should”, “potential”, “reasonably possible”, “plan”, “aim” and similar expressions to identify forward-looking statements.

By their very nature, forward-looking statements involve risks and uncertainties, both general and specific. We base these statements on our current plans, estimates, projections and expectations. You should therefore not place too much reliance on them. Our forward-looking statements speak only as of the date we make them, and we undertake no obligation to update any of them in light of new information or future events.

We caution you that a number of important factors could cause our actual results to differ materially from those we describe in any forward-looking statement. These factors include, among others, the following:

 

 

the potential development and impact on us of economic and business conditions;

 

other changes in general economic and business conditions;

 

changes and volatility in currency exchange rates, interest rates and asset prices;

 

changes in governmental policy and regulation, including measures taken in response to economic, business, political and social conditions;

 

changes in our competitive environment;

 

the success of our acquisitions, divestitures, mergers and strategic alliances;


Table of Contents
Deutsche Bank       v
Annual Report 2011 on Form 20-F      
  
     

 

 

our success in implementing our strategic initiatives and other responses to economic and business conditions and the legal and regulatory environment and realizing the benefits anticipated therefrom; and

 

other factors, including those we refer to in “Item 3: Key Information – Risk Factors” and elsewhere in this document and others to which we do not refer.

Use of Non-GAAP Financial Measures

This document and other documents we have published or may publish contain non-GAAP financial measures. Non-GAAP financial measures are measures of our historical or future performance, financial position or cash flows that contain adjustments that exclude or include amounts that are included or excluded, as the case may be, from the most directly comparable measure calculated and presented in accordance with IFRS in our financial statements. We refer to the definitions of certain adjustments as “target definitions” because we have in the past used and may in the future use the non-GAAP financial measures based on them to measure our financial targets. Examples of our non-GAAP financial measures, and the most directly comparable IFRS financial measures, are as follows:

 

Non-GAAP Financial Measure

  

Most Directly Comparable IFRS Financial Measure

IBIT attributable to Deutsche Bank shareholders (target definition)

   Income (loss) before income taxes

 

  

 

Average active equity

   Average shareholders’ equity

 

  

 

Pre-tax return on average active equity

   Pre-tax return on average shareholders’ equity

 

  

 

Pre-tax return on average active equity (target definition)

   Pre-tax return on average shareholders’ equity

 

  

 

Total assets adjusted

   Total assets

 

  

 

Total equity adjusted

   Total equity

 

  

 

Leverage ratio (target definition) (total assets adjusted to

total equity adjusted)

   Leverage ratio (total assets to total equity)

 

For descriptions of these non-GAAP financial measures and the adjustments made to the most directly comparable IFRS financial measures to obtain them, please refer (i) for the leverage ratio (target definition), as well as the total assets adjusted and total equity adjusted figures used in its calculation, to “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Balance Sheet Management”, and (ii) for the other non-GAAP financial measures listed above, to pages S-16 through S-18 of the supplemental financial information, which are incorporated by reference herein.

Our target definition of IBIT attributable to Deutsche Bank shareholders excludes significant gains (such as gains from the sale of industrial holdings, businesses or premises) and charges (such as charges from restructuring, goodwill impairment or litigation) if we believe they are not indicative of the future performance of our core businesses.

When used with respect to future periods, our non-GAAP financial measures are also forward-looking statements. We cannot predict or quantify the levels of the most directly comparable IFRS financial measures (listed in the table above) that would correspond to these non-GAAP financial measures for future periods. This is because neither the magnitude of such IFRS financial measures, nor the magnitude of the adjustments to be used to calculate the related non-GAAP financial measures from such IFRS financial measures, can be predicted. Such adjustments, if any, will relate to specific, currently unknown, events and in most cases can be positive or negative, so that it is not possible to predict whether, for a future period, the non-GAAP financial measure will be greater than or less than the related IFRS financial measure.

Use of Internet Addresses

This document contains inactive textual addresses of Internet websites operated by us and third parties. Reference to such websites is made for informational purposes only, and information found at such websites is not incorporated by reference into this document.

 

 


Table of Contents
Deutsche Bank    Item 3: Key Information    1
Annual Report 2011 on Form 20-F      
PART I      
     

 

Item 1: Identity of Directors, Senior Management and Advisers

Not required because this document is filed as an annual report.

Item 2: Offer Statistics and Expected Timetable

Not required because this document is filed as an annual report.

Item 3: Key Information

Selected Financial Data

We have derived the data we present in the tables below from our audited consolidated financial statements for the years presented. You should read all of the data in the tables below together with the consolidated financial statements and notes included in “Item 18: Financial Statements” and the information we provide in “Item 5: Operating and Financial Review and Prospects”. Except where we have indicated otherwise, we have prepared all of the consolidated financial information in this document in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and as endorsed by the European Union (“EU”). Our group division and segment data come from our management reporting systems and are not in all cases prepared in accordance with IFRS. For a discussion of the major differences between our management reporting systems and our consolidated financial statements under IFRS, see Note 05 “Business Segments and Related Information”.

 

 


Table of Contents
Deutsche Bank    Item 3: Key Information    2
Annual Report 2011 on Form 20-F      
     
     

 

Income Statement Data

 

 

       20111       2011       2010       2009       2008       2007    

 

  in U.S.$ m.       in  m.       in m.       in  m.       in m.       in  m.    

Net interest income

    22,572          17,445          15,583           12,459           12,453           8,849      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses

    2,379          1,839          1,274           2,630           1,076           612      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for credit losses

    20,193          15,606          14,309           9,829           11,377           8,237      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commissions and fee income

    14,937          11,544          10,669           8,911           9,741           12,282      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Net gains (losses) on financial assets/liabilities at fair value through profit or loss     3,957          3,058          3,354           7,109           (9,992)          7,175      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other noninterest income (loss)

    1,528          1,181          (1,039)          (527)          1,411           2,523      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues

    42,994          33,228          28,567           27,952           13,613           30,829      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Compensation and benefits

    16,995          13,135          12,671           11,310           9,606           13,122      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

General and administrative expenses

    16,377          12,657          10,133           8,402           8,339           8,038      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Policyholder benefits and claims

    268          207          485           542           (252)          193      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Impairment of intangible assets

    –          –          29           (134)          585           128      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Restructuring activities

    –          –          –           –           –          (13)     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expenses

    33,640          25,999          23,318           20,120           18,278           21,468      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    6,974          5,390          3,975           5,202           (5,741)          8,749      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense (benefit)

    1,377          1,064          1,645           244           (1,845)          2,239      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    5,597          4,326          2,330           4,958           (3,896)          6,510      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to noncontrolling interests

    251          194          20           (15)          (61)          36      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Deutsche Bank shareholders

    5,346          4,132          2,310           4,973           (3,835)          6,474      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    in U.S.$          in           in            in            in            in       

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share2,3

    5.76          4.45          3.07           7.21           (6.87)          12.29      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share2,4

    5.56          4.30          2.92           6.94           (6.87)          11.80      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends paid per share5

    0.97          0.75          0.75           0.50           4.50           4.00      

 

 
1 

Amounts in this column are unaudited. We have translated the amounts solely for your convenience at a rate of U.S.$ 1.2939 per , the euro foreign exchange reference rate for U.S. dollars published by the European Central Bank (ECB) for December 30, 2011.

2 

The number of average basic and diluted shares outstanding has been adjusted for all periods before October 6, 2010 to reflect the effect of the bonus element of the subscription rights issue in connection with the capital increase.

3 

We calculate basic earnings per share for each period by dividing our net income (loss) by the weighted-average number of common shares outstanding.

4 

We calculate diluted earnings per share for each period by dividing our net income (loss) by the weighted-average number of common shares outstanding after assumed conversions.

5 

Dividends we declared and paid in the year.

Balance Sheet Data

 

 

       20111           2011           2010           2009           2008           2007    
        in U.S. $ m.           in m.           in m.           in m.           in m.           in m.    

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

        2,800,133              2,164,103              1,905,630              1,500,664              2,202,423              1,925,003     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans

    533,752          412,514          407,729          258,105          269,281          198,892     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Deposits

    778,578          601,730          533,984          344,220          395,553          457,946     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Long-term debt

    211,444          163,416          169,660          131,782          133,856          126,703     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Common shares

    3,079          2,380          2,380          1,589          1,461          1,358     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity2

    69,081          53,390          48,819          36,647          30,703          37,893     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tier 1 capital3

    63,462          49,047          42,565          34,406          31,094          28,320     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Regulatory capital3

    71,457          55,226          48,688          37,929          37,396          38,049     

 

 
1 

Amounts in this column are unaudited. We have translated the amounts solely for your convenience at a rate of U.S. $ 1.2939 per , the euro foreign exchange reference rate for U.S. dollars published by the European Central Bank (ECB) for December 30, 2011.

2 

The initial acquisition accounting for ABN AMRO, which was finalized at March 31, 2011, resulted in a retrospective adjustment of retained earnings of (24) million for December 31, 2010.

3 

Capital amounts for 2011 are based on the amended capital requirements for trading book and securitization positions following the Capital Requirements Directive 3, also known as “Basel 2.5”, as implemented in the German Banking Act and the Solvency Regulation (“Solvabilitätsverordnung”). Capital amounts presented for 2010, 2009 and 2008 are pursuant to the revised capital framework presented by the Basel Committee in 2004 (“Basel 2”) as adopted into German law by the German Banking Act and the Solvency Regulation. Capital amounts presented for 2007 are based on the Basel 1 framework. Excludes transitional items pursuant to Section 64h (3) of the German Banking Act.

 

 


Table of Contents
Deutsche Bank    Item 3: Key Information    3
Annual Report 2011 on Form 20-F      
     
     

 

Certain Key Ratios and Figures

 

 

  2011       2010       2009       2008       2007    

Share price at period-end1

             29.44                   39.10                   44.98                   25.33                  81.36      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share price high1

             48.70                   55.11                   53.05                   81.73                  107.85      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share price low1

             20.79                   35.93                   14.00                   16.92                  74.02      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value per basic share outstanding2

             58.11                   52.38                   52.65                   47.90                  71.39      

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Return on average shareholders’ equity (post-tax)3

    8.2 %          5.5 %          14.6 %          (11.1) %          17.9 %     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax return on average shareholders’ equity4

    10.2 %          9.5 %          15.3 %          (16.5) %          24.1 %     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax return on average active equity5

    10.3 %          9.6 %          15.1 %          (17.7) %          29.0 %     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost/income ratio6

    78.2 %          81.6 %          72.0 %          134.3 %          69.6 %     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Compensation ratio7

    39.5 %          44.4 %          40.5 %          70.6 %          42.6 %     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noncompensation ratio8

    38.7 %          37.3 %          31.5 %          63.7 %          27.1 %     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core Tier 1 capital ratio9

    9.5 %          8.7 %          8.7 %          7.0 %          6.9 %     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tier 1 capital ratio 9

    12.9 %          12.3 %          12.6 %          10.1 %          8.6 %     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Employees at period-end (full-time equivalent):10

         

In Germany

    47,323          49,265          27,321          27,942          27,779     

Outside Germany

    53,673          52,797          49,732          52,514          50,512     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Branches at period-end:

         

In Germany

    2,039          2,087          961          961          976     

Outside Germany

    1,039          996          1,003          989          887     

 

 
1 

For comparison purposes, the share prices have been adjusted for all periods before October 6, 2010 to reflect the impact of the subscription rights issue in connection with the capital increase.

2 

Shareholders’ equity divided by the number of basic shares outstanding (both at period-end).

3 

Net income (loss) attributable to our shareholders as a percentage of average shareholders’ equity.

4 

Income (loss) before income taxes attributable to our shareholders as a percentage of average shareholders’ equity.

5 

Income (loss) before income taxes attributable to our shareholders as a percentage of average active equity.

6 

Total noninterest expenses as a percentage of net interest income before provision for credit losses, plus noninterest income.

7 

Compensation and benefits as a percentage of total net interest income before provision for credit losses, plus noninterest income.

8 

Noncompensation noninterest expenses, which is defined as total noninterest expenses less compensation and benefits, as a percentage of total net interest income before provision for credit losses, plus noninterest income.

9 

Ratios presented for 2011 are based on the amended capital requirements for trading book and securitization positions following the Capital Requirements Directive 3, also known as “Basel 2.5”, as implemented in the German Banking Act and the Solvency Regulation. Ratios presented for 2010, 2009 and 2008 are pursuant to the revised capital framework presented by the Basel Committee in 2004 (“Basel 2”) as adopted into German law by the German Banking Act and the Solvency Regulation (“Solvabilitätsverordnung”). Ratios presented for 2007 are based on the Basel 1 framework. The capital ratios relate the respective capital to risk weighted assets for credit, market and operational risk. Excludes transitional items pursuant to Section 64h (3) of the German Banking Act.

10 

Deutsche Postbank aligned its FTE definition to that of Deutsche Bank which reduced the Group number as of December 31, 2011 by 260 (prior periods not restated).

Dividends

The following table shows the dividend per share in euro and in U.S. dollars for the years ended December 31, 2011, 2010, 2009, 2008 and 2007. We declare our dividends at our Annual General Meeting following each year. Our dividends are based on the non-consolidated results of Deutsche Bank AG as prepared in accordance with German accounting principles. Because we declare our dividends in euro, the amount an investor actually receives in any other currency depends on the exchange rate between euro and that currency at the time the euros are converted into that currency.

Effective January 1, 2009, the German withholding tax applicable to dividends increased to 26.375 % (consisting of a 25 % withholding tax and an effective 1.375 % surcharge) compared to 21.1 % applicable for the years 2008 and 2007. For individual German tax residents, the withholding tax paid after January 1, 2009 represents for private dividends, generally, the full and final income tax applicable to the dividends. Dividend recipients who are tax residents of countries that have entered into a convention for avoiding double taxation may be eligible to receive a refund from the German tax authorities of a portion of the amount withheld and in addition may be entitled to receive a tax credit for the German withholding tax not refunded in accordance with their local tax law.

 

 


Table of Contents
Deutsche Bank    Item 3: Key Information    4
Annual Report 2011 on Form 20-F      
     
     

 

U.S. residents will be entitled to receive a refund equal to 11.375 % of the dividends received after January 1, 2009 (compared to an entitlement to a refund of 6.1 % of the dividends received in the years 2008 and 2007). For U.S. federal income tax purposes, the dividends we pay are not eligible for the dividends received deduction generally allowed for dividends received by U.S. corporations from other U.S. corporations.

Dividends in the table below are presented before German withholding tax.

See “Item 10: Additional Information – Taxation” for more information on the tax treatment of our dividends.

 

                Payout ratio  2,3  

 

      Dividends  
    per share1  
   

    Dividends  
    per share  

        Basic earnings  
    per share  
        Diluted earnings  
    per share  
 

2011 (proposed)

    $ 0.97            0.75          17 %          17 %     

 

 

 

 

   

 

 

   

 

 

   

 

 

 

2010

    $ 1.00            0.75          24 %          26 %     

 

 

 

 

   

 

 

   

 

 

   

 

 

 

2009

    $ 1.08            0.75          10 %          11 %     

 

 

 

 

   

 

 

   

 

 

   

 

 

 

2008

    $ 0.70            0.50          N/M          N/M     

 

 

 

 

   

 

 

   

 

 

   

 

 

 

2007

    $ 6.57            4.50          37 %          38 %     

 

 

 

 

   

 

 

   

 

 

   

 

 

 
N/M – Not meaningful
1 

For your convenience, we present dividends in U.S. dollars for each year by translating the euro amounts on the last day of the year using the euro foreign exchange reference rate published by the European Central Bank (ECB) in the case of 2011, 2010 and 2009 and using the “noon buying rate” announced by the Federal Reserve Bank of New York in the case of 2008 and 2007. The Federal Reserve Bank of New York discontinued the publication of foreign exchange rates on December 31, 2008.

2 

We define our payout ratio as the dividends we paid per share in respect of each year as a percentage of our basic and diluted earnings per share for that year. For 2008, the payout ratio was not calculated due to the net loss.

3 

The number of average basic and diluted shares outstanding has been adjusted for all periods before October 6, 2010 to reflect the effect of the bonus element of the subscription rights issue in connection with the capital increase.

Exchange Rate and Currency Information

Germany’s currency is the euro. For your convenience, we have translated some amounts denominated in euro appearing in this document into U.S. dollars. Unless otherwise stated, we have made these translations at U.S. $ 1.2939 per euro, the euro foreign exchange reference rate for U.S. dollars published by the European Central Bank (ECB) for December 30, 2011 (the last business day of 2011). ECB euro foreign exchange reference rates are based on a regular daily concertation procedure between central banks across Europe and worldwide, which normally takes place at 2:15 p.m. CET. You should not construe any translations as a representation that the amounts could have been exchanged at the rate used on December 30, 2011 or any other date.

 

 


Table of Contents
Deutsche Bank    Item 3: Key Information    5
Annual Report 2011 on Form 20-F      
     
     

 

The ECB euro foreign exchange reference rate for U.S. dollars for December 30, 2011 may differ from the actual rates we used in the preparation of the financial information in this document. Accordingly, U.S. dollar amounts appearing in this document may differ from the actual U.S. dollar amounts that we originally translated into euros in the preparation of our financial statements.

Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar equivalent of the euro price of our shares quoted on the German stock exchanges and, as a result, are likely to affect the market price of our shares on the New York Stock Exchange. These fluctuations will also affect the U.S. dollar value of cash dividends we may pay on our shares in euros. Past fluctuations in foreign exchange rates may not be predictive of future fluctuations.

Unless otherwise indicated, the following table shows the period-end, average, high and low euro foreign exchange reference rates for U.S. dollars as published by the ECB. In each case, the period-end rate is the rate announced for the last business day of the period.

 

in U.S.$ per

      Period-end            Average1         High           Low    

2012

       

March (through March 6)

    1.3153          –          1.3312          1.3153     

February

    1.3443          –          1.3454          1.2982     

January

    1.3176          –          1.3176          1.2669     

 

 

 

 

   

 

 

   

 

 

   

 

 

 

2011

       

December

    1.2939          –          1.3511          1.2889     

November

    1.3418          –          1.3809          1.3229     

October

    1.4001          –          1.4160          1.3181     

September

    1.3503          –          1.4285          1.3430     

 

 

 

 

   

 

 

   

 

 

   

 

 

 

2011

    1.2939          1.4000          1.4882          1.2889     

 

 

 

 

   

 

 

   

 

 

   

 

 

 

2010

    1.3362          1.3207          1.4563          1.1942     

 

 

 

 

   

 

 

   

 

 

   

 

 

 

2009

    1.4406          1.3963          1.5120          1.2555     

 

 

 

 

   

 

 

   

 

 

   

 

 

 

20082

    1.3919          1.4695          1.6010          1.2446     

 

 

 

 

   

 

 

   

 

 

   

 

 

 

20072

    1.4603          1.3797          1.4862          1.2904     

 

 

 

 

   

 

 

   

 

 

   

 

 

 
1 

We calculated the average rates for each year using the average of exchange rates on the last business day of each month during the year. We did not calculate average exchange rates within months.

2 

The exchange rates for 2007 and 2008 are based on the “noon buying rate” announced by the Federal Reserve Bank of New York. The Federal Reserve Bank of New York discontinued the publication of foreign exchange rates on December 31, 2008.

For March 6, 2012, the euro foreign exchange reference rate for U.S. dollars published by the ECB was U.S. $ 1.3153 per euro.

 

 


Table of Contents
Deutsche Bank    Item 3: Key Information    6
Annual Report 2011 on Form 20-F      
     
     

 

Capitalization and Indebtedness

The following table sets forth our consolidated capitalization in accordance with IFRS as of December 31, 2011:

 

 

      in   m.    

Debt: 1,2

 

 

 

 

 

 

Long-term debt

    163,416     

 

 

 

 

 

Trust preferred securities

    12,344     

 

 

 

 

 

Long-term debt at fair value through profit or loss

    13,889     

 

 

 

 

 

Total debt

    189,649     

 

 

 

 

 
 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Common shares (no par value)

    2,380     

 

 

 

 

 

Additional paid-in capital

    23,695     

 

 

 

 

 

Retained earnings

    30,119     

 

 

 

 

 

Common shares in treasury, at cost

    (823)    

 

 

 

 

 

Accumulated other comprehensive income, net of tax

 

 

 

 

 

 

Unrealized net gains (losses) on financial assets available for sale, net of applicable tax and other

    (617)    

Unrealized net gains (losses) on derivatives hedging variability of cash flows, net of tax

    (226)    

Unrealized net gains (losses) on assets classified as held for sale, net of tax

    –     

Foreign currency translation, net of tax

    (1,166)    

Unrealized net gains (losses) from equity method investments

    28     

 

 

 

 

 

Total shareholders’ equity

    53,390     

 

 

 

 

 

Noncontrolling interests

    1,270     

 

 

 

 

 

Total equity

    54,660     

 

 

 

 

 

Total capitalization

    244,309     

 

 

 

 

 
1  1,653  million (1 %) of our debt was guaranteed as of December 31, 2011. This consists of debt of a subsidiary of Deutsche Postbank AG which is guaranteed by the German government.
2 

 8,254 million (4 %) of our debt was secured as of December 31, 2011.

Reasons for the Offer and Use of Proceeds

Not required because this document is filed as an annual report.

Risk Factors

An investment in our securities involves a number of risks. You should carefully consider the following information about the risks we face, together with other information in this document, when you make investment decisions involving our securities. If one or more of these risks were to materialize, it could have a material adverse effect on our financial condition, results of operations, cash flows or prices of our securities.

We have been and may continue to be affected by the ongoing European sovereign debt crisis, and we may be required to take impairments on our exposures to the sovereign debt of Greece and other countries. The credit default swaps we have entered into to manage sovereign credit risk may not be available to offset these losses.

Starting in late 2009, the sovereign debt markets of the eurozone began to undergo substantial stress as the markets began to perceive the credit risk of a number of countries as having increased. By mid-2011, the recovery from the global financial crisis that began in 2008 was being threatened by these concerns, especially

 

 


Table of Contents
Deutsche Bank    Item 3: Key Information    7
Annual Report 2011 on Form 20-F      
     
     

 

with respect to Greece, Ireland, Italy, Portugal and Spain. These worries have persisted in light of increasing public debt loads and stagnating economic growth in these and other European countries both within and outside the eurozone, including countries in Eastern Europe. Despite a number of measures taken by European regulators to stem the negative effects of the crisis, the business environment in general, and the financial markets in particular, significantly weakened in the third and fourth quarters of 2011 as the uncertainty surrounding the sovereign debt crisis and European Union efforts to resolve the crisis continued to intensify.

The effects of the sovereign debt crisis have been felt especially in the financial sector as a large portion of the sovereign debt of eurozone countries is held by European financial institutions, including ourselves. As of December 31, 2011, we had a gross sovereign credit risk exposure (net credit risk exposure grossed up for the net credit derivative protection purchased, collateral held and allowances for credit loss) of 448 million to Greece, 420 million to Ireland, 1.8 billion to Italy, 165 million to Portugal and 1.3 billion to Spain. Many financial institutions, including ourselves, have taken impairments on their Greek sovereign exposure to reflect the voluntary write-down preliminarily agreed in October 2011 and actual and anticipated developments since then. While in February 2012 a proposed rescue package for Greece and a restructuring of its sovereign debt was announced, the ultimate outcome of these efforts, as well as the prospect of Greece managing its debt levels after any such efforts, remains unclear. Depending on the outcome of such efforts, we may be required to take further impairments on our Greek sovereign exposures. In addition, concerns over the ability of other eurozone sovereigns to manage their debt levels could intensify and similar negotiations could take place with respect to the sovereign debt of other affected countries, and the outcome of any negotiations regarding changed terms (including reduced principal amounts or extended maturities) of sovereign debt may result in additional impairments. Any negotiations are highly likely to be subject to political and economic pressures that we cannot control, and we are unable to predict their effects on the financial markets, on the greater economy or on us.

In addition, any restructuring of outstanding sovereign debt may result in potential losses for us and other market participants that are not covered by payouts on hedging instruments that we have entered into to protect against the risk of default. These instruments largely consist of credit default swaps, generally referred to as CDSs, pursuant to which one party agrees to make a payment to another party if a credit event (such as a default) occurs on the identified underlying debt obligation. A sovereign restructuring that avoids a credit event through voluntary write-downs of value may not trigger the provisions in CDSs we have entered into, meaning that our exposures in the event of a write-down could exceed the exposures we previously viewed as our net exposure after hedging. Additionally, even if the CDS provisions are triggered, the amounts ultimately paid under the CDSs may not correspond to the full amount of any loss we incur. Even if our hedging strategies are appropriate in the current environment, we face the risk that our hedging counterparties have not effectively hedged their own exposures and may be unable to provide the necessary liquidity if payments under the instruments they have written are triggered. This may result in systemic risk for the European banking sector as a whole and may negatively affect our business and financial position.

Regulatory and political actions by European governments in response to the sovereign debt crisis may not be sufficient to prevent the crisis from spreading or to prevent departure of one or more member countries from the common currency. The departure of any one or more countries from the euro could have unpredictable consequences on the financial system and the greater economy, potentially leading to declines in business levels, write-downs of assets and losses across our businesses. Our ability to protect ourselves against these risks is limited.

If European policymakers are unable to contain the sovereign debt crisis, our results of operations and financial position would likely be materially and adversely affected as banks, including us, may be required to take further write-downs on our sovereign exposures and other assets as the macroeconomic environment deteriorates.

 

 


Table of Contents
Deutsche Bank    Item 3: Key Information    8
Annual Report 2011 on Form 20-F      
     
     

 

In addition, the possibility exists that one or more members of the eurozone may leave the common currency, resulting in the reintroduction of one or more national currencies. The effects of such an event are unforeseeable and may have a substantial negative effect on our business and outlook.

The deterioration of the sovereign debt market in the eurozone and Eastern Europe, particularly the increasing costs of borrowing affecting many eurozone states late in 2011 and downgrades in the credit ratings of most eurozone countries in 2011 and early 2012 indicate that the sovereign debt crisis can affect even the financially more stable countries in the eurozone, including Germany. While the costs of borrowing have declined again in early 2012, substantial doubt remains whether actions taken by European policymakers will be sufficient to contain the crisis over the longer term. In particular, recent credit rating downgrades of France and Austria may threaten the effectiveness of the European Financial Stability Facility, generally referred to as the EFSF, the special purpose vehicle created by the European Union to combat the sovereign debt crisis. Since the EFSF’s credit rating is based on the ratings of its financing members, the reduction of these members’ ratings may increase the borrowing costs of the EFSF such that its ability to raise funds to assist eurozone governments would be reduced. In addition, the austerity programs introduced by a number of countries across the eurozone in response to the sovereign debt crisis may have the effect of dampening economic growth over the short, medium and longer terms. Declining rates of economic growth (or a fall into recession) in eurozone countries could exacerbate their difficulties in refinancing their sovereign debt as it comes due, further increasing pressure on other eurozone governments.

Should a eurozone country conclude it must exit the common currency, the resulting need to reintroduce a national currency and restate existing contractual obligations could have unpredictable financial, legal, political and social consequences. Given the highly interconnected nature of the financial system within the eurozone, the high levels of exposure we have to public and private counterparties around Europe, our ability to plan for such a contingency in a manner that would reduce our exposure to non-material levels is likely to be limited. If the overall economic climate deteriorates as a result of one or more departures from the eurozone, nearly all of our businesses, including our more stable flow businesses, could be adversely affected, and if we are forced to write down additional exposures, we could incur substantial losses.

Our results are dependent on the macroeconomic environment and we have been and may continue to be affected by the macroeconomic effects of the ongoing European sovereign debt crisis, including renewed concerns about the risk of a return to recession in the eurozone, as well as by lingering effects of the recent global financial crisis of 2007-2008.

As a global investment bank with a large private client franchise, our businesses are materially affected by conditions in the global financial markets and economic conditions generally. Beginning in the second half of 2007, and particularly in September 2008, the financial services industry, including ourselves, and the global financial markets were materially and adversely affected by significant declines in the values of nearly all classes of financial assets. Since that time, banks, including us, have experienced nearly continuous stress on their business models and prospects. A widespread loss of investor confidence, both in our industry and in the broader markets, and other continuing effects of the financial crisis of 2007-2008 lingered even during the relatively benign period before the European sovereign debt crisis once again increased pressure on the financial sector (including us).

In the wake of the global financial crisis, the world economy contracted in 2009. While the world economy grew in 2010, and financial markets for many classes of assets returned to their pre-crisis levels, growth was fueled by stimuli from expansive monetary and fiscal policies, investments that had been postponed from 2009 and subsequently made, and the building up of inventory. Momentum has slowed since autumn 2010 as the effect of these factors tailed off.

 

 


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In 2011, economic growth continued, but the eurozone, where we are based, has lagged behind other segments of the world economy, especially Asia and other developing markets. The European sovereign debt crisis has contributed substantially to economic stagnation in the eurozone, even fueling concerns that Europe may already have dipped into recession by the beginning of 2012 or is on the brink of doing so. This negative sentiment has particularly affected banks, such as ourselves, who are major holders of European sovereign debt. These risks are further exacerbated by strong headwinds in the global economy, resulting from declining rates of growth in emerging economies and a lackluster recovery in the United States.

The economic outlook for 2012 is further threatened by several factors. Banks’ efforts to preserve capital in the face of sovereign debt write-downs and proposed or anticipated regulatory requirements for greater capital has reduced overall lending in the real economy, and thus has contributed to uncertainty in the financial sector and has placed the broader economy more at risk. Austerity measures implemented by many European governments may further dampen the economic mood. Finally, as described above, fears that one or more members may leave the eurozone have depressed the economic climate further.

These conditions adversely impacted many of our businesses, particularly in 2008, with some effects of the global financial crisis persisting through 2011, and again in late 2011, with the ongoing European sovereign debt crisis affecting our businesses beginning in the third quarter. In particular, conditions in and after 2008 required us to write down the carrying values of some of our portfolios of assets, including leveraged loans and loan commitments, while conditions in 2011 required us to write down the carrying value of our Greek sovereign debt portfolio. Despite initiatives to reduce our exposure to affected asset classes or activities, reductions of exposures have not always been possible due to illiquid trading markets for many assets. As a result, we have substantial remaining exposures in some asset classes and thus continue to be exposed to any further deterioration in prices for the remaining positions. The aforementioned write-downs and losses led us to incur a loss in 2008. In addition, while we were profitable in 2009, 2010 and 2011, write-downs and losses in 2009 materially and negatively affected our results for that year. If economic conditions in the eurozone fail to improve, or continue to worsen, or economic growth stagnates elsewhere, our results of operations may be materially and adversely affected. In particular, we may in the future be unable to offset the potential negative effects on our profitability of the ongoing financial crisis and measures taken to resolve it through performance in our other businesses.

We require capital to support our business activities and meet regulatory requirements. Regulatory capital and liquidity requirements are being increased significantly, surcharges for systemically important banks like us are being imposed and definitions of capital are being tightened. In addition, any losses resulting from current market conditions or otherwise could diminish our capital, make it more difficult for us to raise additional capital or increase the cost to us of new capital. Any perceptions in the market that we may be unable to meet our capital requirements with an adequate buffer could have the effect of intensifying the effect of these factors on us.

In response to the recent global financial crisis and the ongoing European sovereign debt crisis, a number of initiatives relating to the capital requirements applicable to European banks, including ourselves, have been adopted or are in the process of being developed. These include the following:

 

 

Basel 2.5. In the wake of the recent global financial crisis, in mid-2010 the Basel Committee on Banking Supervision (the “Basel Committee”) finalized new rules regarding the capital requirements applicable to trading activities. These rules, which are commonly referred to as Basel 2.5, have significantly increased the capital requirements applicable to our trading book by introducing new risk measures, including by applying the rules applicable to assets held in the banking book to securitizations held for trading and by mandating specified capital treatment for other identified asset classes.

 

 


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Basel 3 and CRD 4. In December 2010, the Basel Committee published its final standards on the revised capital adequacy framework, known as Basel 3, which tighten the definition of capital and require banks to have a counter-cyclical capital buffer; these standards are significantly more stringent than the existing requirements to which we are currently subject. On July 10, 2011, the European Commission proposed a Europe-wide implementation of Basel 3, through a legislative package referred to as CRD 4. Basel 3 and CRD 4 will further increase the quality and quantity of required capital, increase capital against derivative positions and introduce a new liquidity framework as well as a leverage ratio. The implementation of these measures through national legislation continues to be in flux, as major differences have emerged among European member states on specific details of increased capital requirements.

 

European Banking Authority’s 9 % Requirement. On October 26, 2011, in response to ongoing market concerns over the ability of banks to be able to absorb potential losses associated with sovereign debt, brought into focus by the ongoing European sovereign debt crisis, the Council of the European Union agreed to require a group of 70 large banks in the European Economic Area, including us, to create an exceptional and temporary capital ratio of 9 % of Core Tier 1 capital calculated in accordance with the Basel 2.5 rules against their credit, operational and market risks, after accounting for certain criteria including valuation of sovereign debt. The European Banking Authority, or EBA, together with national banking regulators, completed the process of calculating individual capital buffers for the affected banks. On December 8, 2011, the EBA announced that we had a capital shortfall of  3.2 billion, while all European large banks have a shortfall of  114.7 billion. This target must be reached by June 30, 2012, and we submitted our plan to reach it to the EBA on January 20, 2012. As of December 31, 2011, we had a Core Tier 1 capital ratio of 9.5 % calculated under the Basel 2.5 rules.

 

SIFI Capital Buffer. The Financial Stability Board (“FSB”) and the Basel Committee issued a report in November 2011 relating to capital requirements for systemically important financial institutions (“SIFIs”) such as us. SIFIs will be subject to capital surcharges of 1 to 2.5 %, which will require SIFIs to maintain a larger buffer of Tier 1 capital than would otherwise apply under the capital requirements of Basel 3. Additionally, the FSB and the Basel Committee have agreed to the creation of an international standard for the resolution of SIFIs, the implementation of resolvability assessments of SIFIs and the development of cross-border cooperation agreements to these ends.

 

Operational Risk Buffers. Regulators also have discretion to impose capital deductions on financial institutions for operational risks that are not otherwise recognized in risk-weighted assets or other surcharges depending on the individual situation of the bank.

 

Elimination of Capital Treatment for Hybrid Capital. Under the new capital regimes, our outstanding hybrid instruments will no longer qualify as Tier 1 capital.

 

Tightening Accounting Standards. Prospective changes in accounting standards, such as those imposing stricter or more extensive requirements to carry assets at fair value, could also impact our capital needs.

We may not have sufficient capital to meet these or other regulatory requirements. This could occur both due to these regulatory and other changes and due to any substantial losses we were to incur, which would reduce our retained earnings, a component of Core Tier 1 capital. If we cannot improve our capital ratios to the regulatory minimum in any such case by raising new capital through the capital markets, through the reduction of risk weighted assets or through other means, we could be forced to accept capital injections from the German government or the European Union (if available). These capital injections could lead to significant dilution of our shareholders, and regulators may impose additional operational and other limitations or obligations on our business as conditions to public funding. In addition, any requirement to increase capital ratios could lead us to adopt a strategy focusing on capital preservation and creation, in particular involving the reduction in higher margin risk-weighted assets, over revenue and profit growth.

 

 


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Any of these measures could have adverse effects on our business, financial condition and results of operations, as well as on perceptions in the market of our stability, particularly if any such proposal becomes effective and results in our having to raise capital at a time when financial markets are distressed. If these regulatory requirements must be implemented very quickly, such as the 9 % core capital requirement described above, we may decide that the quickest and most reliable path to compliance is to reduce the level of assets on our balance sheet or dispose of divisions or separate out certain activities or to close down certain business lines.

The effects on our capital raising efforts in such a case could be amplified due to the expectation that our competitors, at least those subject to the same or similar capital requirements, would likely also be required to raise capital at the same time. Moreover, some of our competitors, particularly those outside the European Union, may not face the same or similar regulations, which could put us at a competitive disadvantage.

In addition to these regulatory initiatives, market sentiment may compel financial institutions such as us to maintain even more capital beyond the regulatory-mandated minimums, which could exacerbate the effects on us described above or lead to the perception in the market that we are undercapitalized.

We have a continuous demand for liquidity to fund our business activities and may be limited in our ability to access the capital markets for liquidity and to fund assets in the current market environment. In addition, we may suffer during periods of market-wide or firm-specific liquidity constraints and are exposed to the risk that liquidity is not made available to us even if our underlying business remains strong.

We are exposed to liquidity risk, which is the risk arising from our potential inability to meet all payment obligations when they become due or only being able to meet them at excessive cost. Our liquidity may become impaired due to a reluctance of our counterparties or the market to finance our operations due to actual or perceived weaknesses in our businesses. Such impairments can also arise from circumstances unrelated to our businesses and outside our control, such as, but not limited to, disruptions in the financial markets. As was the case during the global financial crisis of 2007 and 2008, we have, as a result of the ongoing European sovereign debt crisis, recently experienced a decline in the price of our shares and increases in the premium investors must pay when purchasing CDSs on our debt. In addition, negative developments concerning other financial institutions perceived to be comparable to us and negative views about the financial services industry in general have also recently affected us. These perceptions have affected the prices at which we access the capital markets and obtain the necessary funding to support our business activities; should these perceptions worsen, our ability to obtain this financing on acceptable terms may be adversely affected. Among other things, an inability to refinance assets on our balance sheet or maintain appropriate levels of capital to protect against deteriorations in their value could force us to liquidate assets we hold at depressed prices or on unfavourable terms, and could also force us to curtail business, such as the extension of new credit. This could have an adverse effect on our business, financial condition and results of operations.

As a result of funding pressures arising from the European sovereign debt crisis, there has been increased intervention by a number of central banks, in particular the European Central Bank (“ECB”) and the U.S. Federal Reserve. The ECB has directly intervened in European sovereign debt markets through the purchase of affected countries’ debt instruments and, starting in December 2011, has agreed to provide low-interest secured loans to European financial institutions for up to three years. The U.S. Federal Reserve has expanded its provision of U.S. dollar liquidity to the ECB which can then be accessed by European banks. To date a number of financial institutions have utilized these funding sources in order to maintain or enhance their liquidity. To the extent these incremental measures are reduced or curtailed this could adversely impact funding markets for all European institutions, including ourselves, leading to an increase in funding costs, or reduced funding supply, which could result in a reduction in business activity. In addition, negative perceptions concerning

 

 


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our business and prospects could develop as a result of large losses, changes of our credit ratings, a general decline in the level of business activity in the financial services sector, regulatory action, serious employee misconduct or illegal activity, as well as many other reasons outside our control and that we cannot foresee.

Since the start of the global financial crisis the major credit rating agencies have lowered our credit ratings or placed them on review or watch on multiple occasions. This trend has continued during the ongoing European sovereign debt crisis. Most recently, on November 29, 2011, Standard & Poor’s, while affirming our long-term credit rating at A+, revised our outlook to “negative”, and, on December 15, 2011, Fitch Ratings announced that it was downgrading our long-term issuer default rating to A+ from AA-. In addition, on January 19, 2012, Moody’s reported that global bank ratings were likely to decline in 2012. Ratings downgrades may impact the cost and availability of our funding, collateral requirements and the willingness of counterparties to do business with us.

Protracted market declines have reduced and may in the future reduce liquidity in the markets, making it harder to sell assets and possibly leading to material losses.

As part of our strategy to meet or exceed the new capital requirements, we have sold and may continue to sell selected assets to reduce the amount of risk weighted assets (“RWAs”) and improve our capital ratios. This strategy may prove difficult in the current market environment as many of our competitors are also seeking to dispose of assets to improve their capital ratios.

In some of our businesses, protracted market movements, particularly asset price declines, can reduce the level of activity in the market or reduce market liquidity. This effect may be exacerbated in the current market environment as banks seek to reduce their assets in response to higher regulatory capital requirements. As we experienced during the recent financial crisis and are currently experiencing in the volatile market environment stemming from the ongoing European sovereign debt crisis, these developments can lead to material losses if we cannot quickly close out or reduce our exposure to deteriorating positions. This may especially be the case for assets we hold for which there are not very liquid markets to begin with. Assets that are not traded on stock exchanges or other public trading markets, such as derivatives contracts between banks, may have values that we calculate using models other than publicly-quoted prices. Monitoring the deterioration of prices of assets like these is difficult and could lead to losses we did not anticipate.

In addition, we may have difficulties selling noncore assets at favourable prices, or at all, especially simultaneously with the current recapitalization efforts of many of our competitors. Unfavourable business or market conditions may make it difficult for us to sell such assets at favourable prices, or may preclude such a sale altogether. Finally, if the measures announced in response to the ongoing European sovereign debt crisis prove inadequate to calm market concern or if the European debt crisis otherwise worsens, we may experience difficulty in funding ourselves in a manner permitting us to conduct our business without needing to dispose of significant volumes of assets.

Market declines and volatility can materially and adversely affect our revenues and profits.

As a global investment bank, we have significant exposure to the financial markets and are more at risk from the adverse developments in the financial markets than institutions engaged predominantly in traditional banking activities. Market declines have caused and can in the future cause our revenues to decline, and, if we are unable to reduce our expenses at the same pace, can cause our profitability to erode, as it did in the third quarter of 2011, or cause us to show material losses, as it did in 2008. Volatility, which was again particularly high during the third quarter of 2011, can also adversely affect us, by causing the value of financial assets we hold to decline or the expense of hedging our risks to rise.

 

 


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We have incurred and may in the future incur significant losses from our trading and investment activities due to market fluctuations.

We enter into and maintain large trading and investment positions in the fixed income, equity and currency markets, primarily through our Corporate Banking & Securities Corporate Division. We also from time to time hold significant investments in individual companies, primarily through our Corporate Investments and Corporate & Investment Bank Group Divisions. We also maintain smaller trading and investment positions in other assets. Many of these trading positions include derivative financial instruments.

In each of the product and business lines in which we enter into these kinds of positions, part of our business entails making assessments about the financial markets and trends in them. The revenues and profits we derive from many of our positions and our transactions in connection with them can be negatively impacted by market prices, which were declining and volatile during both the recent global financial crisis and the ongoing European sovereign debt crisis. When we own assets, market price declines can expose us to losses. Many of the more sophisticated transactions of our Corporate Banking & Securities Corporate Division are designed to profit from price movements and differences among prices. If prices move in a way we have not anticipated, we may experience losses. Also, when markets are volatile, the assessments we have made may prove to lead to lower revenues or profits, or may lead to losses, on the related transactions and positions. In addition, we commit capital and take market risk to facilitate certain capital markets transactions; doing so can result in losses as well as income volatility.

We have incurred losses, and may incur further losses, as a result of changes in the fair value of our financial instruments.

A substantial proportion of the assets and liabilities on our balance sheet comprise financial instruments that we carry at fair value, with changes in fair value recognized in the income statement. Fair value is defined as the price at which an asset or liability could be exchanged in a current transaction between knowledgeable, willing parties, other than in a forced or liquidation sale. If the value of an asset carried at fair value declines (or the value of a liability carried at fair value increases) a corresponding unfavourable change in fair value is recognized in the income statement. These changes have been and could in the future be significant.

Observable prices or inputs are not available for certain classes of financial instruments. Fair value is determined in these cases using valuation techniques we believe to be appropriate for the particular instrument. The application of valuation techniques to determine fair value involves estimation and management judgment, the extent of which will vary with the degree of complexity of the instrument and liquidity in the market. Management judgment is required in the selection and application of the appropriate parameters, assumptions and modeling techniques. If any of the assumptions change due to negative market conditions or for other reasons, subsequent valuations may result in significant changes in the fair values of our financial instruments, requiring us to record losses.

Our exposure and related changes in fair value are reported net of any fair value gains we may record in connection with hedging transactions related to the underlying assets. However, we may never realize these gains, and the fair value of the hedges may change in future periods for a number of reasons, including as a result of deterioration in the credit of our hedging counterparties. Such declines may be independent of the fair values of the underlying hedged assets or liabilities and may result in future losses.

 

 


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Adverse economic conditions have caused and may in the future cause us to incur higher credit losses.

Adverse economic conditions such as those experienced during the recent financial crisis have caused and may in the future cause us to incur higher credit losses. Our provision for credit losses was  1.1 billion in 2008,  2.6 billion in 2009,  1.3 billion in 2010 and 1.8 billion in 2011. Significant provisions occurred in both our Corporate & Investment Bank and Private Clients and Asset Management Group Divisions.

In the second half of 2008 and the first quarter of 2009, as permitted by amendments to IFRS, we reclassified certain financial assets out of financial assets carried at fair value through profit or loss or available for sale into loans. While such reclassified assets, which had a carrying value of  22.9 billion as of December 31, 2011, are no longer subject to mark-to-market accounting, we continue to be exposed to the risk of impairment of such assets. In addition, we bear additional funding and capital costs with respect to them. Of our provisions for credit losses in 2009, 2010 and 2011, the provisions attributable to these reclassified assets were  1.3 billion,  0.3 billion and  0.2 billion, respectively.

Even where losses are for our clients’ accounts, they may fail to repay us, leading to decreased volumes of client business and material losses for us, and our reputation can be harmed.

While our clients would be responsible for losses we incur in taking positions for their accounts, we may be exposed to additional credit risk as a result of their need to cover the losses where we do not hold adequate collateral or cannot realize it. Our business may also suffer if our clients lose money and we lose the confidence of clients in our products and services.

Our investment banking revenues may decline as a result of adverse market or economic conditions.

Our investment banking revenues, in the form of financial advisory and underwriting fees, directly relate to the number and size of the transactions in which we participate and are susceptible to adverse effects from sustained market downturns, such as the financial crisis recently experienced and the ongoing European sovereign debt crisis. These fees and other income are generally linked to the value of the underlying transactions and therefore can decline with asset values, as they have during the recent financial crisis. In addition, periods of market decline and uncertainty, such as that currently being experienced in light of the ongoing European sovereign debt crisis, tend to dampen client appetite for market and credit risk, a critical driver of transaction volumes and investment banking revenues, especially transactions with higher margins. In the recent past, decreased client appetite for risk has led to lower results in our Corporate & Investment Bank Group Division. Our revenues and profitability could sustain material adverse effects from a significant reduction in the number or size of debt and equity offerings and merger and acquisition transactions.

We may generate lower revenues from brokerage and other commission- and fee-based businesses.

Market downturns have led and may in the future lead to declines in the volume of transactions that we execute for our clients and, therefore, to declines in our noninterest income. In addition, because the fees that we charge for managing our clients’ portfolios are in many cases based on the value or performance of those portfolios, a market downturn that reduces the value of our clients’ portfolios or increases the amount of withdrawals reduces the revenues we receive from our asset management and private banking businesses. Even in the absence of a market downturn, below-market or negative performance by our investment funds may result in increased withdrawals and reduced inflows, which would reduce the revenue we receive from our asset management business.

 

 


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Our risk management policies, procedures and methods leave us exposed to unidentified or unanticipated risks, which could lead to material losses.

We have devoted significant resources to developing our risk management policies, procedures and assessment methods and intend to continue to do so in the future. Nonetheless, the risk management techniques and strategies have not been and may in the future not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk, including risks that we fail to identify or anticipate. Some of our quantitative tools and metrics for managing risk are based upon our use of observed historical market behavior. We apply statistical and other tools to these observations to arrive at quantifications of our risk exposures. During the recent financial crisis, the financial markets experienced unprecedented levels of volatility (rapid changes in price direction) and the breakdown of historically observed correlations (the extent to which prices move in tandem) across asset classes, compounded by extremely limited liquidity. In this volatile market environment, our risk management tools and metrics failed to predict some of the losses we experienced, particularly in 2008, and may in the future fail to predict future important risk exposures. In addition, our quantitative modeling does not take all risks into account and makes numerous assumptions regarding the overall environment, which may not be borne out by events. As a result, risk exposures have arisen and could continue to arise from factors we did not anticipate or correctly evaluate in our statistical models. This has limited and could continue to limit our ability to manage our risks especially in light of the ongoing European sovereign debt crisis, many of the outcomes of which are currently unforeseeable. Our losses thus have been and may continue to be significantly greater than the historical measures indicate.

In addition, our more qualitative approach to managing those risks not taken into account by our quantitative methods could also prove insufficient, exposing us to material unanticipated losses. Also, if existing or potential customers or counterparties believe our risk management is inadequate, they could take their business elsewhere or seek to limit their transactions with us. This could harm our reputation as well as our revenues and profits. See “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk” for a more detailed discussion of the policies, procedures and methods we use to identify, monitor and manage our risks.

Our non-traditional credit businesses materially add to our traditional banking credit risks.

As a bank and provider of financial services, we are exposed to the risk that third parties that owe us money, securities or other assets will not perform their obligations. Many of the businesses we engage in beyond the traditional banking businesses of deposit-taking and lending also expose us to credit risk.

In particular, much of the business we conduct through our Corporate Banking & Securities Corporate Division entails credit transactions, frequently ancillary to other transactions. Nontraditional sources of credit risk can arise, for example, from holding securities of third parties; entering into swap or other derivative contracts under which counterparties have obligations to make payments to us; executing securities, futures, currency or commodity trades that fail to settle at the required time due to nondelivery by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries; and extending credit through other arrangements. Parties to these transactions, such as trading counterparties, may default on their obligations to us due to bankruptcy, political and economic events, lack of liquidity, operational failure or other reasons.

 

 


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Many of our derivative transactions are individually negotiated and non-standardized, which can make exiting, transferring or settling the position difficult. Certain credit derivatives require that we deliver to the counterparty the underlying security, loan or other obligation in order to receive payment. In a number of cases, we do not hold, and may not be able to obtain, the underlying security, loan or other obligation. This could cause us to forfeit the payments otherwise due to us or result in settlement delays, which could damage our reputation and ability to transact future business, as well as increased costs to us.

The exceptionally difficult market conditions experienced during the recent global financial crisis have severely adversely affected certain areas in which we do business that entail nontraditional credit risks, including the leveraged finance and structured credit markets, and may do so in the future.

We operate in an increasingly regulated and litigious environment, potentially exposing us to liability and other costs, the amounts of which may be difficult to estimate.

The financial services industry is among the most highly regulated industries. Our operations throughout the world are regulated and supervised by the central banks and regulatory authorities in the jurisdictions in which we operate. In recent years, regulation and supervision in a number of areas has increased, and regulators, counterparties and others have sought to subject financial services providers to increasing responsibilities and liabilities. This trend has accelerated markedly as a result of the recent global financial crisis and the ongoing European sovereign debt crisis. As a result, we may be subject to an increasing incidence or amount of liability or regulatory sanctions and may be required to make greater expenditures and devote additional resources to address potential liability.

Due to the nature of our business, we and our subsidiaries are involved in litigation, arbitration and regulatory proceedings in jurisdictions around the world. Such matters are subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. We may settle litigation or regulatory proceedings prior to a final judgment or determination of liability. We may do so to avoid the cost, management efforts or negative business, regulatory or reputational consequences of continuing to contest liability, even when we believe we have valid defenses to liability. We may also do so when the potential consequences of failing to prevail would be disproportionate to the costs of settlement. Furthermore, we may, for similar reasons, reimburse counterparties for their losses even in situations where we do not believe that we are legally compelled to do so. The financial impact of legal risks might be considerable but may be hard or impossible to estimate and to quantify, so that amounts eventually paid may exceed the amount of reserves set aside to cover such risks. See “Item 8: Financial Information – Legal Proceedings” and Note 28 “Provisions” to our consolidated financial statements for information on our legal, regulatory and arbitration proceedings.

Regulatory reforms enacted and proposed in response to the global financial crisis and the European sovereign debt crisis (in addition to increased capital requirements) may significantly affect our business model and the competitive environment.

In response to the global financial crisis and the European sovereign debt crisis, governments, regulatory authorities and others have made and continue to make numerous proposals to reform the regulatory framework for the financial services industry to enhance its resilience against future crises. In response to some of these proposals, legislation has already been enacted or regulations have been issued. The wide range of recent actions or current proposals includes, among others, provisions for: more stringent regulatory capital and liquidity standards (as described above); restrictions on compensation practices; charging special levies to fund governmental intervention in response to crises; expansion of the resolution powers of regulators; separation of certain businesses from deposit taking; breaking up financial institutions that are perceived to be too large for regulators to take the risk of their failure; and reforming market infrastructures. See “Item 4: Information on the Company – The Competitive Environment – Regulatory Reform”.

 

 


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Legislation already enacted includes the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) enacted in the United States in July 2010. The Dodd-Frank Act has numerous provisions that could affect our operations. Although there remains uncertainty as to how regulators will implement the Dodd-Frank Act, various elements of the new law may negatively affect our profitability and require that we change some of our business practices, and we may incur additional costs as a result (including increased compliance costs). Under the currently proposed regulations implementing the Dodd-Frank Act, the ability of banking entities to sponsor or invest in private equity or hedge funds or to engage in certain types of proprietary trading in or involving the United States and, to some extent, outside the United States, unrelated to serving clients will be severely limited. Although we have discontinued our designated proprietary trading activities, these regulations may effect our other business operations where we trade for the accounts of our customers, including our “flow” businesses. These elements and their effects may also require us to invest significant management attention and resources to make any necessary changes in order to comply with the new regulations.

Bank levies have also been introduced in some countries including Germany and the United Kingdom and are still under discussion in a number of other countries. In 2011, we accrued 247 million for the German and U.K. bank levies. The impact of future levies cannot currently be quantified and they may have a material adverse effect on our business, results of operations and financial condition in future periods.

For some proposals for financial industry reform, formal consultations and impact studies have begun, while other proposals are only in the political debating stage. It is presently unclear which of these proposals, if any, will become law and, if so, to what extent and on what terms. Therefore, we cannot assess their effects on us at this point. It is possible, however, that the future regulatory framework for financial institutions may change, perhaps significantly, which creates significant uncertainty for us and the financial industry in general. Regulation may be imposed on an ad hoc basis by governments and regulators in response to the ongoing or future crises, especially affecting systemically important financial institutions such as us. Effects of the regulatory changes on us may range from additional administrative costs to implement and comply with new rules to increased costs of funding and/or capital, up to restrictions on our growth and on the businesses we are permitted to conduct. Should proposals be adopted that require us to materially alter our business model, the resulting changes could have a material adverse effect on our business, results of operations and financial condition as well as on our prospects.

We have been subject to contractual claims and litigation in respect of our U.S. residential mortgage loan business that may materially and adversely affect our results or reputation.

From 2005 through 2008, as part of our U.S. residential mortgage loan business, we sold approximately U.S. $ 84 billion of loans into private label securitizations and U.S. $ 71 billion through whole loan sales, including to U.S. government-sponsored entities such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. We have been, and in the future may be, presented with demands to repurchase loans or indemnify purchasers, other investors or financial insurers with respect to losses allegedly caused by material breaches of representations and warranties. Our general practice is to process valid repurchase claims that are presented in compliance with contractual rights. Where we believe no such valid basis for repurchase claims exists, we reject them and no longer consider them outstanding for our tracking purposes. We will continue to contest invalid claims vigorously as necessary and appropriate. As of December 31, 2011, we have approximately U.S. $ 638 million of outstanding mortgage repurchase demands (based on original principal balance of the loans). Against these claims, we have established provisions that are not material and that we believe to be adequate. As with reserves generally, however, it is possible that the provisions we have established may ultimately be insufficient, either with respect to particular claims or with respect to the full set of claims that have been or may be presented. As of December 31, 2011, we have completed

 

 


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repurchases and otherwise settled claims on loans with an original principal balance of approximately U.S. $ 2.4 billion. In connection with those repurchases and settlements, we have obtained releases for potential claims on approximately U.S. $ 39.5 billion of loans sold by us as described above.

From 2005 through 2008, we or our affiliates have also acted as an underwriter of approximately U.S. $ 105 billion of U.S. residential mortgage-backed securities (“RMBS”) for third-party originators.

As is the case with a significant number of other participants in the mortgage securitizations market and as described in Note 28 “Provisions” to our consolidated financial statements, we have received subpoenas and requests for information from certain regulators and government entities concerning our RMBS businesses. We are cooperating fully in response to those subpoenas and requests for information. We have a number of pending lawsuits against us or our affiliates as issuer and/or underwriter of RMBS. Such RMBS litigations pending are in various stages up through discovery and we continue to defend these actions vigorously. Legal and regulatory proceedings are subject to many uncertainties, and the outcome of individual matters is not predictable with assurance.

Operational risks may disrupt our businesses.

We face operational risk arising from errors, inadvertent or intentional, made in the execution, confirmation or settlement of transactions or from transactions not being properly recorded, evaluated or accounted for. Derivative contracts are not always confirmed with the counterparties on a timely basis; while the transaction remains unconfirmed, we are subject to heightened credit and operational risk and in the event of a default may find it more difficult to enforce the contract. The European sovereign debt crisis and the recent global financial crisis, in which the risk of counterparty default has increased, have increased the possibility that this operational risk materializes.

Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies, and certain of the transactions we process have become increasingly complex. Consequently, we rely heavily on our financial, accounting and other data processing systems. If any of these systems do not operate properly, or are disabled, we could suffer financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage.

In addition, despite the contingency plans we have in place, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities in which we are located. This may include a disruption due to terrorist activities, or disease pandemics, as well as disruption involving electrical, communications, transportation or other services used by us or third parties with whom we conduct business.

The size of our clearing operations exposes us to a heightened risk of material losses should these operations fail to function properly.

We have large clearing and settlement businesses. These give rise to the risk that we, our customers or other third parties could lose substantial sums if our systems fail to operate properly for even short periods. This will be the case even where the reason for the interruption is external to us. In such a case, we might suffer harm to our reputation even if no material amounts of money are lost. This could cause customers to take their business elsewhere, which could materially harm our revenues and profits.

 

 


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If we are unable to implement our strategic initiatives, we may be unable to achieve our financial objectives, or incur losses or low profitability, and our share price may be materially and adversely affected.

In late 2009, we launched Phase 4 of our management agenda, which focuses on sustainable profitability in investment banking with renewed risk and balance sheet discipline, a more balanced revenue mix through an increasing share of our GTB and PCAM businesses, continued growth in Asia and a strong performance culture. The difficult macroeconomic conditions throughout 2011, which included intensification of the European sovereign debt crisis, volatile markets and a weakening outlook on global growth, prevented us from achieving a target we set for ourselves of a pre-tax profit of approximately  10 billion from our operating business for such year. Going into 2012, we seek to continue to execute our defined strategic priorities and have sought to address emerging new challenges by further de-risking our balance sheet and focusing on our capital, funding and liquidity positions. If we fail to implement these strategic initiatives or should the initiatives that are implemented fail to produce the anticipated benefits, we may fail to achieve our financial objectives, or incur losses or low profitability, and our share price may be materially and adversely affected. A number of internal and external factors could prevent the implementation of these initiatives or the realization of their anticipated benefits, including the continuation of the European sovereign debt crisis, the recurrence of extreme turbulence in the markets in which we are active, weakness of global, regional and national economic conditions, regulatory changes that increase our costs or restrict our activities and increased competition for business.

We may have difficulty in identifying and executing acquisitions, and both making acquisitions and avoiding them could materially harm our results of operations and our share price.

We consider business combinations from time to time. Even though we review the companies we plan to acquire, it is generally not feasible for these reviews to be complete in all respects. As a result, we may assume unanticipated liabilities, or an acquisition may not perform as well as expected. Were we to announce or complete a significant business combination transaction, our share price could decline significantly if investors viewed the transaction as too costly or unlikely to improve our competitive position. In addition, we might have difficulty integrating any entity with which we combine our operations. Failure to complete announced business combinations or failure to integrate acquired businesses successfully into ours could materially and adversely affect our profitability. It could also affect investors’ perception of our business prospects and management, and thus cause our share price to fall. It could also lead to departures of key employees, or lead to increased costs and reduced profitability if we felt compelled to offer them financial incentives to remain.

The effects of the takeover of Deutsche Postbank AG may differ materially from our expectations.

Deutsche Postbank AG (together with its subsidiaries, “Postbank”) became a consolidated, majority-owned subsidiary of ours in December 2010 following a public takeover offer by us. The effects of this acquisition on us may differ materially from our expectations. Our estimates of the synergies and other benefits that we expect to realize, and the costs that we might incur, as a result of the takeover and consolidation involve subjective assumptions and judgments that are subject to significant uncertainties, including with respect to the quality of Postbank’s credit and securities portfolios, liquidity and capital planning, risk management and internal controls. Postbank’s securities portfolio, for example, contains less liquid structured products that may also be subject to material further decreases in value.

 

 


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Furthermore, unforeseen difficulties may emerge in connection with the integration of Postbank’s business into our own, including potential difficulties due to different risk management structures and IT systems, difficulties in integrating personnel, different internal standards and business procedures, the commitment of management resources in connection with the integration process and the potential loss of key personnel. The benefits, synergies, costs and timeframe of the integration could be adversely affected by any of these factors, as well as by a variety of factors that are partially or entirely beyond our and Postbank’s control, such as negative market developments.

Also, while we own a substantial majority of Postbank’s shares, and while, as of February 29, 2012, five of the 20 members of Postbank’s supervisory board are employed by or otherwise associated with us, Postbank still has third-party holders of its publicly traded shares, and Postbank’s management continues to be responsible to all its shareholders. Accordingly, we cannot direct Postbank’s activities to the same extent as if it were a wholly owned subsidiary. This may limit our ability to maximize the value to us of our ownership position, including by limiting our ability to implement initiatives to integrate Postbank and pursue revenue and cost synergies, to manage portfolios of assets where we have identified potential improvements or to engage in other transactions between Postbank and us. Any failure to integrate Postbank’s operations into our own on a timely and efficient basis could have a material adverse effect on our net assets, financial condition and results of operations.

Events at companies in which we have invested may make it harder to sell our holdings and result in material losses irrespective of market developments.

We have made significant investments in individual companies. Losses and risks at those companies may restrict our ability to sell our shareholdings and may reduce the value of our holdings considerably, potentially impacting our financial statements or earnings, even where general market conditions are favourable. Our larger, less liquid interests are particularly vulnerable given the size of these exposures.

Intense competition, in our home market of Germany as well as in international markets, could materially adversely impact our revenues and profitability.

Competition is intense in all of our primary business areas, in Germany as well as in international markets. If we are unable to respond to the competitive environment in these markets with attractive product and service offerings that are profitable for us, we may lose market share in important areas of our business or incur losses on some or all of our activities. In addition, downturns in the economies of these markets could add to the competitive pressure, through, for example, increased price pressure and lower business volumes for us.

In recent years there has been substantial consolidation and convergence among financial services companies, culminating in unprecedented consolidations in the course of the global financial crisis. This trend has significantly increased the capital base and geographic reach of some of our competitors and has hastened the globalization of the securities and other financial services markets. As a result, we must compete with financial institutions that may be larger and better capitalized than we are and that may have a stronger position in local markets. Also, governmental action in response to the global financial crisis may place us at a competitive disadvantage.

 

 


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Transactions with counterparties in countries designated by the U.S. State Department as state sponsors of terrorism may lead potential customers and investors to avoid doing business with us or investing in our securities.

We engage or have engaged in a limited amount of business with counterparties, including government owned or controlled counterparties, in certain countries which the U.S. State Department has designated as state sponsors of terrorism, including Iran and Cuba. U.S. law generally prohibits U.S. persons from doing business with such countries. We are a German bank and our activities with respect to such countries have not involved any U.S. person in either a managerial or operational role and have been subject to policies and procedures designed to ensure compliance with United Nations, European Union and German embargoes. In 2007 and before, our Management Board decided that we will not engage in new business with counterparties in countries such as Iran, Syria, Sudan and North Korea and to exit existing business to the extent legally possible.

We had a representative office in Tehran, Iran, which we discontinued at December 31, 2007. Our remaining business with Iranian counterparties consists mostly of participations as lender and/or agent in a few large trade finance facilities arranged some years ago to finance the export contracts of exporters in Europe and Asia. The lifetime of most of these facilities is ten years or more and we are legally obligated to fulfil our contractual obligations. We do not believe our business activities with Iranian counterparties are material to our overall business, with the outstandings to Iranian borrowers representing substantially less than 0.1 % of our total assets as of December 31, 2011 and the revenues from all such activities representing substantially less than 0.1 % of our total revenues for the year ended December 31, 2011.

We are also engaged in a limited amount of business with counterparties domiciled in Cuba, which is not subject to any United Nations, European Union or German embargo. The business consists of a limited number of non-confirmed letters of credit and of structured export finance transactions and represents substantially less than 0.01 % of our assets as of December 31, 2011. The transactions served to finance commercial products like tools for the sugar industry, and electricity supply, pharmaceutical products and sanitary goods.

We are aware, through press reports and other means, of initiatives by governmental and non-governmental entities in the United States and elsewhere to adopt laws, regulations or policies prohibiting transactions with or investment in, or requiring divestment from, entities doing business with such countries, particularly Iran. Such initiatives may result in our being unable to gain or retain entities subject to such prohibitions as customers or as investors in our securities. In addition, our reputation may suffer due to our association with such countries. Such a result could have significant adverse effects on our business or the price of our securities.

 

 


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History and Development of the Company

The legal and commercial name of our company is Deutsche Bank Aktiengesellschaft. It is a stock corporation organized under the laws of Germany.

Deutsche Bank Aktiengesellschaft originated from the reunification of Norddeutsche Bank Aktiengesellschaft, Hamburg, Rheinisch-Westfälische Bank Aktiengesellschaft, Düsseldorf, and Süddeutsche Bank Aktiengesellschaft, Munich. Pursuant to the Law on the Regional Scope of Credit Institutions, these were disincorporated in 1952 from Deutsche Bank, which had been founded in 1870. The merger and the name were entered in the Commercial Register of the District Court Frankfurt am Main on May 2, 1957.

We are registered under registration number HRB 30 000. Our registered address is Taunusanlage 12, 60325 Frankfurt am Main, Germany, and our telephone number is +49-69-910-00. Our agent in the United States is: Peter Sturzinger, Deutsche Bank Americas, c/o Office of the Secretary, 60 Wall Street, Mail Stop NYC60-4006, New York, NY 10005.

We have made the following significant capital expenditures or divestitures since January 1, 2011:

 

 

In January 2011, we sold our 40 % stake in Paternoster Limited, a specialist pension insurer, to Rothesay Life, in accordance with the decision of the majority of Paternoster shareholders to sell their shares in the company.

 

In April 2011, we completed the subscription of newly issued shares in Hua Xia Bank Co. Ltd. Upon final settlement of the transaction, which was effective with the registration of the new shares on April 26, 2011, this investment increased our existing equity stake in Hua Xia Bank from 17.12 % to 19.99 % of issued capital, the maximum single foreign ownership level as permitted by Chinese regulations.

 

In July 2011, we completed the sale of our equity linked note giving economic exposure to Newlands, a credit derivative product company incorporated in Bermuda, to funds advised by Oakhill Advisors.

 

In August 2011, Sicherungseinrichtungsgesellschaft deutscher Banken mbH (“SdB”) repaid 0.5 billion (of which 0.3 billion Corporate Investments, remainder allocated to other Group Divisions) of ECB-eligible notes guaranteed by the SOFFin (Sonderfonds Finanzmarktstabilisierung, established in October 2008 by the German government in the context of the financial crisis) which were acquired in February 2009 as part of a liquidity facility for SdB.

 

In November 2011, we closed an agreement for the sale of our premises at Taunusanlage 12 in Frankfurt am Main to a closed-end real estate fund launched by DWS. The sales price for the property determined by independent valuations is approximately 600 million. We will continue to use these premises as Group headquarters under a long-term lease.

 

In the course of 2011, the liquidity facility for FMS Wertmanagement Anstalt des öffentlichen Rechts, the winding-up agency of the Hypo Real Estate Group, of 7.5 billion (of which 6.4 billion Corporate Investments, remainder allocated to other Group Divisions), in which we participated in December 2010, was fully repaid.

 

 


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Since January 2012, we have been negotiating a domination and profit and loss transfer agreement according to Section 291 of the German Stock Corporation Act between DB Finanz-Holding GmbH (a wholly-owned subsidiary of Deutsche Bank AG) as controlling company, and Deutsche Postbank AG (“Postbank”) as dependent company, which we currently expect to be finally agreed between the parties by the end of March 2012. Such agreements are commonly used in German corporate practice to, among other things, enhance control and allow for tax grouping. The agreement would require approval by the shareholders’ meeting of Postbank and entry into the Commercial Register of Postbank to come into force. Once concluded and effective, minority shareholders of Postbank will receive compensation payments or, at their choice, a settlement payment which will be determined in the domination and profit and loss transfer agreement.

 

In February 2012, SdB repaid 1.0 billion (of which 0.7 billion Corporate Investments, remainder allocated to other Group Divisions) of ECB-eligible notes guaranteed by the SOFFin. Taking into account smaller repayments in 2010 and 2011, our remaining exposure to SdB amounted to 1.0 billion.

 

On February 27, 2012, the exchange under the mandatorily-exchangeable bond issued by Deutsche Post in February 2009 into 60 million Postbank shares took place and one day later Deutsche Post exercised its put option over an additional 12.1 % of the share capital in Postbank. Together with shares held at this point in time, Deutsche Bank Group’s ownership in Postbank amounted to 93.7 %.

 

In March 2012, we sold our U.S. multi-family financing business (Deutsche Bank Berkshire Mortgage) to a group led by Lewis Ranieri and Wilbur L. Ross, in line with our desire to focus on our core business strengths in the U.S.

Since January 1, 2011, there have been no public takeover offers by third parties with respect to our shares and we have not made any public takeover offers in respect of any other company’s shares.

Furthermore, we have made the following significant capital expenditures or divestitures between January 1, 2009 and December 31, 2010:

 

 

In February 2009, Corporate Investments participated in a liquidity facility for SdB, acquiring 2.3 billion of ECB-eligible notes guaranteed by SoFFin.

 

The acquisition of a minority stake in Postbank was closed in February 2009. As part of that transaction we issued 50,000,000 Deutsche Bank shares to Deutsche Post, the parent of Postbank, to acquire a stake of 22.9 % in Postbank. Together with a stake of approximately 2.1 % held at that point in time, we held an investment of 25 % plus one share at closing. We also acquired a mandatorily-exchangeable bond issued by Deutsche Post, which was to be exchanged for an additional 27.4 % stake in Postbank in February 2012, and a call option to acquire an additional stake of 12.1 % in Postbank exercisable between February 2012 and February 2013 (Deutsche Post had a corresponding put option on the same 12.1 % stake).

 

The remaining stake of 2.4 % in Linde AG was sold via sell-down in the public markets in February, March and April 2009.

 

The reduction of our holding in Daimler AG from 2.7 % to 0.04 % took place via sell-down in the public markets in April through August 2009.

 

At the end of 2009, the existing liquidity facility for Deutsche Pfandbriefbank AG (formerly Hypo Real Estate Bank AG) was fully repaid, at which point Corporate Investments participated in a new liquidity facility for Deutsche Pfandbriefbank AG by subscribing to 9.2 billion of ECB-eligible notes fully guaranteed by SoFFin.

 

 


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In March 2010, we closed the full acquisition of the Sal. Oppenheim Group for a total purchase price of approximately 1.3 billion paid in cash, of which approximately 0.3 billion was for BHF Asset Servicing GmbH (“BAS”), which was on-sold in the third quarter 2010 to Bank of New York Mellon. Shortly after completion, Sal. Oppenheim’s Equity Trading & Derivatives and Capital Markets Sales and Research units were acquired by Australia’s Macquarie Group in the second quarter 2010. BHF-BANK AG, a 100 % subsidiary of Sal. Oppenheim, is being managed as a standalone entity.

 

In April 2010, we completed the acquisition of parts of ABN AMRO Bank N.V.’s (“ABN AMRO”) commercial banking activities in the Netherlands for a final consideration of 687 million in cash. The acquisition accounting for the business combination had been finalized in the first quarter of 2011, leading to a negative goodwill of 192 million. The acquired businesses have become part of our Global Transaction Banking Corporate Division and operate under the Deutsche Bank brand name.

 

In October 2010, we made a voluntary public takeover offer (“PTO”) to the shareholders of Postbank at 25.00 per share. The offer was accepted for a total of 48.2 million shares, allowing Deutsche Bank to increase its participation in Postbank from 29.95 % to 51.98 % for a total consideration of 1.2 billion. Following the successful completion of the takeover offer, Postbank became a consolidated subsidiary in the fourth quarter of 2010.

 

In November 2010, we completed the restructuring of loans we had to Actavis Group, a generic pharmaceutical group. The restructuring resulted in Deutsche Bank continuing to provide both senior and subordinated debt financing to Actavis as well as a new Payment in Kind (“PIK”) financing arrangement.

 

In the course of 2010, the liquidity facility for Deutsche Pfandbriefbank AG (formerly Hypo Real Estate Bank AG) of  9.2 billion, in which Corporate Investments participated in December 2009, was fully repaid. The last repayment was made in December 2010, at which point we participated in a new liquidity facility for FMS Wertmanagement Anstalt des öffentlichen Rechts, the winding-up agency of the Hypo Real Estate Group, by subscribing to 7.5 billion of ECB-eligible notes (of which 6.4 billion Corporate Investments, remainder allocated to other group divisions).

Business Overview

Our Organization

Headquartered in Frankfurt am Main, Germany, we are the largest bank in Germany and one of the largest financial institutions in Europe and the world, as measured by total assets of  2,164 billion as of December 31, 2011. As of that date, we employed 100,996 people on a full-time equivalent basis and operated in 72 countries out of 3,078 branches worldwide, of which 66 % were in Germany. We offer a wide variety of investment, financial and related products and services to private individuals, corporate entities and institutional clients around the world.

We are organized into three group divisions, two of which are further sub-divided into corporate divisions. As of December 31, 2011, our group divisions were:

 

 

The Corporate & Investment Bank (CIB), comprising two corporate divisions:

   

Corporate Banking & Securities (CB&S)

   

Global Transaction Banking (GTB)

 

Private Clients and Asset Management (PCAM), comprising two corporate divisions:

   

Asset and Wealth Management (AWM)

   

Private & Business Clients (PBC)

 

Corporate Investments (CI)

 

 


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These divisions are supported by infrastructure functions. In addition, we have a regional management function that covers regional responsibilities worldwide.

We have operations or dealings with existing or potential customers in most countries in the world. These operations and dealings include:

 

 

subsidiaries and branches in many countries;

 

representative offices in many other countries; and

 

one or more representatives assigned to serve customers in a large number of additional countries.

The following table shows our net revenues by geographical region, based on our management reporting systems.

 

in m.

                2011                       2010                       2009      

Germany:

           

CIB

      2,600              2,864              2,353       

PCAM

      9,983              5,699              4,769       

 

   

 

 

     

 

 

     

 

 

 

Total Germany

      12,583              8,563              7,122       

 

   

 

 

     

 

 

     

 

 

 

Europe, Middle East and Africa:

           

CIB

      7,775              8,258              8,485       

PCAM

      3,007              2,693              2,479       

 

   

 

 

     

 

 

     

 

 

 

Total Europe, Middle East and Africa1

      10,782              10,951              10,964       

 

   

 

 

     

 

 

     

 

 

 

Americas (primarily United States):

           

CIB

      4,908              6,420              5,295       

PCAM

      981              1,032              724       

 

   

 

 

     

 

 

     

 

 

 

Total Americas

      5,889              7,452              6,020       

 

   

 

 

     

 

 

     

 

 

 

Asia/Pacific:

           

CIB

      3,210              3,387              2,672       

PCAM

      408              387              289       

 

   

 

 

     

 

 

     

 

 

 

Total Asia/Pacific

      3,618              3,774              2,961       

 

   

 

 

     

 

 

     

 

 

 

CI

      394              (1,796)              1,044       

 

   

 

 

     

 

 

     

 

 

 

Consolidation & Adjustments

      (38)              (377)              (159)       

 

   

 

 

     

 

 

     

 

 

 

Consolidated net revenues 2

      33,228              28,567              27,952       

 

 
1 For the years ended December 31, 2011, 2010 and 2009, the United Kingdom accounted for approximately 60 % of these revenues.
2 Consolidated net revenues comprise interest and similar income, interest expenses and total noninterest income (including commissions and fee income). Revenues are attributed to countries based on the location in which our booking office is located. The location of a transaction on our books is sometimes different from the location of the headquarters or other offices of a customer and different from the location of our personnel who entered into or facilitated the transaction. Where we record a transaction involving our staff and customers and other third parties in different locations frequently depends on other considerations, such as the nature of the transaction, regulatory considerations and transaction processing considerations.

Management Structure

We operate the three group divisions and the infrastructure functions under the umbrella of a “virtual holding company”. We use this term to mean that, while we subject the group divisions to the overall supervision of our Management Board, which is supported by infrastructure functions, we do not have a separate legal entity holding these three group divisions but we nevertheless allocate substantial managerial autonomy to them. To support this structure, key governance bodies function as follows:

The Management Board has the overall responsibility for the management of Deutsche Bank, as provided by the German Stock Corporation Act. Its members are appointed and removed by the Supervisory Board, which is a separate corporate body. Our Management Board focuses on strategic management, corporate governance, resource allocation, risk management and control, assisted by functional committees.

 

 


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The Group Executive Committee was established in 2002. It comprises the members of the Management Board and senior representatives from the business divisions within our client-facing group divisions and from the management of our regions appointed by the Management Board. The Group Executive Committee is a body that is not required by the Stock Corporation Act. It serves as a tool to coordinate our businesses and regions. We believe this underscores our commitment to a virtual holding company structure.

Within each group division and region, coordination and management functions are handled by operating committees and executive committees, which helps ensure that the implementation of the strategy of individual businesses and the plans for the development of infrastructure areas are integrated with global business objectives.

Our Business Strategy

Deutsche Bank is a leading global investment bank with a strong and growing private clients franchise. We consider these to be mutually reinforcing businesses, and taking full advantage of the synergy potential between these businesses is a strategic priority for us. We are a leader in Europe, with strong positions in North America, Asia, and key emerging markets.

We take it as our mission to be the leading global provider of financial solutions, creating lasting value for our clients, our shareholders, our people and the communities in which we operate.

With the onset of the financial crisis in 2008, the banking landscape changed and new long-term challenges for the industry emerged, most notably regulatory changes. We recognized the underlying need to adapt our strategy and added a fourth chapter to our multi-phased Management Agenda, first launched in 2002. It focuses on sustainable profitability in investment banking with renewed risk and balance sheet discipline, a more balanced revenue mix through an increasing share of our GTB and PCAM businesses, continued growth in Asia and a strong performance culture.

Following the rebound in economic activity levels in 2009 and 2010, macroeconomic conditions worsened throughout 2011 with increasing intensity of the European sovereign debt crisis, volatile markets and a weakening outlook on global growth. We have responded by, on the one hand, continuing to execute our defined strategic priorities. On the other hand, we have addressed emerging new challenges by further de-risking our balance sheet and focusing on our capital, funding and liquidity positions.

While our operating environment still presents several significant challenges, we believe we are well positioned across our businesses to benefit from industry trends and capture market share.

Strategies in our CIB Businesses

The Corporate & Investment Bank (CIB) comprises our Corporate Banking & Securities (CB&S) and Global Transaction Banking businesses. CB&S comprises our Markets and Corporate Finance businesses.

Given the prevailing significant challenges for the world economy and financial markets, operational efficiency, cost management and targeted capital deployment remain a priority across our businesses.

We believe that CIB’s successful and early recalibration to a business model with lower risk and lower resources, and the subsequent further integration across all business areas, ensured that we remain well positioned within the current market and competitive landscape. In 2011, we achieved our target of delivering 500 million of pre-tax profit from the further integration of CIB through increased cross-selling activity as well as through streamlining our business platform.

 

 


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In Markets, our diverse client-focused business model and Top-3 client market shares across most products and regions results in a clear competitive advantage in a difficult market environment. Our growth going forward will be focused on closing out the few remaining gaps in our portfolio of products and regions and investing in capital efficient businesses that position us to deliver a solid return on equity under the new regulatory environment. We continue to build out equities, commodities and our electronic trading capabilities to support flow trading activities.

In Corporate Finance we were ranked just outside the Top-5 global banks (according to Dealogic), despite higher exposure to the slowdown in Europe, and continue to invest in key strategic areas including Financial Institutions, Industrials and Natural Resources and the Americas. In 2012, we aim to continue to consolidate our leadership in Europe in the most efficient manner possible and build further momentum in the United States and Asia, while continuing to maximise the revenue synergies between our primary and secondary businesses.

Our Global Transaction Banking business provides a stable revenue stream with strong market share, valuable relationships with both financial institutions and corporates and a vital source of liquidity. In 2011, we generated strong profitability and record revenues across all major businesses, driven by robust fee growth and higher interest income, volume growth in trade financing products and continued cost discipline. We continue to invest in products such as agency securities lending, supply chain finance and our cross-currency payments platform. The integration of ABN AMRO’s corporate and commercial banking activities in the Netherlands remained on track and should enable us to further strengthen our footprint in Europe.

Strategies in our PCAM Businesses

Asset and Wealth Management is comprised of our Asset Management and Private Wealth Management businesses.

On November 22, 2011, we announced a strategic review of our global Asset Management (AM) division as part of our ongoing efforts to maintain an optimal business mix and be among the market leaders in each of our businesses. The strategic review is consistent with the intention expressed in our Management Agenda Phase 4 to refocus our PCAM franchise around our core businesses, and it will be centred in particular on how recent regulatory changes and associated costs and changes in the competitive landscape are impacting the business and its growth prospects on a bank platform. The review evaluates the full range of strategic options including a potential sale of certain activities. It covers all of the Asset Management division globally except for the DWS franchise in Germany, Europe and Asia. DWS Investments is the retail mutual fund and retirement business of Deutsche Asset Management.

In Private Wealth Management (PWM), we continued to build on our leading position in our domestic market Germany. In particular, PWM achieved strong net asset inflows from existing and new clients. The alignment of Sal. Oppenheim, acquired in 2010, started to pay off, thanks to a substantial reduction of its operating cost base. We believe that Sal. Oppenheim’s independent value proposition will remain a key differentiating element of the PWM strategy in our home market. PWM’s continuous focus on Asia-Pacific and the United States also proved to be rewarding as our business grew in line with our high ambitions in these regions. Lastly, our joint efforts with CIB in catering for the specific needs of our ultra-high-net-worth (UHNW) clients continued to bear fruit as our business expanded further in this highly competitive and demanding client segment.

 

 


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In Private & Business Clients (PBC), we further delivered on our growth commitment and strengthened our leading position as a private retail bank in our home market while fostering our business in selected European and Asian markets. With the ongoing cooperation and integration of Postbank, we were able to generate revenue synergies and continued working on a joint platform, which we expect will enable us to increase efficiency and to realize sustainable cost advantages. Despite challenges brought on by the European debt crisis, the PBC franchises in our European markets remained resilient. We opened branches in selected European markets while benefitting from our stake in Hua Xia Bank in China.

Capital management strategy. Focused management of capital has been a critical part of all phases of our management agenda and continues to be a key area of focus. In 2011, we increased our Core Tier 1 capital over the course of the year from 30.0 billion to 36.3 billion. At the end of 2011, our Core Tier 1 capital ratio, as measured under Basel 2.5, stood at 9.5 % as compared to 8.7 % at the end of 2010 (under Basel 2).

Our Group Divisions

Corporate & Investment Bank Group Division

The Corporate & Investment Bank Group Division (CIB) primarily serves large and medium-sized corporations, financial institutions and sovereign, public sector and multinational organizations. This group division generated 56 % of our net revenues in 2011, 73 % of our net revenues in 2010 and 67 % of our net revenues in 2009 (on the basis of our management reporting systems).

CIB’s operations are predominantly located in the world’s primary financial centers, including London, New York, Frankfurt, Tokyo, Singapore and Hong Kong. However, an increasing amount of activity is also in emerging markets, with offices in locations such as Johannesburg, Mumbai, Sao Paulo and Beijing.

The businesses that comprise CIB seek to reach and sustain a leading global position in corporate and institutional banking services, as measured by financial performance, client market share and reputation, while making optimal usage of, and achieving optimal return on, our capital and other resources. The division also continues to exploit business synergies with the Private Clients and Asset Management Group Division. CIB’s activities and strategy are primarily client-driven. Teams of specialists in each business division give clients access not only to their own products and services, but also to those of our other businesses.

On July 1, 2010, responsibility for leadership of CIB was transferred solely to Anshuman Jain, who had been co-head of the division with Michael Cohrs for the previous six years. As a result of this, a reorganization of CIB has been accomplished.

 

 


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At December 31, 2011, CIB included two corporate divisions, comprising the following business divisions:

 

 

Corporate Banking & Securities Corporate Division (CB&S)

   

Corporate Finance

   

Markets

 

Global Transaction Banking Corporate Division (GTB)

   

Trade Finance and Cash Management Corporates

   

Trust & Securities Services and Cash Management Financial Institutions

CB&S includes the Corporate Finance Business Division, which includes Investment Banking Coverage and Advisory, and Capital Markets. These businesses focus on providing advisory, equity and debt financing and (in conjunction with Markets) risk management and structuring services to corporates, financial institutions, financial sponsors, governments and sovereigns.

CB&S also includes our debt and equity Sales and Trading businesses, which are housed in our Markets Business Division. Markets is composed of two areas: Coverage and Products. Coverage includes the Institutional Client Group, Research and Structuring. Products includes Credit (including Commercial Real Estate), Emerging Markets, Equities, Global Finance, Foreign Exchange, Rates and Commodities.

GTB is a separately managed corporate division, providing trade finance, cash management and trust & securities services.

The CIB businesses are supported by the Loan Exposure Management Group (LEMG). LEMG has responsibility for a range of loan portfolios, actively managing the risk of these through the implementation of a structured hedging regime. LEMG also prices and manages risks in the leveraged syndication pipeline.

Corporate Banking & Securities Corporate Division

Corporate Division Overview

CB&S is made up of the business divisions Corporate Finance and Markets. These businesses offer financial products worldwide including the underwriting of stocks and bonds, trading services for investors and the tailoring of solutions for companies’ financial requirements.

Effective January 1, 2011, the exposure in Actavis Group was transferred from CB&S to the group division Corporate Investments.

On April 1, 2009, management responsibility for The Cosmopolitan of Las Vegas property changed from CB&S to the group division Corporate Investments.

 

 


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Products and Services

Within our Corporate Finance Business Division, our clients are offered mergers and acquisitions, equity and debt financing and general corporate finance advice. In addition, we provide a variety of financial services to the public sector.

The Markets Business Division is responsible for the sales, trading and structuring of a wide range of fixed income, equity, equity-linked, foreign exchange and commodities products. The division aims to deliver solutions to the investing, hedging and other needs of customers.

Within CB&S, we exited our dedicated Equity Proprietary Trading business during 2010, following the exit of our dedicated Credit Proprietary Trading business during 2008. Along with managing any residual proprietary positions, we continue to conduct trading on our own account in the normal course of market-making and facilitating client business. For example, to facilitate customer flow business, traders will maintain short-term long positions (accumulating securities) and short positions (selling securities we do not yet own) in a range of securities and derivative products, reducing the exposure by hedging transactions where appropriate. While these activities give rise to market and other risk, we do not view this as proprietary trading.

All our trading activities are covered by our risk management procedures and controls which are described in detail in “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Market Risk”.

Distribution Channels and Marketing

In CB&S, the focus of our corporate and institutional coverage bankers and sales teams is on our client relationships. We have restructured our client coverage model so as to provide varying levels of standardized or dedicated services to our customers depending on their needs and level of complexity.

Global Transaction Banking Corporate Division

Corporate Division Overview

GTB delivers commercial banking products and services to corporate clients and financial institutions, including domestic and cross-border payments, professional risk mitigation and financing for international trade, as well as the provision of trust, agency, depositary, custody and related services. Our business divisions include:

 

 

Trade Finance and Cash Management Corporates

 

Trust & Securities Services and Cash Management Financial Institutions

On April 1, 2010, we closed the acquisition of parts of ABN AMRO’s commercial banking activities in the Netherlands.

In November 2009, we closed the acquisition of Dresdner Bank’s Global Agency Securities Lending business from Commerzbank AG.

 

 


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Products and Services

Trade Finance offers local expertise, a range of international trade products and services (including short-term financing), custom-made solutions for structured trade and the latest technology across our international network so that our clients can better manage the risks and other issues associated with their cross-border and domestic trades.

Cash Management caters to the needs of a diverse client base of corporates and financial institutions. With the provision of a comprehensive range of innovative and robust solutions, we handle the complexities of global and regional treasury functions including customer access, payment and collection services, liquidity management, information and account services and electronic bill presentation and payment solutions.

Trust & Securities Services provides a range of trust, payment, administration and related services for selected securities and financial transactions, as well as domestic securities custody in more than 30 markets.

Distribution Channels and Marketing

GTB develops and markets its own products and services in Europe, the Middle East, Asia and the Americas. The marketing is carried out in conjunction with the coverage functions both in this division and in CB&S.

Customers can be differentiated into two main groups: (i) financial institutions, such as banks, mutual funds and retirement funds, broker-dealers, fund managers and insurance companies, and (ii) multinational corporations, large local corporates and medium-sized companies, predominantly in Germany and the Netherlands.

Private Clients and Asset Management Group Division

The Private Clients and Asset Management Group Division primarily serves retail and small corporate customers as well as affluent and wealthy clients and provides asset management services to retail and institutional clients. This group division generated 43 % of our net revenues in 2011, 34 % of our net revenues in 2010 and 30 % of our net revenues in 2009 (on the basis of our management reporting systems).

At December 31, 2011, this group division included the following corporate divisions:

 

 

Asset and Wealth Management (AWM)

 

Private & Business Clients (PBC)

The Asset and Wealth Management (AWM) Corporate Division consists of the Asset Management Business Division (AM) and the Private Wealth Management Business Division (PWM). AWM Corporate Division’s operations are located in Europe, Middle East, Africa, the Americas and Asia-Pacific.

The AWM Corporate Division is among the leading asset managers in the world as measured by total invested assets. The division serves a range of retail, private and institutional clients.

The Private & Business Clients (PBC) Corporate Division serves retail and affluent clients as well as small corporate customers in our key markets of Germany, Italy and Spain, as well as in Belgium, Portugal and Poland. This is complemented by our established market presence in Asia.

 

 


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Asset and Wealth Management Corporate Division

Corporate Division Overview

Our AM Business Division is organized into four global business lines:

 

 

Retail offers a range of products, including mutual funds and structured products, across many asset classes

 

Alternative Investments manages real estate and infrastructure investments, climate change, commodities and private equity funds of funds

 

Insurance provides specialist advisory and portfolio management services to insurers and re-insurers globally

 

Institutional provides investment solutions across both traditional and alternative strategies to all other (noninsurance) institutional clients, such as pension funds, endowments and corporates

Our PWM Business Division, which includes wealth management for high-net-worth clients and ultra-high-net-worth individuals, their families and selected institutions, is organized into regional teams specialized in their respective regional markets.

In November 2011, we announced that we are conducting a strategic review of our global Asset Management division. While we remain committed to asset management, this review is part of our continual effort to maintain an optimal business mix and be among the market leaders in each of our businesses. The strategic review of the Asset Management division is focusing in particular on how recent regulatory changes and associated costs and changes in the competitive landscape are impacting the business and its growth prospects on a bank platform. The review evaluates the full range of strategic options including a potential sale of certain activities. It covers all of the Asset Management division globally except for the DWS franchise in Germany, Europe and Asia.

In November 2011, we completed the step-acquisition of Deutsche UFG Capital Management (“DUCM”), one of Russia’s largest independent asset management companies. The transaction followed our exercise of a purchase option on the remaining 60 % stake. We now fully control DUCM, which was previously accounted for under the equity method.

In May 2011 we completed the merger of Standard Life Investments’ sterling, euro and U.S. dollar Liquidity Funds into the DB Advisors’ Deutsche Global Liquidity Series (“DGLS”) money market funds. Earlier in March 2011, we merged the Henderson Liquid Assets Fund into the Sterling DGLS money market fund. These two transactions added assets totaling an aggregate of over 6 billion to the funds.

In March 2011, AM sold its Polish subsidiary DWS Polska TFI S.A. to Investors Holding S.A. AM will continue distribution in the Polish market with its international mutual fund product range.

In early 2009, RREEF made the decision to transition out of the rest of its in-house property management business. RREEF recognized the need to re-focus its efforts on strategic investment planning and decisions, in addition to the composition and management of client assets from an overall portfolio, asset and risk management perspective. RREEF established a new asset management organization to monitor the third party managers who are performing the day to day property management. The property management transition was completed in 2009 with a remaining transition of the property management accounting staff completed in November 2010.

 

 


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On October 1, 2010, management responsibility for the Marblegate Special Opportunities Master Fund, L.P. changed from Private Wealth Management to Corporate Investments.

In August 2010, AM successfully completed the spin-off of two independent investment boutiques offering global thematic equity and agribusiness strategies and a range of quantitative investment strategies.

Since March 2010, Sal. Oppenheim jr. & Cie. S.C.A has been a wholly owned subsidiary of Deutsche Bank AG. All Sal. Oppenheim Group operations, including all of its asset management activities, the investment bank, BHF-BANK Group, BHF Asset Servicing GmbH (“BAS”) and Sal Oppenheim Private Equity Partners S.A. were transferred to Deutsche Bank. The Equity Trading & Derivatives and Capital Markets Sales units were sold to Australia’s Macquarie Group in the second quarter 2010, while BAS was sold to Bank of New York Mellon in the third quarter 2010. As of January 1, 2011, BHF-BANK was transferred from PWM to CI.

As of January 1, 2010, management responsibility for PWM Private Equity Group was changed to Asset Management.

In June 2009, PWM DB (Suisse) S.A. integrated its wholly-owned subsidiary Rüd, Blass & Cie AG Bankgeschäft in Switzerland.

In May 2009, RREEF Private Equity exited its non-controlling stake in Aldus Equity, an alternative asset management and advisory boutique specializing in customized private equity investing for institutional and high-net-worth investors previously acquired in July 2007.

During the first quarter 2009, management responsibility for certain assets changed from the corporate division AWM to the group division Corporate Investments. These assets included Maher Terminals, a consolidated infrastructure investment, and RREEF Global Opportunity Fund III, a consolidated real estate investment fund.

In Switzerland PWM enhanced its presence by opening a representative office in St. Moritz in January 2009 to complement offices in Zurich, Geneva and Lugano.

Products and Services

AWM’s portfolio/fund management products include active fund management, passive/quantitative fund management, alternative investments, discretionary portfolio management and wealth advisory services.

AM focuses primarily on active investing. Its products and services encompass a broad range of investment strategies and asset classes, and cover many industries and geographic regions. AM’s product offering includes mutual funds, structured products, commingled funds and separately managed accounts.

AM’s global retail brand is DWS. The product range of DWS covers all regions and sectors as well as many forms and styles of investment. DWS Investments is one of Europe’s leading retail asset managers and is the largest retail mutual fund management group in Germany (as measured by publicly available invested asset data, including Deutsche Bank fund products). DWS also operates in the U.S. and key markets in Asia-Pacific.

AM offers investors a variety of alternative investment solutions through RREEF Alternatives, including RREEF Real Estate, one of the world’s largest real estate investment businesses, Private Equity, a multi-billion dollar fund-of-funds manager, Sustainable Advisors and Capital Partners, which make public market and private equity climate change investments, DB Climate Change Advisors, one of the world’s best-recognized groups for climate change-related research, Commodities, and Infrastructure, a European and Australasian private equity infrastructure investor and North American energy-related projects.

 

 


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The Insurance platform provides clients with customized investment programs designed to address an insurer’s specific needs. It offers investment solutions across multiple asset classes, including traditional fixed income, equities, asset allocation services, and alternative asset classes such as hedge funds and real estate.

Institutional products and services are marketed under the DB Advisors brand. The Institutional business offers its clients access to AM’s full range of products and services, including both traditional and alternative investments. The single-manager/multi-manager hedge fund business operates within DB Advisors.

PWM provides a fully-integrated service offering for its clients based on dynamic strategic asset allocation including individual risk-management according to the clients’ risk/return profile.

PWM offers discretionary portfolio management, in which portfolio managers of Deutsche Bank have discretion to manage clients’ investments within the clients’ general guidelines. The portfolio managers invest client funds in various investment products, such as stocks, bonds, mutual funds, hedge funds and other alternative investments including derivatives, where appropriate. In addition, we offer wealth advisory services for actively-involved clients with customized investment advice via a combination of risk management and portfolio optimization.

PWM also provides brokerage services in which our relationship managers and client advisors provide investment advice to clients but we do not exercise investment discretion. An integrated approach to wealth management is the core of our advisory services. Our investment advice covers stocks, bonds, mutual funds, hedge funds and other alternative investments, including derivatives where appropriate. The relationship managers also advise their clients on the products of third parties in all asset classes. Furthermore, our solutions include wealth preservation strategies and succession planning, philanthropic advisory services, art advisory services, family office solutions and services for financial intermediaries.

PWM continued to expand its offering of alternative investments in 2009, especially with respect to innovative solutions within the private equity and hedge funds asset classes. Going forward, real estate offerings will be broadened. PWM generates foreign exchange products, as well as structured investment products in cooperation with the Markets Business Division.

PWM’s loan/deposit products include traditional and specialized deposit products (including current accounts, time deposits and savings accounts) and both standardized and specialized secured and unsecured lending. It also provides payment, account & remaining financial services, processing and disposition of cash and non-cash payments in local currency, international payments, letters of credit, guarantees, and other cash transactions.

AWM generates revenues from other products, including direct real estate investments included in our alternative investments business, rental revenues and gains and losses earned on real estate deal flows and revenues that are not part of our core business, specifically, the gain on sale of investments.

 

 


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Distribution Channels and Marketing

AM markets our retail products in Germany and other Continental European countries generally through our established internal distribution channels in PWM and PBC. We also distribute our funds through other banks, insurance companies and independent investment advisors. We market our retail funds outside Europe via our own Asset and Wealth Management distribution channels and through third party distributors. DWS Investments distributes its retail products to U.S. investors primarily through financial representatives at major national and regional wirehouses, independent and bank-based broker dealers, and independent financial advisors and registered investment advisors.

Products for institutional clients are distributed through the substantial sales and marketing network within AM and through third-party distribution channels. They are also distributed through our other businesses, notably the Corporate & Investment Bank Group Division.

Alternative investment products are distributed through our sales and marketing network within Asset and Wealth Management and through third-party distribution channels, predominantly to high-net-worth clients, institutions and retail customers worldwide.

Insurance asset management solutions are marketed and distributed by AM’s specialist insurance unit, which provides advisory and portfolio management services for insurers and re-insurers globally.

PWM pursues an integrated business model to cater to the complex needs of high-net-worth clients and ultra-high-net-worth individuals, their families and selected institutions. The relationship managers work within target customer groups, assisting clients in developing individual investment strategies and creating enduring relationships with our clients.

In our PWM onshore business, wealthy customers are served via our relationship manager network in the respective countries. Where PBC has a presence, our customers also have access to our retail branch network and other general banking products. The offshore business encompasses all of our clients who establish accounts outside their countries of residence. These customers are able to use our offshore services to access financial products that may not be available in their countries of residence.

In addition, the client advisors of the U.S. Private Client Services business focus on traditional brokerage offering and asset allocation, including a wide range of third party products.

A major competitive advantage for PWM is the fact that it is a private bank within Deutsche Bank, with its leading investment banking, corporate banking and asset management activities. In order to make optimal use of the potential offered by cross-divisional cooperation, since 2007 PWM has established Key Client Teams in order to serve clients with very complex assets and highly sophisticated needs. PWM offers these clients the opportunity to make direct additional purchases, coinvest in its private equity activities or obtain direct access to its trading units. Many family-owned businesses are increasingly expecting wealth management and investment banking operations to work hand in hand. Cooperation with the corporate banking division also helps to identify potential PWM clients at a very early stage.

 

 


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Private & Business Clients Corporate Division

Corporate Division Overview

The Private & Business Clients Corporate Division (PBC) operates under a single business model across Europe and selected Asian markets with a focused, sales-driven management structure predominantly under the Deutsche Bank brand. PBC serves retail and affluent clients as well as small and medium sized business customers.

The PBC Corporate Division is organized into the following business units:

 

 

Advisory Banking Germany comprises all of PBC’s activities in Germany excluding Postbank.

 

Advisory Banking International covers PBC’s European activities outside Germany and PBC’s activities in Asia.

 

Consumer Banking Germany comprises the contribution of Postbank to the consolidated results of Deutsche Bank.

In 2011, we continued our balanced growth in selected European and Asian markets while benefiting from our comprehensive efficiency program to optimize efficiency in our middle and back offices and increase sales efficiency that we implemented in 2009.

In the German core market, we maintained our already strong position in a challenging market environment. On November 26, 2010, we announced that we would consolidate Deutsche Postbank Group in December 2010, following the successful conclusion of the voluntary public takeover offer (“PTO”) to the shareholders of Postbank. In settling the takeover offer on December 3, 2010 (“closing date”) and together with Postbank shares held before the PTO, we gained a controlling majority by directly holding 113.7 million Postbank shares, equal to 51.98 % of all voting rights in Postbank. Taking into account certain financial instruments on Postbank shares held by us prior to the closing date, as of the acquisition date the consolidation was based on a total equity interest in Postbank of 79.40 %.

Following the acquisition, we increased our direct ownership interest in Postbank through additional share purchases in the market to 53.14 % at year-end 2011.

In addition, we had subscribed to a mandatory exchangeable bond (“MEB”) issued by Deutsche Post AG. We acquired the MEB in February 2009 as part of a wider acquisition agreement with Deutsche Post regarding Postbank shares. With the subsequent conversion of the MEB on February 27, 2012, we further increased our direct interest in Postbank by 60 million shares or 27.42 percentage points. With exercise of Deutsche Post’s put option on February 28, 2012, our direct interest and consolidated stake in Postbank was further increased by 26.4 million shares or 12.07 percentage points to 93.7%.

Through the acquisition of a majority shareholding in Postbank, we strengthened and expanded our leading market position in our German home market, offering synergy potential and growth opportunities, in particular with regard to the retail business of the Private Clients and Asset Management Group Division. By combining the businesses we aim at increasing the share of retail banking earnings in our results and further strengthening and diversifying the refinancing basis of the Group due to significantly increased volumes of retail customer deposits. Postbank continues to exist as a stand-alone stock corporation and remains visible in the market under its own brand. We have begun to integrate Postbank into the Corporate Division Private & Business Clients and expect that the integration will offer a significant potential for revenue and cost synergies. In Europe, we are focusing on low risk products and advisory services for affluent customers resulting in a high quality loan book and strong deposit collection.

 

 


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The development of PBC in Asia has also gained momentum. PBC further invested in its strategic partnership with Hua Xia Bank in China by increasing its shareholding from 17.12 % to 19.99 % through the participation in a private placement amounting to RMB 5.6 billion (approximately  587 million). The purchase of the newly issued shares was subject to substantive regulatory approvals to be granted by various Chinese regulatory agencies. The last substantive regulatory approval, which resulted in Deutsche Bank having a claim to receive the additional shares and the associated voting rights, was received on February 11, 2011. The final settlement of the transaction was effective with the registration of the new shares on April 26, 2011. The equity method of accounting has been applied from February 11, 2011.

Additionally, as part of the strategic partnership, we and Hua Xia Bank have jointly developed and distributed credit cards in China since June 2007. Moreover, PBC has currently fifteen branches in India. India and China are considered Asian core markets for PBC. While further growing the franchise in India through continuous branch openings, our China strategy focuses on leveraging our stake in Hua Xia Bank.

Products and Services

PBC offers a similar range of banking products and services throughout Europe and Asia, with some variations among countries that are driven by local market, regulatory and customer requirements.

In offering portfolio/fund management and brokerage services, we provide investment advice, brokerage services, discretionary portfolio management and securities custody services to our clients.

We provide loan and deposit services, with the most significant being property financing (including mortgages) and consumer and commercial loans, as well as traditional current accounts, savings accounts and time deposits. The property finance business, which includes mortgages and construction finance, is our most significant lending business. We provide property finance loans primarily for private purposes, such as home financing. Most of our mortgages have an original fixed interest period of five or ten years. Loan and deposit products also include the home loan and savings business in Germany, offered through our subsidiary Deutsche Bank Bauspar AG. Our lending businesses are subject to credit risk management processes, both at origination and on an ongoing basis. For further discussion of these processes please see the “Monitoring Credit Risk” and “Main Credit Exposure Categories” sections in Item 11.

PBC’s deposits and payment services consist of administration of current accounts in local and foreign currency as well as settlement of domestic and cross-border payments on these accounts. They also include the purchase and sale of payment media and the sale of insurance products, home loan and savings contracts and credit cards. We retained our focus on deposit gathering throughout 2011. Supported by successfully launched campaigns we realized record volumes in deposits and payment services.

Distribution Channels and Marketing

To achieve a strong brand position internationally, we market our services consistently throughout the European and Asian countries in which PBC is active. In order to make banking products and services more attractive to clients, we seek to optimize the accessibility and availability of our services. To accomplish this, we deploy self-service functions and technological advances to supplement our branch network with an array of access channels to PBC’s products and services. These channels consist of the following in-person and remote distribution points:

 

 


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Investment and Finance Centers. Investment and Finance Centers offer our entire range of products and advice. In 2011, several of our Investment and Finance Centers were refurbished in accordance with our new branch concept.

 

Financial Agents. In most countries, we market our retail banking products and services through self-employed financial agents.

 

Call Centers. Call centers provide clients with remote services supported by automated systems. Remote services include access to account information, securities brokerage and other basic banking transactions.

 

Internet. On our website, we offer clients brokerage services, account information and product information on proprietary and third-party investment products. These offerings are complemented with services that provide information, analysis tools and content to support the client in making independent investment decisions.

 

Self-service Terminals. These terminals support our branch network and allow clients to withdraw and transfer funds, receive custody account statements and make appointments with our financial advisors.

In addition to our branch network and financial agents, we enter into country-specific distribution and cooperation arrangements. In Germany, for example, we have a cooperation agreement with Deutsche Vermögensberatung AG (referred to as DVAG) whereby we distribute our mutual funds and other banking products through DVAG’s independent distribution network. In order to complement our product range, we have signed distribution agreements, in which PBC distributes the products of reputable product suppliers. These include an agreement with Zurich Financial Services for insurance products, and a strategic alliance with nine fund companies for the distribution of their investment products.

Corporate Investments Group Division

The Corporate Investments Group Division manages our global principal investment activities. Those are comprised of nonstrategic investments, which include certain private equity and venture capital investments, certain corporate real estate investments and our industrial holdings, as well as certain credit facilities. Historically, its mission has been to provide financial, strategic, operational and managerial capital to enhance the values of the portfolio companies in which the group division has invested. We believe the group division enhances the bank’s portfolio management and risk management capability. As of December 31, 2011, Corporate Investments managed assets with a carrying value of 13.7 billion, including our exposure in Actavis Group, our investment in The Cosmopolitan of Las Vegas, our investment in Maher Terminals and our participation in the liquidity facility to Sicherungsgesellschaft deutscher Banken mbH (“SdB”).

 

 


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Nonstrategic Investments

Corporate Investments took over management responsibility for certain assets that were transferred from other corporate divisions.

Effective January 1, 2011, the exposure in Actavis Group was transferred from the corporate division Corporate Banking & Securities.

As of January 1, 2011, BHF-BANK, was transferred from the corporate division Asset and Wealth Management. In 2010, Deutsche Bank was engaged in exclusive sale negotiations held with Liechtenstein’s LGT Group (“LGT”) for the sale of BHF-BANK. In April 2011, Deutsche Bank and LGT announced that they ended negotiations on the sale of BHF-BANK. The parties decided not to pursue the transaction further following discussions between themselves and with the competent supervisory authorities. In July 2011, Deutsche Bank announced that it had commenced negotiations for the sale of BHF-BANK with RHJ International, through its wholly owned subsidiary Kleinwort Benson Group. Completion of the sale would be dependent, among other things, on approvals from competent authorities. For further information, please also refer to Note 25 “Non-Current Assets and Disposal Groups Held for Sale”.

In December 2010, we transferred our investment in Deutsche Postbank AG to our Private & Business Clients Corporate Division. The initial minority stake was acquired on February 25, 2009. As of that date, we also entered into a mandatorily exchangeable bond as well as options to increase our stake in the future which were also transferred to our Private & Business Clients Corporate Division in December 2010.

In December 2010, The Cosmopolitan of Las Vegas property, which was transferred on April 1, 2009, from the corporate division Corporate Banking & Securities to Corporate Investments, started its operations.

Assets taken over from the corporate division Asset Wealth Management include Maher Terminals, a consolidated infrastructure investment, and RREEF Global Opportunity Fund III, a consolidated real estate investment fund, which were both transferred during the first quarter of 2009.

Historically, Corporate Investments held interests in a number of manufacturing and financial services corporations (our “Industrial Holdings”) which have been reduced significantly over the last number of years.

Credit facilities

In 2010, we participated in a new liquidity facility for FMS Wertmanagement Anstalt des öffentlichen Rechts, by subscribing to  6.4 billion of ECB-eligible notes. This liquidity facility was the successor of a facility for Deutsche Pfandbriefbank AG (formerly Hypo Real Estate Bank AG) of  9.2 billion, in which we participated in December 2009. In the course of 2011, the liquidity facility of  6.4 billion for FMS Wertmanagement Anstalt des öffentlichen Rechts, the winding-up agency of the Hypo Real Estate Group, was fully repaid by the issuer.

In November 2010, we accepted the buyback offer for  433 million of the initial  2.3 billion liquidity facility for SdB in which we participated in February 2009. In August 2011, SdB repaid  340 million of its liquidity facility reducing our exposure to  1.5 billion. In February 2012, a further repayment of  721 million reduced the outstanding liquidty facility to 759 million. This liquidity facility consists of ECB-eligible notes guaranteed by SoFFin.

 

 


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Infrastructure and Regional Management

The infrastructure group consists of our centralized business support areas. These areas principally comprise control and service functions supporting the CIB, PCAM and CI businesses.

This infrastructure group is organized to reflect the areas of responsibility of those Management Board members that are not in charge of a specific business line. The infrastructure group is organized into COO functions (e.g., global technology, global business services, global logistics services and human resources), CFO functions (e.g., finance, tax, insurance and group strategy & planning), CRO functions (e.g., credit risk management, treasury, legal and compliance), and CEO functions (e.g., communications & corporate social responsibility and economics).

The Regional Management function covers regional responsibilities worldwide. It focuses on governance, franchise development and performance development. Regional and country heads and management committees are established in the regions to enhance client-focused product coordination across businesses and to ensure compliance with regulatory and control requirements, both from a local and Group perspective. In addition, the Regional Management function represents regional interests at the Group level and enhances cross-regional coordination.

All expenses and revenues incurred within the Infrastructure and Regional Management areas are fully allocated to the Group Divisions CIB, PCAM and CI.

The Competitive Environment

The financial services industries, and all of our businesses, are intensely competitive, and we expect them to remain so. Our main competitors are other commercial banks, savings banks, other public sector banks, brokers and dealers, investment banking firms, insurance companies, investment advisors, mutual funds and hedge funds. We compete with some of our competitors globally and with some others on a regional, product or niche basis. We compete on the basis of a number of factors, including the quality of client relationships, transaction execution, our products and services, innovation, reputation and price.

Competitor Landscape

In 2010, the unique post-crisis conditions that supported strong recovery at many banks in 2009 (e.g. a pick-up of investment banking volumes, at significantly higher margins relative to pre-crisis levels) normalized, with many market participants seeing decreased margins in investment banking. This was positively counterbalanced by the credit cycle recovery, particularly among private clients. In 2011, the banking sector was negatively affected by deteriorating market conditions.

Significant challenges persist for the world economy and financial markets due to the European sovereign debt crisis and questions around the sustainability of the U.S. recovery. In addition, the changing regulatory landscape will impact the economics of the industry and put pressure on returns.

 

 


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In our home market, Germany, the retail banking market remains fragmented and our competitive environment remains influenced by the three pillar system of private banks, public banks and cooperative banks. However, following recent and ongoing consolidation activity, particularly among public regional commercial banks (“Landesbanken”) and private banks, competitive intensity has increased. Our takeover of Deutsche Postbank AG as well as the merger of the second and third largest private sector banks have affected the domestic competitive landscape and further increased concentration.

Regulatory Reform

In light of the ongoing economic uncertainty in the wake of the financial crisis, governments and regulatory authorities continue to bring forward further proposals to reform the regulatory framework for the financial services industry. However, the complexity, policy and political challenges associated with many of these proposals means that implementation is slow and considerable uncertainty remains around the ultimate impact of reforms to both prudential and markets regulation.

Proposals currently being discussed or implemented at a U.S. and European level that could have a material impact on our competitive position (positive or negative) would include:

 

 

Implementation of the Basel 3 framework on capital and liquidity standards, along with the introduction of an international leverage ratio;

 

The introduction of specific capital requirements for globally significant financial institutions (including Deutsche Bank);

 

New powers for regulators to restructure financial institutions that are in distress and introduction of rules to require the creation of “living wills”;

 

The separation of certain businesses such as proprietary trading from deposit taking, in some cases requiring the split-up of institutions, and in the United States the prohibition of certain proprietary trading;

 

Requirements for over-the-counter derivatives and standardized derivatives to be centrally cleared and traded on exchanges or other registered trading platforms, with additional capital and margin requirements for non-cleared trades;

 

Greater regulation and oversight of commodity derivatives markets with more traders brought into the scope of conduct regulation and the imposition in Europe (potentially) and the United States of position limits;

 

Additional organizational requirements to address risks to market integrity and efficiency posed by high frequency trading, with introduction of circuit breakers in Europe and the United States;

 

Extension of pre and post trade transparency and market abuse rules from equities to all financial instruments, greater restrictions on operating trading platforms, and greater sanctioning powers;

 

Increased regulation and oversight of non-bank financial entities such as hedge funds, private equity and money market funds;

 

Possible introduction of a financial transaction tax in Europe; and

 

Changes to EU restrictions on the sale of investment products to retail investors.

There are a range of risks which may arise across all of these areas but implementation risk – where there are different approaches taken nationally to the application of globally agreed proposals – is common across all. Differences in the implementation of regulatory reform could lead to an uneven competitive playing field within the financial services industry as a whole and within the banking sector specifically. Delays in implementation of proposed rules, driven in part by regulatory capacity constraints and discrepancies in reforms across jurisdictions, and the increased regulatory burden of having to comply with different regulations will also create additional uncertainty for the sector as a whole as well as for individual institutions.

 

 


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Aside from this implementation risk, reforms will see increased pressure on balance sheet size and profitability, an imperative to improve risk management procedures and disclosure of exposures, as well as the alignment between long-term performance and compensation structures. Capital, risk management and balance sheet utilization will therefore become increasingly important as competitive differentiators.

Climate Change

Climate change has become a topic of intense public discussion in recent years. This discussion also includes the financial services industry, in particular in connection with projects that are perceived as contributing to or mitigating climate change. Projects and products that are perceived as contributing to climate change or other negative environmental or social impacts, as well as their financing and other services for these projects, are being reviewed more critically by investors, customers, environmental authorities, nongovernmental organizations and others. Where our own assessment of these issues so indicates, we may abstain from participating in such projects. By contrast, projects and products that aim to mitigate climate change are increasingly seeking financing and other financial services; these offer growth opportunities for many of our businesses. Moreover, we note that investors, customers and others increasingly take the overall approach of companies to climate change, including the direct and indirect carbon emissions of their operations, into consideration in their decisions, even where such emissions are minimal. We have undertaken a number of measures to reduce our carbon emissions over time, such as a comprehensive renovation of our world headquarters in Germany to bring the energy efficiency of these buildings to the highest possible level for similarly-situated office towers.

Competition in Our Businesses

Corporate & Investment Bank Group Division

Our investment banking operation competes in domestic and international markets in Europe, the Americas and Asia-Pacific. Competitors include bank holding companies, investment advisors, brokers and dealers in securities and commodities, securities brokerage firms and certain commercial banks. Within Germany and other European countries, our competitors also include German private universal banks, public state banks and foreign banks.

Private Clients and Asset Management Group Division

In the retail banking business we face intense competition from savings banks and cooperative banks, other universal banks, insurance companies, home loan and savings companies and other financial intermediaries.

Our private wealth management business faces competition from the private banking and wealth management units of other global and regional financial service companies and from investment banks.

Our main competitors in the asset management business are asset management subsidiaries of major financial services companies and large stand-alone retail and institutional asset managers. Most of the main competitors are headquartered in Europe or the United States, though many operate globally.

 

 


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Regulation and Supervision

Overview

Our operations throughout the world are regulated and supervised by the relevant authorities in each of the jurisdictions where we conduct business. Such regulation relates to licensing, capital adequacy, liquidity, risk concentration, conduct of business as well as organizational and reporting requirements. It affects the type and scope of the business we conduct in a country and how we structure specific operations. Currently and in reaction to the crisis in the financial markets, the regulatory environment is undergoing significant changes. Most notably, the Basel Committee on Banking Supervision has proposed revised capital adequacy standards that are significantly more stringent than the existing requirements. A set of new rules regarding trading activities, commonly referred to as Basel 2.5, took effect on December 31, 2011, and significantly affects capital levels relating to our trading book (correlation trading, securitizations, stressed value-at-risk and incremental risk charge). In addition, more comprehensive changes to the capital adequacy framework, known as Basel 3, were published by the Basel Committee on Banking Supervision in December 2010. The implementation of Basel 3 is expected to impose new requirements in respect of regulatory capital, liquidity/funding and leverage ratios. Furthermore, on October 26, 2011, the Council of the European Union agreed to require that 70 large banks in the European Economic Area, including Deutsche Bank, create an exceptional and temporary capital buffer by June 30, 2012, to address current market concerns over sovereign risk. To prevent shortfalls in the capitalization of German banks as a result of these new capital requirements, the German legislature enacted the Second Financial Markets Stabilization Act which became effective on March 1, 2012, allowing stabilization measures in the period through December 2012 that can be imposed on banks without approval of their shareholders. Further changes continue to be under consideration in the jurisdictions in which we operate. While the extent and nature of these changes cannot be predicted now, they may include a further increase in regulatory oversight and enhanced prudential standards relating to capital, liquidity, employee compensation, limitations on activities and other aspects of our operations that may have a material effect on the businesses and the services and products that we will be able to offer.

The following sections present a description of the supervision of our business by the authorities in Germany, our home market, in the member states of the European Economic Area, and in the U.S., which we view as the most significant for us. Beyond these regions, local country regulations generally have limited impact on our operations that are unconnected with these countries.

Regulation and Supervision in Germany – Basic Principles

We are authorized to conduct banking business and to provide financial services as set forth in the German Banking Act (Kreditwesengesetz – KWG). We are subject to comprehensive regulation and supervision by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, “BaFin”) and the Deutsche Bundesbank (“Bundesbank”), the German central bank.

The BaFin is a federal regulatory authority and reports to the German Federal Ministry of Finance. It supervises the operations of German banks to ensure that they are in compliance with the German Banking Act and other applicable German laws and regulations. The Bundesbank supports the BaFin and closely cooperates with it. The cooperation includes the ongoing review and evaluation of reports submitted by us and of our audit reports as well as assessments of the adequacy of our capital base and risk management systems. The BaFin and the Bundesbank require German banks to file comprehensive information in order to monitor compliance with applicable legal requirements and to obtain information on the financial condition of banks.

 

 


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Generally, supervision by the BaFin and the Bundesbank applies on an unconsolidated basis (company only) and on a consolidated basis (the company and the entities consolidated with it for German regulatory purposes). Parent banks of a consolidated group may waive the application of capital adequacy requirements, large exposure limits and certain organizational requirements on an unconsolidated basis if certain conditions are met. We meet these conditions and have waived application of these rules since January 1, 2007.

We are in compliance with the German laws that are applicable to our business in all material respects.

The German Banking Act

The German Banking Act contains the principal rules for German banks, including the requirements for a banking license, and regulates the business activities of German banks. In particular it requires that an enterprise that engages in one or more of the activities defined in the German Banking Act as “banking business” or “financial services” in Germany must be licensed as a “credit institution” (Kreditinstitut) or “financial services institution” (Finanzdienstleistungsinstitut), as the case may be. We are licensed as a credit institution.

The German Banking Act and the rules and regulations adopted thereunder implement certain European Union directives relating to banks. These directives reflect recommendations of the Basel Committee on Banking Supervision and address issues such as accounting standards, regulatory capital, risk-based capital adequacy, the monitoring and control of large exposures, consolidated supervision and liquidity. The Basel 3 framework, which provides for increased regulatory capital and liquidity requirements, is expected to be implemented mainly through a European Union regulation which applies directly in every member state, and to a limited extent through a European Union directive and subsequent national transposition legislation.

The German Securities Trading Act

Under the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG), the BaFin regulates and supervises securities trading in Germany. The German Securities Trading Act contains, among other things, disclosure and transparency rules for issuers of securities that are listed on a German exchange and prohibits insider trading with respect to certain listed securities. The German Securities Trading Act also contains rules of conduct. These rules of conduct apply to all businesses that provide securities services. Securities services include, in particular, the purchase and sale of securities or derivatives for others and the intermediation of transactions in securities or derivatives and certain types of investment advice. The BaFin has broad powers to investigate businesses providing securities services to monitor their compliance with the rules of conduct and the reporting requirements. In addition, the German Securities Trading Act requires an independent auditor to perform an annual audit of the securities services provider’s compliance with its obligations under the German Securities Trading Act. The European Commission has brought forward several legislative proposals which would result, if enacted, in further regulation of securities trading and the trading in derivatives in particular.

 

 


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Capital Adequacy Requirements

The German Banking Act and the Solvency Regulation (Solvabilitätsverordnung) issued by the Federal Ministry of Finance thereunder reflect the capital adequacy rules of the Basel 2 and 2.5 frameworks and require German banks to maintain an adequate level of regulatory capital in relation to their risk positions. Risk positions (commonly referred to as “risk-weighted assets”) comprise credit risks, market risks and operational risks (comprising, among other things, risks related to certain external factors, as well as to technical errors and errors of employees). Credit risks and operational risks must be covered with Tier 1 capital (“core capital”) and Tier 2 capital (“supplementary capital”) (together, “regulatory banking capital”). Market risk must be covered with regulatory banking capital (to the extent not required to cover credit and operational risk) and Tier 3 capital (together with regulatory banking capital, “own funds”). Under certain circumstances, the BaFin may impose capital requirements on individual banks which are more stringent than statutory requirements. For details of Deutsche Bank’s regulatory capital see Note 37 “Regulatory Capital”.

Responding to current market concerns over the ability of banks to be able to absorb potential losses associated with sovereign debt, the Council of the European Union agreed on October 26, 2011, to require that 70 large banks in the European Economic Area including us create an exceptional and temporary capital buffer. To that effect, the relevant banks have to maintain a capital ratio of 9 % of Core Tier 1 capital against their credit, operational and market risks after accounting for market valuation of sovereign debt. The reference date for computing this capital buffer is September 30, 2011. The banks concerned have to attain the capital target by June 30, 2012, based on plans agreed with their respective national regulatory authority and the European Banking Authority (“EBA”). In order to build this capital buffer, banks are expected to use private sources of capital. Where these sources are insufficient or not available, the national government of the bank concerned is expected to provide support, and if such support is not available, recapitalization is expected to be funded by the European Financial Stability Fund, all subject to European Union rules on state aid.

Limitations on Large Exposures

The German Banking Act and the Large Exposure Regulation (Großkredit- und Millionenkreditverordnung) limit a bank’s concentration of credit risks through restrictions on large exposures (Großkredite). All exposures to a single customer (and customers connected with it) are aggregated for these purposes.

An exposure incurred in the banking book that equals or exceeds 10 % of the bank’s regulatory banking capital constitutes a banking book large exposure. A banking book and trading book exposure taken together that equals or exceeds 10 % of the bank’s own funds constitutes an aggregate book large exposure. No large exposure may exceed 25 % of the bank’s regulatory banking capital or own funds, as applicable.

A bank may exceed these ceilings only with the approval of the BaFin and subject to increased capital requirements for the amount of the large exposure that exceeds the ceiling.

Furthermore, total trading book exposures to a single customer (and customers affiliated with it) must not exceed five times the bank’s own funds that are not required to meet the capital adequacy requirements with respect to the banking book. Total trading book exposures to a single customer (and customers affiliated with it) in excess of the aforementioned limit are not permitted.

 

 


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Consolidated Regulation and Supervision

The provisions of the German Banking Act on consolidated supervision require that each group of institutions (Institutsgruppe) taken as a whole complies with the requirements on capital adequacy and the limitations on large exposures described above. A group of institutions generally consists of a domestic bank or financial services institution, as the parent company, and all other banks, financial services institutions, investment management companies, financial enterprises, payment institutions or ancillary services enterprises in which the parent company holds more than 50 % of voting rights or on which the parent company can otherwise exert a controlling influence. Special rules apply to joint venture arrangements that result in the joint management of another bank, financial services institution, investment company, financial enterprise, bank service enterprise or payment institution by a bank and one or more third parties.

Financial groups which offer services and products in various financial sectors (banking and securities business, insurance and reinsurance business) are subject to supplementary supervision as a financial conglomerate (Finanzkonglomerat) once certain thresholds have been exceeded. The supervision on the level of the conglomerate is exercised by the BaFin. It comprises requirements regarding own funds, risk concentration, risk management, transactions within the conglomerate and organizational matters. Following the acquisition of Abbey Life Assurance Company Limited, the BaFin determined in November 2007 that we are a financial conglomerate. The main effect of this determination is that since 2008 we have been reporting to the BaFin and the Bundesbank capital adequacy requirements and risk concentrations also on a conglomerate level. In addition, we are required to report significant conglomerate internal transactions as well as significant risk concentrations.

Liquidity Requirements

The German Banking Act requires German banks and certain financial services institutions to invest their funds so as to maintain adequate liquidity at all times. The Liquidity Regulation (Liquiditätsverordnung) provides for minimum liquidity requirements based upon a comparison of the remaining terms of certain assets and liabilities. It requires maintenance of a ratio (Liquiditätskennzahl or “liquidity ratio”) of liquid assets to liquidity reductions expected during the month following the date on which the ratio is determined of at least one. The Liquidity Regulation also allows banks and financial services institutions subject to it to use their own methodology and procedures to measure and manage liquidity risk if the BaFin has approved such methodology and procedures. The liquidity ratio and estimated liquidity ratios for the next eleven months must be reported to the BaFin on a monthly basis. The liquidity requirements do not apply on a consolidated basis. The BaFin may impose on individual banks liquidity requirements which are more stringent than the general statutory requirements if such banks’ continuous liquidity would otherwise not be ensured.

Financial Statements and Audits

As required by the German Commercial Code (Handelsgesetzbuch – HGB), we prepare our nonconsolidated financial statements in accordance with German GAAP. Our consolidated financial statements are prepared in accordance with International Financial Reporting Standards, and our compliance with capital adequacy requirements and large exposure limits is determined solely based upon such consolidated financial statements.

 

 


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Under German law, we are required to be audited annually by a certified public accountant (Wirtschaftsprüfer). The accountant is appointed at the shareholders’ meeting. However, the supervisory board mandates the accountant and supervises the audit. The BaFin must be informed of and may reject the accountant’s appointment. The German Banking Act requires that a bank’s auditor informs the BaFin of any facts that come to the accountant’s attention which would lead it to refuse to certify or to limit its certification of our annual financial statements or which would adversely affect our financial position. The auditor is also required to notify the BaFin in the event of a material breach by management of the articles of association or of any other applicable law. The auditor is required to prepare a detailed and comprehensive annual audit report (Prüfungsbericht) for submission to the bank’s supervisory board, the BaFin and the Bundesbank.

Investigative, Enforcement and Restructuring Powers

Investigations and Official Audits

The BaFin conducts audits of banks on a random basis, as well as for cause. The BaFin is also responsible for auditing internal risk models used by a bank for regulatory purposes. It may revoke the approval to use such models or impose conditions on their continued use for regulatory purposes.

The BaFin may require a bank to furnish information and documents in order to ensure that the bank is complying with the German Banking Act and applicable regulations. The BaFin may conduct investigations without having to state a reason therefor. Such investigations may also take place at a foreign entity that is part of a bank’s group for regulatory purposes. Investigations of foreign entities are limited to the extent that the law of the jurisdiction where the entity is located restricts such investigations.

The BaFin may attend meetings of a bank’s supervisory board and shareholders meetings. It also has the authority to require that such meetings be convened.

Enforcement Powers

The BaFin has a wide range of enforcement powers in the event it discovers any irregularities. It may remove the bank’s managers from office, transfer their responsibilities in whole or in part to a special commissioner or prohibit them from exercising their current managerial capacities. The BaFin may also cause the removal of members of the supervisory board of a bank if they are not reliable, lack the necessary expertise or violate their duties.

If a bank’s own funds are inadequate, if a bank does not meet the liquidity requirements, or if, based upon the circumstances, the BaFin concludes that a bank will likely not be able to continuously fulfill the statutory capital or liquidity requirements, the BaFin may take a variety of measures in order to improve the capitalization or liquidity of the bank. In particular, the BaFin may prohibit or restrict a bank from distributing profits, taking balance sheet measures in order to offset an annual loss or to generate distributable profits, making payments on instruments that constitute own funds if such payments are not covered by the bank’s annual profit, or extending credit. The BaFin may also order a bank to adopt certain measures to reduce risks if such risks result from particular types of transactions or systems used by the bank. Generally, these enforcement powers also apply to the parent bank of a group of institutions in the event that the own funds of the group are inadequate on a consolidated basis.

 

 


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If a bank is in danger of defaulting on its obligations to creditors, the BaFin may take emergency measures to avert default. These emergency measures may include:

 

 

issuing instructions relating to the management of the bank;

 

prohibiting the acceptance of deposits and the extension of credit;

 

prohibiting or restricting the bank’s managers from carrying on their functions;

 

prohibiting payments and disposals of assets;

 

closing the bank’s customer services; and

 

prohibiting the bank from accepting any payments other than payments of debts owed to the bank.

In order to ensure compliance with applicable supervisory law, the BaFin may also appoint a special representative and delegate the responsibilities and powers of corporate bodies of a bank to such special representative if certain conditions are met.

If these measures are inadequate, the BaFin may revoke the bank’s license. Only the BaFin may file an application for the initiation of insolvency proceedings against a bank.

Violations of the Banking Act may result in criminal and administrative penalties.

Restructuring Powers

The Restructuring Act (Restrukturierungsgesetz) of December 9, 2010, introduced new powers for the BaFin to effect or facilitate the stabilization, reorganization or restructuring of banks from January 1, 2011 on.

If, based upon the circumstances, it is likely that a bank will not be able to continuously fulfill the statutory capital or liquidity requirements, the bank may submit a stabilization plan to the BaFin. A stabilization plan may in particular provide for the taking up of new loans or other financing that will have priority over the claims of existing creditors if insolvency proceedings are opened within three years following the commencement of the stabilization proceedings. The aggregate amount of such loans may not exceed 10 % of the bank’s own funds. If the BaFin considers the stabilization plan to be sustainable, it applies to the court for the opening of a stabilization proceeding. If the statutory requirements are met, the court appoints a stabilization advisor who oversees the implementation of the stabilization plan and has the authority to issue orders to the management of the bank.

If a bank considers a stabilization proceeding to be futile, it may initiate reorganization proceedings, provided that the bank has systemic relevance and is at risk to become insolvent. The bank must then submit a reorganization plan to the BaFin. This reorganization plan may in particular provide for debt-to-equity swaps, contributions in kind, capital increases and reductions, an exclusion of subscription rights and the spin-off of parts of the bank. Upon application by the BaFin, the court must order the opening of reorganization proceedings if the statutory requirements are met. If reorganization proceedings are opened, each class of creditors and the shareholders resolve independently on the adoption of the restructuring plan. Under certain conditions, the reorganization plan may also be implemented without the approval of a class of creditors or the shareholders (i.e., it can be forced upon the shareholders).

 

 


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The BaFin may also restructure a bank that has systemic relevance and is at risk to become insolvent by transferring assets and liabilities of such bank in whole or in part to another bank in Germany including a so-called bridge bank owned by the Restructuring Fund (Restrukturierungsfonds) managed by the Federal Agency for Financial Market Stabilization (Bundesanstalt für Finanzmarktstabilisierung). Such fund is financed by non-tax deductible annual contributions from the banks from September 30, 2011 onwards. The amount of contributions will depend on the business volume, size and interconnectedness in the financial market of the respective banks.

Deposit Protection in Germany

The Deposit Guarantee Act

The Law on Deposit Insurance and Investor Compensation (Einlagensicherungs- und Anlegerentschädigungsgesetz, the “Deposit Guarantee Act”) provides for a mandatory deposit insurance system in Germany. It requires that each German bank participate in one of the licensed government-controlled investor compensation institutions (Entschädigungseinrichtungen). Entschädigungseinrichtung deutscher Banken GmbH acts as the investor compensation institution for private sector banks such as us, collects and administers the contributions of the member banks, and settles the compensation claims of investors in accordance with the Deposit Guarantee Act.

Investor compensation institutions are liable only for obligations resulting from deposits and securities transactions that are denominated in euro or the currency of a contracting state to the Agreement on the European Economic Area. They are not liable for obligations represented by instruments in bearer form or negotiable by endorsement. Claims of certain entities, such as banks, financial institutions (Finanzinstitute), insurance companies, investment funds, the Federal Republic of Germany, the German federal states, municipalities and medium-sized and large corporations, are not protected.

The maximum liability of an investor compensation institution to any one creditor is limited to an amount of  100,000, and to 90 % of any one creditor’s aggregate claims arising from securities transactions up to an amount of 20,000.

Banks are obliged to make annual contributions to the investor compensation institution in which they participate. An investor compensation institution must levy special contributions on the banks participating therein or take up loans, whenever it is necessary to settle compensation claims by such institution in accordance with the Deposit Guarantee Act. There is no absolute limit on such special contributions. The investor compensation institution may exempt a bank from special contributions in whole or in part if full payments of such contributions are likely to render such bank unable to repay its deposits or perform its obligations under securities transactions. The amount of such contribution will then be added proportionately to the special contributions levied on the other participating banks. Following the increase of the protected amounts of customer claims in 2009 and 2010, our contributions to our investor compensation institution increased.

 

 


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Voluntary Deposit Protection System

Liabilities to creditors that are not covered under the Deposit Guarantee Act may be covered by one of the various protection funds set up by the banking industry on a voluntary basis. We take part in the Deposit Protection Fund of the Association of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken e. V.). The Deposit Protection Fund covers liabilities to customers up to an amount equal to 30 % of the bank’s core capital and supplementary capital (to the extent that supplementary capital does not exceed 25 % of core capital). This limit will be reduced to 20 % of the bank’s applicable capital base from January 1, 2015 onwards, to 15 % from January 1, 2020 onwards and to 8.75 % from January 1, 2025 onwards. Liabilities to other banks and other specified institutions, obligations of banks represented by instruments in bearer form and covered bonds in registered form (Namenspfandbriefe) are not covered. To the extent the Deposit Protection Fund makes payments to customers of a bank, it will be subrogated to their claims against the bank.

Banks that participate in the Deposit Protection Fund make annual contributions to the fund based on their liabilities to customers, and may be required to make special contributions up to an amount of 50 % of their annual contributions to the extent requested by the Deposit Protection Fund to enable it to fulfill its purpose. If one or more German banks are in financial difficulties, we may therefore participate in their restructuring even where we have no business relationship or strategic interest, in order to avoid making special contributions to the Deposit Protection Fund in case of an insolvency of such bank or banks, or we may be required to make such special contributions. Following financial difficulties of various German banks, the annual contributions to the Deposit Protection Fund were doubled from 2009 onwards.

Proposed Revision of the EU Directives on Deposit Guarantee and Investor Protection Schemes

On July 12, 2010, the European Commission initiated a revision of the European Union directives on deposit guarantee and investor protection schemes, the adoption of which is currently pending. The main purpose of the revision is to improve the funding of these schemes, to expand the scope of eligible deposits and to provide for a faster disbursement of funds when the protection scheme is called. The reform envisages that most of the proposed measures will become effective by the end of 2012. Pursuant to this proposal, deposit protection schemes must have 1.5 % of the total covered deposits at hand, and investor compensation schemes 0.5 % of the value of funds and financial instruments covered by the investor compensation scheme that are held by, deposited with or managed by investment firms and collective investment schemes. The proposal also provides for a ten year transition period to accumulate the respective funds. In the event that the directives on deposit guarantee and investor protection schemes are amended as proposed, the costs for deposit guarantee and investor protection schemes (and thus our contributions to these schemes) will increase substantially.

Regulation and Supervision in the European Economic Area

Since 1989 the European Union has enacted a number of regulations and directives to create a single European Union-wide market with almost no internal barriers on banking and financial services. The Agreement on the European Economic Area extends this single market to Iceland, Liechtenstein and Norway. Within this market our branches generally operate under the so-called “European Passport”. Under the European Passport, our branches are subject to regulation and supervision primarily by the BaFin. The authorities of the host country are responsible for the regulation and supervision of the liquidity requirements and the financial markets of the host country. They also retain responsibility with regard to the provision of securities services within the territory of the host country.

 

 


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Annual Report 2011 on Form 20-F      
     
     

 

On November 24, 2010, the European Union enacted regulations to further integrate the existing national supervisory authorities into a European System of Financial Supervision. A European Systemic Risk Board (“ESRB”) was established and the independent advisory committees to the European Commission for banks, insurance companies and securities markets which had existed since 2004 were transformed into new European authorities: the European Banking Authority (“EBA”), the European Insurance and Occupational Pensions Authority (“EIOPA”) and the European Securities and Markets Authority (“ESMA”).

The ESRB is responsible for the macro-prudential oversight of the financial system within the EU. It will in particular collect and analyze all relevant information, identify systemic risks, issue warnings and recommendations for remedial action as appropriate. The secretariat of the ESRB is provided by the European Central Bank. The tasks of EBA and the other new authorities are to further integrate and harmonize the work of the relevant national supervisory authorities and to ensure a consistent application of EU law. To that effect they shall in particular develop technical standards for supervision which will become effective if the European Commission endorses them. They shall also issue guidelines and recommendations for supervisory practices and coordinate the work of national authorities in emergency situations where the orderly functioning or integrity of the financial markets or the stability of the financial system in the EU is jeopardized. In such case, the EBA and the other new authorities may give instructions to national authorities and, in certain circumstances, directly to banks and other financial institutions, to take remedial measures.

Regulation and Supervision in the United States

Our operations are subject to extensive federal and state banking and securities regulation and supervision in the United States. We engage in U.S. banking activities directly through our New York branch. We also control U.S. banking subsidiaries, including Deutsche Bank Trust Company Americas (“DBTCA”), and U.S. broker-dealers, such as Deutsche Bank Securities Inc., U.S. nondeposit trust companies and nonbanking subsidiaries.

On July 21, 2010, the United States enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which provides a broad framework for significant regulatory changes that will extend to almost every area of U.S. financial regulation. Implementation of the Dodd-Frank Act will require further detailed rulemaking over several years by different U.S. regulators, including the Department of the Treasury, the Federal Reserve Board, the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), the Commodity Futures Trading Commission (CFTC) and the newly created Financial Stability Oversight Council (Council), and uncertainty remains about the final details, timing and impact of the rules.

Among other things, the Dodd-Frank Act will, pursuant to its so-called “Volcker Rule”, limit the ability of banking entities to sponsor or invest in private equity or hedge funds or to engage in certain types of proprietary trading in the United States unrelated to serving clients, although certain non-U.S. banking organizations, such as Deutsche Bank, will not be prohibited by the Dodd-Frank Act from engaging in such activities solely outside the United States. The Dodd-Frank Act also provides regulators with tools to provide greater capital, leverage and liquidity requirements and other prudential standards, particularly for financial institutions that pose significant systemic risk. However, in imposing heightened capital, leverage, liquidity and other prudential standards on non-U.S. banks such as us, the Federal Reserve Board is directed to take into account the principle of national treatment and equality of competitive opportunity, and the extent to which the foreign bank is subject to comparable home country standards (although certain of our activities will be subject to the U.S. standards).

U.S. regulators will also be able to restrict the size and growth of systemically significant non-bank financial companies and large interconnected bank holding companies and will be required to impose bright-line debt-to-equity ratio limits on financial companies that the Council determines pose a grave threat to financial stability.

 

 


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Furthermore, the Dodd-Frank Act provides for an extensive framework for the regulation of over-the-counter (OTC) derivatives, including mandatory clearing, exchange trading and transaction reporting of certain OTC derivatives, as well as rules regarding the registration of, and capital, margin and business conduct standards for, swap dealers and major swap participants. The Dodd-Frank Act also requires broader regulation of hedge funds and private equity funds, as well as credit agencies, and imposes new requirements with respect to asset securitization activities.

The Dodd-Frank Act also establishes a new regime for the orderly liquidation of systemically significant financial companies and authorizes assessments on financial institutions that have U.S. $ 50 billion or more in consolidated assets to repay outstanding debts owed to the Treasury in connection with a liquidation of a systemically significant financial company under the new insolvency regime. In addition, the Dodd-Frank Act requires issuers with securities listed on U.S. stock exchanges, which may include foreign private issuers such as us, to establish a “clawback” policy to recoup previously awarded executive compensation in the event of an accounting restatement. Dodd-Frank also grants the SEC discretionary rule-making authority to impose a new fiduciary standard on brokers, dealers and investment advisers, and expands the extraterritorial jurisdiction of U.S. courts over actions brought by the SEC or the United States with respect to violations of the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.

Implementation of the Dodd-Frank Act and related final regulations could result in additional costs or limit or restrict the way we conduct our business. Although uncertainty remains about many of the details, impact and timing of these reforms, we expect that there may be significant costs and limitations on our businesses resulting from certain regulatory initiatives, including the proposed regulations to implement the Volcker Rule limitations.

Regulatory Authorities

We and Deutsche Bank Trust Corporation, our wholly owned subsidiary, are bank holding companies under the U.S. Bank Holding Company Act of 1956, as amended (the Bank Holding Company Act), by virtue of, among other things, our ownership of DBTCA. As a result, we and our U.S. operations are subject to regulation, supervision and examination by the Federal Reserve Board as our U.S. “umbrella supervisor”. Until February 1, 2012, Taunus Corporation was our top-tier U.S. bank holding company subsidiary. On that date, we reorganized our ownership of our U.S. banking subsidiaries so that they are no longer held through Taunus Corporation, which is thus no longer a bank holding company, and Deutsche Bank Trust Corporation is now our top-tier U.S. bank holding company subsidiary.

DBTCA is a New York state-chartered bank whose deposits are insured by the FDIC to the extent permitted by law. Effective October 3, 2011, the New York State Banking Department and the New York State Insurance Department were abolished and the authority of both former agencies was transferred to a new Department of Financial Services, whose head is the Superintendent of Financial Services. DBTCA is subject to regulation, supervision and examination by the Federal Reserve Board and the New York State Department of Financial Services and to relevant FDIC regulation. Deutsche Bank Trust Company Delaware is a Delaware state-chartered bank which is subject to regulation, supervision and examination by the FDIC and the Office of the State Bank Commissioner of Delaware. Deutsche Bank’s New York branch is supervised by the Federal Reserve Board and the New York State Department of Financial Services. Deutsche Bank’s federally chartered nondeposit trust companies are subject to regulation, supervision and examination by the Office of the Comptroller of the Currency. Certain of Deutsche Bank’s subsidiaries are also subject to regulation, supervision and examination by state banking regulators of certain states in which it conducts banking operations.

 

 


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Annual Report 2011 on Form 20-F      
     
     

 

Restrictions on Activities

As described below, federal and state banking laws and regulations restrict our ability to engage, directly or indirectly through subsidiaries, in activities in the United States. We are required to obtain the prior approval of the Federal Reserve Board before directly or indirectly acquiring the ownership or control of more than 5 % of any class of voting shares of U.S. banks, certain other depository institutions, and bank or depository institution holding companies. Under applicable U.S. federal banking law, our U.S. banking operations are also restricted from engaging in certain “tying” arrangements involving products and services.

Our two U.S. FDIC-insured bank subsidiaries are subject to requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be made and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered.

Under U.S. law, our activities and those of our subsidiaries in the United States are generally limited to the business of banking, and managing or controlling banks. So long as we are a financial holding company under U.S. law, we may also engage in nonbanking activities in the United States that are financial in nature, or incidental or complementary to such financial activity, including securities, merchant banking, insurance and other financial activities, subject to certain limitations on the conduct of such activities and to prior regulatory approval in some cases. As a non-U.S. bank, we are generally authorized under U.S law and regulations to acquire a non-U.S. company engaged in nonfinancial activities as long as the company’s U.S. operations do not exceed certain thresholds and certain other conditions are met.

Our status as a financial holding company, and our resulting ability to engage in a broader range of nonbanking activities are dependent on Deutsche Bank AG and our two insured U.S. depository institutions being “well capitalized” and “well managed” (as defined by Federal Reserve Board regulations) and upon our insured U.S. depository institutions meeting certain requirements under the Community Reinvestment Act. In order to meet the “well capitalized” test, both Deutsche Bank on a consolidated basis and our U.S. depository institutions on a stand-alone basis are required to maintain a Tier 1 risk-based capital ratio of at least 6 % and a total risk-based capital ratio of at least 10 %.

State-chartered banks (such as DBTCA) and state-licensed branches and agencies of foreign banks (such as our New York branch) may not, with certain exceptions that require prior regulatory approval, engage as a principal in any type of activity not permissible for their federally chartered or licensed counterparts. In addition, DBTCA and Deutsche Bank Trust Company Delaware are subject to their respective state banking laws pertaining to legal lending limits. Likewise, the United States federal banking laws also subject state branches and agencies to the same single-borrower lending limits that apply to federal branches or agencies, which are substantially similar to the lending limits applicable to national banks. These single-borrower lending limits are based on the worldwide capital of the entire foreign bank (i.e., Deutsche Bank AG in the case of the New York branch).

The Federal Reserve Board may terminate the activities of any U.S. office of a foreign bank if it determines that the foreign bank is not subject to comprehensive supervision on a consolidated basis in its home country or that there is reasonable cause to believe that such foreign bank or its affiliate has violated the law or engaged in an unsafe or unsound banking practice in the United States or, for a foreign bank that presents a risk to the stability of the United States financial system, the home country of the foreign bank has not adopted, or made demonstrable progress toward adopting, an appropriate system of financial regulation to mitigate such risk.

 

 


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Annual Report 2011 on Form 20-F      
     
     

 

The Dodd-Frank Act removed, effective in July 2011, a longstanding prohibition on the payment of interest on demand deposits by our FDIC-insured bank subsidiaries and our New York branch. In addition, the Dodd-Frank Act will require that the lending limits applicable to our FDIC-insured bank subsidiaries and to our New York branch take into account (effective July 2012) credit exposure arising from derivative transactions, and that those applicable to our New York branch take into account securities borrowing and lending transactions and repurchase and reverse repurchase agreements with counterparties. Also, under the so-called swap “push-out” provisions of the Dodd-Frank Act, the derivatives activities of FDIC-insured banks and U.S. branch offices of foreign banks will be restricted or prohibited, which may necessitate a restructuring of how we conduct our derivatives activities. In addition, regulations which the Council, or the Consumer Financial Protection Bureau established under the Dodd-Frank Act, may adopt could affect the nature of the activities which a bank (including our FDIC-insured bank subsidiaries and our New York branch) may conduct, and may impose restrictions and limitations on the conduct of such activities.

There are various qualitative and quantitative restrictions on the extent to which we and our nonbank subsidiaries can borrow or otherwise obtain credit from our U.S. banking subsidiaries or engage in certain other transactions involving those subsidiaries. In general, these transactions must be on terms that would ordinarily be offered to unaffiliated entities, must be secured by designated amounts of specified collateral and are subject to volume limitations. These restrictions also apply to certain transactions of our New York branch with our U.S. broker-dealers and certain of our other affiliates. Effective in July 2012, the Dodd-Frank Act subjects credit exposure arising from derivative transactions, securities borrowing and lending transactions, and repurchase/reverse repurchase agreements to these collateral and volume limitations.

A major focus of U.S. governmental policy relating to financial institutions is aimed at preventing money laundering and terrorist financing and compliance with economic sanctions in respect of designated countries or activities. Failure of an institution to have policies and procedures and controls in place to prevent, detect and report money laundering and terrorist financing could in some cases have serious legal, financial and reputational consequences for the institution.

New York Branch

Our New York branch is licensed by the New York Superintendent of Financial Services to conduct a commercial banking business and is required to maintain eligible high-quality assets with banks in the State of New York (up to a maximum of U.S. $ 100 million of assets pledged so long as the New York branch remains “well-rated” by the New York State Superintendent of Financial Services). Should our New York branch cease to be “well-rated”, we may need to maintain substantial additional amounts of eligible assets. The Superintendent of Financial Services may also establish asset maintenance requirements for branches of foreign banks. Currently, no such requirement has been imposed upon our New York branch.

The New York State Banking Law authorizes the Superintendent of Financial Services to take possession of the business and property of a New York branch of a foreign bank under certain circumstances, generally involving violation of law, conduct of business in an unsafe manner, impairment of capital, suspension of payment of obligations, or initiation of liquidation proceedings against the foreign bank at its domicile or elsewhere. In liquidating or dealing with a branch’s business after taking possession of a branch, only the claims of depositors and other creditors which arose out of transactions with a branch are to be accepted by the Superintendent of Financial Services for payment out of the business and property of the foreign bank in the State of New York, without prejudice to the rights of the holders of such claims to be satisfied out of other assets of the foreign bank. After such claims are paid, the Superintendent of Financial Services will turn over the remaining assets, if any, to the foreign bank or its duly appointed liquidator or receiver.

 

 


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Annual Report 2011 on Form 20-F      
     
     

 

Deutsche Bank Trust Company Americas

The Federal Deposit Insurance Corporation Improvement Act of 1991 (referred to as FDICIA) provides for extensive regulation of depository institutions (such as DBTCA and its direct and indirect parent companies), including requiring federal banking regulators to take “prompt corrective action” with respect to FDIC-insured banks that do not meet minimum capital requirements. As an insured bank’s capital level declines and the bank falls into lower categories (or if it is placed in a lower category by the discretionary action of its supervisor), greater limits are placed on its activities and federal banking regulators are authorized (and, in many cases, required) to take increasingly more stringent supervisory actions, which could ultimately include the appointment of a conservator or receiver for the bank (even if it is solvent). In addition, FDICIA generally prohibits an FDIC-insured bank from making any capital distribution (including payment of a dividend) or payment of a management fee to its holding company if the bank would thereafter be undercapitalized. If an insured bank becomes “undercapitalized”, it is required to submit to federal regulators a capital restoration plan guaranteed by the bank’s holding company. Since the enactment of FDICIA, both of our U.S. insured banks have been categorized as “well capitalized”, the highest capital category under applicable regulations.

DBTCA, like other FDIC-insured banks, is required to pay assessments to the FDIC for deposit insurance under the FDIC’s Deposit Insurance Fund (calculated using the FDIC’s risk-based assessment system). As a result of losses incurred by the Deposit Insurance Fund on account of current financial market conditions, the amount of these assessments has been increasing. The FDIC authorized the imposition of special assessments of five basis points on each FDIC-insured institution’s assets minus its Tier 1 capital (subject to a cap of 10 basis points of an institution’s domestic deposits). The first special assessment was collected on September 30, 2009. Instead of imposing additional special assessments, the FDIC issued a regulation that required FDIC-insured institutions to prepay on December 30, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012, with institutions accounting for the prepayment as a prepaid expense (an asset). The Dodd-Frank Act changes the FDIC deposit insurance assessment framework (the amounts paid by FDIC-insured institutions into the deposit insurance fund of the FDIC), primarily by basing assessments on an FDIC-insured institution’s total assets less tangible equity rather than U.S. domestic deposits, which is expected to shift a greater portion of the aggregate assessments to large FDIC-insured institutions.

The FDIC’s basic amount of deposit insurance is U.S. $ 250,000. The Dodd-Frank Act provides for unlimited deposit insurance for certain noninterest-bearing transaction accounts through December 31, 2012.

Other

In the United States, our U.S.-registered broker-dealers are regulated by the SEC. Broker-dealers are subject to regulations that cover all aspects of the securities business, including sales methods, trade practices among broker-dealers, use and safekeeping of customers’ funds and securities, capital structure, recordkeeping, the financing of customers’ purchases and the conduct of directors, officers and employees.

Our principal U.S. SEC-registered broker-dealer subsidiary, Deutsche Bank Securities Inc., is a member of the New York Stock Exchange and is regulated by the Financial Industry Regulatory Authority (FINRA) and the individual state securities authorities in the states in which it operates. The U.S. government agencies and self-regulatory organizations, as well as state securities authorities in the United States having jurisdiction over our U.S. broker-dealer affiliates, are empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or its directors, officers or employees.

 

 


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Annual Report 2011 on Form 20-F      
     
     
 

 

Under the Dodd-Frank Act, with certain exceptions, our entities that are swap dealers, security-based swap dealers, major swap participants or major security-based swap participants will be required to register with the SEC or CFTC, or both, and will become subject to the requirements as to capital, margin, business conduct, recordkeeping and other requirements applicable to such entities. The details of these requirements will be established through numerous regulations to be issued by various U.S. regulatory authorities.

Organizational Structure

We operate our business along the structure of our three group divisions. Deutsche Bank AG is the direct or indirect holding company for our subsidiaries. The following table sets forth the significant subsidiaries we own, directly or indirectly as of December 31, 2011. We used the three-part test set out in Section 1-02 (w) of Regulation S-X under the U.S. Securities Exchange Act of 1934 to determine significance. We do not have any other subsidiaries we believe are material based on other, less quantifiable, factors. We have provided information on the principal subsidiaries of Taunus Corporation, DB Finanz-Holding GmbH and DB Valoren S.à.r.l. to give an idea of their businesses.

We own 100 % of the equity and voting interests in these subsidiaries, except for Deutsche Postbank AG, of which we own shares representing 53.14 % of the equity and voting rights as of December 31, 2011, and, taking into account certain financial instruments held by us, a total equity interest of 80.56 %. Exercise of the aforementioned financial instruments in the first quarter 2012 resulted in an increase of direct ownership in Postbank (further detail is included in Note 04 “Acquisitions and Dispositions”). These subsidiaries prepare financial statements as of December 31, 2011 and are included in our consolidated financial statements. Their principal countries of operation are the same as their countries of incorporation.

 

Subsidiary

  

Place of Incorporation

Taunus Corporation1

   Delaware, United States

Deutsche Bank Trust Company Americas2

   New York, United States

Deutsche Bank Securities Inc.3

   Delaware, United States

 

  

 

Deutsche Bank Luxembourg S.A.4

   Luxembourg

 

  

 

Deutsche Bank Privat- und Geschäftskunden Aktiengesellschaft5

   Frankfurt am Main, Germany

 

  

 

DB Finanz-Holding GmbH6

   Frankfurt am Main, Germany

DB Valoren S.à.r.l.7

   Luxembourg

DB Equity S.à.r.l.8

   Luxembourg

Deutsche Postbank AG9

   Bonn, Germany

 

1 

This company is a holding company for most of our subsidiaries in the United States. Effective February 1, 2012, Taunus Corporation is no longer a holding company for Deutsche Bank Trust Company Americas, and Deutsche Bank Trust Corp. has become the top-level U.S. holding company through which Deutsche Bank Trust Company Americas is held.

2 

Deutsche Bank Trust Company Americas is a New York State-chartered bank which originates loans and other forms of credit, accepts deposits, arranges financings and provides numerous other commercial banking and financial services.

3 

Deutsche Bank Securities Inc. is a U.S. SEC-registered broker dealer and is a member of the New York Stock Exchange and regulated by the Financial Industry Regulatory Authority. It is also regulated by the individual state securities authorities in the states in which it operates.

4

The primary business of this company comprises Treasury and Markets activities, especially as a major supplier of euro liquidity for Deutsche Bank Group. Further business activities are the international loan business, where the bank acts as lending office for continental Europe and as risk hub for the loan exposure management group, and private banking.

5 

The company serves private individuals, affluent clients and small business clients with banking products.

6 

The company holds the majority stake in Deutsche Postbank AG.

7

This company is a holding company for our subgroups in Australia, New Zealand, and Singapore. It is also the holding company for DB Equity S.à.r.l.

8 

The company holds a part of our stake in Deutsche Postbank AG.

9 

The business activities of this company and its subsidiaries comprise retail banking, business with corporate customers, capital markets activities as well as home savings loans.

 

 


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Annual Report 2011 on Form 20-F      
     
     

 

Property and Equipment

As of December 31, 2011, we operated in 72 countries out of 3,078 branches around the world, of which 66 % were in Germany. We lease a majority of our offices and branches under long-term agreements.

As of December 31, 2011, we had premises and equipment with a total book value of approximately  5.5 billion. Included in this amount were land and buildings with a carrying value of approximately  2.8 billion. As of December 31, 2010, we had premises and equipment with a total book value of approximately  5.8 billion. Included in this amount were land and buildings with a carrying value of approximately  3.3 billion.

We continue to review our property requirements worldwide taking into account cost containment measures as well as growth initiatives in selected businesses.

Information Required by Industry Guide 3

Please see pages S-1 through S-16 of the supplemental financial information, which pages are incorporated by reference herein, for information required by Industry Guide 3.

Item 4A: Unresolved Staff Comments

We have not received written comments from the Securities and Exchange Commission regarding our periodic reports under the Exchange Act, as of any day 180 days or more before the end of the fiscal year to which this annual report relates, which remain unresolved.

 

 


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Deutsche Bank   

Item 5: Operating and Financial Review and Prospects

   58
Annual Report 2011 on Form 20-F      
     
     

 

Item 5: Operating and Financial Review and Prospects

Overview

The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes to them included in “Item 18: Financial Statements” of this document, on which we have based this discussion and analysis. Our consolidated financial statements for the years ended December 31, 2011, 2010 and 2009 have been audited by KPMG AG Wirtschaftsprüfungsgesellschaft, as described in the “Report of Independent Registered Public Accounting Firm” on page F-4.

We have prepared our consolidated financial statements in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”) and as endorsed by the European Union (“EU”).

Significant Accounting Policies and Critical Accounting Estimates

Our significant accounting policies are essential to understanding our reported results of operations and financial condition. Certain of these accounting policies require critical accounting estimates that involve complex and subjective judgments and the use of assumptions, some of which may be for matters that are inherently uncertain and susceptible to change. Such critical accounting estimates could change from period to period and have a material impact on our financial condition, changes in financial condition or results of operations. Critical accounting estimates could also involve estimates where management could have reasonably used another estimate in the current accounting period. Actual results may differ from these estimates if conditions or underlying circumstances were to change. See Notes 01 “Significant Accounting Policies” and 02 “Critical Accounting Estimates” to the consolidated financial statements for a discussion on our significant accounting policies and critical accounting estimates.

We have identified the following significant accounting policies that involve critical accounting estimates:

 

 

Fair value estimates

 

Reclassification of financial assets

 

Impairment of loans and provision for off-balance sheet positions

 

Impairment of other financial assets

 

Impairment of non-financial assets

 

Deferred tax assets

 

Legal and regulatory contingencies and uncertain tax positions

Recently Adopted Accounting Pronouncements and New Accounting Pronouncements

See Note 03 “Recently Adopted and New Accounting Pronouncements” to the consolidated financial statements for a discussion on our recently adopted and new accounting pronouncements.

 

 


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Operating Results (2011 vs. 2010)

You should read the following discussion and analysis in conjunction with our consolidated financial statements.

Executive Summary

The Global Economy

The global economy was impacted by several negative factors in 2011: rising commodity prices, mounting inflation, natural and nuclear disasters in Japan, political unrest in North Africa, debates on the debt ceiling in the U.S. and downgrading by rating agencies – but especially the sovereign debt crisis in Europe.

In 2011, the global economic growth slowed to an estimated 3.5 % after a solid growth of 5 % in 2010 that was driven by catch-up effects in the wake of the global economic crisis. The slowdown took place predominantly in the industrial countries, while growth continued nearly unabated in the emerging markets. The problems of structural adjustment in the industrial countries had apparently been masked in many cases by the massive monetary and fiscal policy measures introduced in 2008 and 2009, some of which only developed their full effect in 2010. As the economic stimulus measures expired, structural problems returned.

The U.S. economy, where continuing problems in the real estate and job markets slowed growth down from 3 % in 2010 to around 1.75 % in 2011, demonstrated this notably. In the wake of the tsunami last March and the nuclear catastrophe it unleashed in Fukushima, Japan’s economy was temporarily thrown into a recession by a negative supply shock and decreased on an annualized basis by around 0.75 %. The eurozone slid into a recession towards the end of the year due to the increasing uncertainty on the future development of the debt crisis and the retarding effects of the fiscal consolidation programs that were launched in many countries. As an annualized average, growth declined from 1.9 % in 2010 to around 1.5 % in 2011. Only the German economy grew strongly again at 3 %, versus 3.6 % in 2010. However, the sentiment clearly dampened here over the course of the year, in particular, due to the waning momentum in foreign trade.

The Banking Industry

In 2011, the economic environment for the banking industry was marked by a favorable first half and from summer onwards by a significant downturn as the European sovereign debt crisis worsened and economic activity declined more than expected.

Capital market businesses initially saw stable earnings and healthy client demand. This changed with the sovereign debt crisis in Europe spreading to Italy, Spain and other core countries during the third quarter. The uncertainty over debt sustainability, the magnitude of the economic downturn and worries about banks’ excessive exposure to countries affected by the crisis paralyzed not only issuance activities, corporate acquisitions and trading in Europe but also the willingness of investors to provide long-term financing to the banking sector. Outside Europe, investment banking performance and banks’ term funding remained largely satisfactory. For the year as a whole, the global volume of equity issuance decreased significantly, while debt issuance was down only moderately compared to 2010; the market for M&A picked up slightly, and the syndicated loans business continued to recover.

 

 


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European banks responded to the widespread drying-up of long-term refinancing sources and of the interbank market by accelerating the restructuring of investment banking activities, reducing risk positions, partially withdrawing from foreign markets and seeking greater recourse to funds made available by the European Central Bank. The change in the refinancing and liquidity situation manifested itself at year-end in the European Central Bank’s first-ever three-year tender operation with full allotment. In addition, the European Banking Authority also sought to restore confidence in the industry via two stress tests, increased capital requirements and improved disclosure of risk exposures in the countries affected by the crisis.

Asset management initially benefited in 2011 from the favorable market environment before revenues started to come under pressure with the decline of equity markets in August and higher volatility in the subsequent months. Investors reduced their holdings of equities and debt instruments perceived as relatively risky in favor of, for example, U.S. Treasuries and German Bunds in view of their reputation as safe havens. Banks’ commissions and fee income benefitted from generally higher trading volumes which was offset by investors’ preference for rather low-margin products.

In line with the macroeconomic trends, lending volumes to private and business clients in the eurozone increased moderately in the first two quarters before leveling off towards year-end. Overall, lending volumes increased only insignificantly compared to the prior year. In the U.S., lending to private individuals stabilized in 2011, while corporate lending clearly returned to positive territory in the course of the year. Net interest income suffered from persistently very low interest rates in nearly all the industrialized countries. At the same time, loan loss provisions started to rise again in Europe; by contrast, they continued to fall in the U.S. As a result, banks in the eurozone (unlike U.S. banks) recently began to tighten their lending standards again.

Furthermore, European and U.S. banks posted contrasting profit performances: while banks in the U.S. continued to register sizeable gains and in fact approached the record levels of the pre-crisis period, the banks in Europe experienced declines in net income declines on an already only moderate performance in the prior year. A few major banks sustained (further) losses in this still relatively favorable economic environment.

The past year provided greater visibility on the new legal architecture for the financial markets. Initiatives were launched in the European Union and the U.S. to transpose the provisions of Basel 3 into national law. In Europe, banks were required for the first time to comply with the requirements of Basel 2.5, as set out in the adapted Capital Requirements Directive (“CRD III”), in particular with its higher risk weights for re-securitizations and trading assets. Furthermore, the global banking supervisors released a draft document detailing the implementation of higher capital requirements for systemically relevant banks as well as a list of the institutions concerned including Deutsche Bank. In the U.S., the various financial regulators – in particular the Federal Reserve, the FDIC, the SEC and the CFTC – introduced rules which cast the underlying legislation of the Dodd-Frank Act adopted in 2010 in concrete regulations for the financial industry. The United Kingdom ventured into new territory with the Vickers Commission’s proposals on the organizational separation of lending and deposit-taking businesses with private and business clients from the rest of a bank’s activities. Finally, the discussion about the introduction of a financial transaction tax intensified at the European level.

In 2011 the German legislator amended the Securities Trading Act with a view to strengthen investor protection and market transparency and the European Commission proposed an overhaul of the Markets in Financial Instruments Directive to enhance investment advice to retail customers, market transparency and the organization of securities services providers.

 

 


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Deutsche Bank

The market environment in 2011 was very difficult. A favourable development of the markets in the first six months was followed by very challenging circumstances in the second half of 2011. The sovereign debt crisis in Europe led to mounting uncertainty in markets around the world and to reluctance to do business among clients, above all in Europe, but it also and most recently had an impact on the economy in several countries.

Despite this challenging environment, we achieved solid results in 2011, generating a net income of  4.3 billion (2010:  2.3 billion) and income before income taxes of  5.4 billion compared with  4.0 billion in 2010 (which included a  2.3 billion charge related to the Postbank acquisition). In our business segments within CIB and PCAM, we achieved an income before income taxes of  6.6 billion. This compares to our original target of  10 billion, which was based on certain assumptions about the operating environment, not all of which have materialized in 2011.

While our CB&S business showed a very strong performance in the first half of 2011, it could not achieve its full-year target as market conditions clearly deteriorated as a result of the continued European sovereign debt crisis and growing macroeconomic concerns in the second half of 2011. In addition, CB&S had to absorb  1.0 billion of specific charges related to litigation and operational risks. On the other hand, our GTB and PCAM businesses achieved record results and, in aggregate, exceeded their targets. This performance included positive impacts from recent acquisitions, notably the full-year consolidation of Postbank, which also contributed to a more balanced earnings mix in the current year. In addition, the results in PBC reflect a  0.2 billion net negative impact resulting from write-downs on Greek government bonds ( 0.5 billion), partly offset by a one-time positive impact related to our investment in Hua Xia Bank ( 0.3 billion).

Our 2011 results were also impacted by other significant factors. Firstly, we recognized impairments of approximately  0.6 billion in relation to certain investments in CI. Secondly, our performance related compensation expenses were significantly lower in 2011 reflecting lower results, especially in CB&S. Thirdly, we realized incremental efficiency savings of more than 0.5 billion in 2011 through the execution of our Complexity Reduction Program, bringing the total efficiency savings of this program, compared with the respective 2009 cost base, to 1.1 billion by year-end 2011. Moreover, we have achieved additional savings from the further integration of CIB.

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. After applying the new rules of Basel 2.5 for the first time, our Tier 1 capital ratio was 12.9 % and our Core Tier 1 capital ratio was 9.5 % as of December 31, 2011. Risk-weighted assets at year-end 2011 were  381 billion, versus  346 billion at year-end 2010, largely due to an increase of  54 billion attributable to the first-time implementation of the Basel 2.5 rules partly offset by management actions aimed at de-risking our business, mainly in CB&S. As of December 31, 2011, we also exceeded the capitalization requirements of the European Banking Authority (“EBA”), both in terms of the implementation date and our capitalization levels. Our liquidity reserves (excluding Postbank) were  219 billion as of December 31, 2011 (December 31, 2010:  150 billion).

Trends and Uncertainties

Our net revenues and expenses significantly increased in 2011 compared with prior-year levels as the businesses we acquired in 2010 contributed to the full financial year for the first time with the main driver being Postbank. Net revenues were impacted adversely by challenging market conditions and macroeconomic concerns mainly as a result of the European sovereign debt crisis, which will likely continue to impact our revenues going forward.

 

 


Table of Contents
Deutsche Bank   

Item 5: Operating and Financial Review and Prospects

   62
Annual Report 2011 on Form 20-F      
     
     

 

In CB&S, net revenues in 2011 were severely impacted by ongoing concerns around the European sovereign debt crisis and an overall uncertain macroeconomic environment. This resulted in significantly reduced client activity across the industry and a decline in volumes across many products. While certain businesses clearly suffered from market turbulence and subdued client activity, others either maintained their performance or even improved on the back of higher volatility and increased volumes. In addition, stricter regulatory requirements and capital adequacy requirements in particular provide challenges to investment banking business models. Although we have taken a series of steps designed to ensure that the bank is strongly positioned to exploit the competitive opportunities existing from the current economic environment, future performance of our CB&S business, which has a strong focus on Europe, will depend on the development of the European sovereign debt crisis and other macroeconomic factors. Reduced revenues and overall weaker results in 2011 have resulted in lower performance related compensation compared to the prior year. The development of compensation expenses will continue to depend significantly on the operating performance of our businesses and the governance of bank executive compensation. Litigation related expenses and operational losses were significantly higher in 2011 and may increase further mainly due to legal risks related to the financial crisis.

In GTB, a strong performance across all businesses and the acquisition of the commercial banking activities acquired from ABN AMRO in the Netherlands led to record net revenues with growth in fee and interest income. Interest rate levels, international trade volumes, volumes in cross-border payments and corporate actions as well as global economic growth are likely to impact the revenue development in GTB.

In 2011, we achieved our targeted efficiency savings from the further integration of the CIB businesses and expect to realize revenue and cost synergies going forward.

In PCAM, the increase in net revenues and costs is mostly resulting from businesses acquired in 2010, predominantly Postbank and, to a lesser extent, Sal. Oppenheim. Revenues are likely to continue to be impacted by changes in market conditions and investor sentiment. Loan and deposit revenues in PCAM will continue to be impacted by the development of volumes and margins. The increase in provision for credit losses in 2011 compared to the prior year was mainly attributable to Postbank. Excluding Postbank, provisions were lower than in 2010. We expect that a further significant decline in economic growth would result in an increase of our provision for credit losses. The integration of Postbank will continue in 2012 and is expected to yield revenue and cost synergies. We are currently conducting a strategic review of our global Asset Management division, except for the DWS franchise in Germany, Europe and Asia. Considering all strategic options, we are focusing in particular on how recent regulatory changes and associated costs and changes in the competitive landscape are expected to impact the business and its growth prospects on a bank platform.

In CI, net revenues were positive compared to 2010, when a Postbank related charge had resulted in negative net revenues. Due to the variety of operations included in CI, future revenues depend on a number of external conditions.

For the Group, severance charges in 2011 remained on prior year levels as a consequence of continued measures to reduce complexity in our operations and to standardize processes. Similar measures, including integration-related initiatives, are expected for 2012. Both the German and UK bank levies were due for the first time in 2011 and will impact our results in the future.

 

 


Table of Contents
Deutsche Bank    Item 5: Operating and Financial Review and Prospects    63
Annual Report 2011 on Form 20-F      
     
     

 

Our effective tax rate in 2011 was 20% and primarily benefited from changes in the recognition and measurement of deferred taxes and the geographic mix of income. The effective tax rate in future periods could continue to be influenced by the potential occurrence of specific factors.

Foreign exchange rate fluctuations are likely to continue to impact our reported euro revenues and expenses.

We strengthened our capital position in 2011. Even accounting for the new rules of Basel 2.5 for the first time as of December 31, 2011, we exceeded the capitalization requirements of the European Banking Authority (EBA), both in terms of the implementation date and the capitalization levels required. However, future developments in regulatory requirements in the various jurisdictions we are operating in might affect our capital position.

Our liquidity reserves have increased to 219 billion as of year-end 2011. However, unexpected or extreme market turbulence could provide a challenge to our access to funding sources.

Financial Results

The following table presents our condensed consolidated statement of income for 2011, 2010 and 2009.

 

in m.                     2011 increase (decrease)
from 2010
    2010 increase (decrease)
from 2009
 

(unless stated otherwise)

  2011       2010       2009       in m.       in %       in m.       in %    

Net interest income

    17,445          15,583          12,459          1,862          12          3,124          25     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for credit losses

    1,839          1,274          2,630          565          44          (1,356)         (52)    

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Net interest income after provision for credit losses     15,606          14,309          9,829          1,297          9          4,480          46     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commissions and fee income

    11,544          10,669          8,911          875          8          1,758          20     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net gains (losses) on financial assets/liabilities

at fair value through profit or loss

    3,058          3,354          7,109          (296)         (9)         (3,755)         (53)    

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net gains (losses) on financial assets

available for sale

    123          201          (403)         (78)         (39)         604          N/M     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) from equity method

investments

    (264)         (2,004)         59          1,740          (87)         (2,063)         N/M     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (loss)

    1,322          764          (183)         558          73          947          N/M     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

    15,783          12,984          15,493          2,799          22          (2,509)         (16)    

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues1

    31,389          27,293          25,322          4,096          15          1,971          8     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Compensation and benefits

    13,135          12,671          11,310          464          4          1,361          12     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

General and administrative expenses

    12,657          10,133          8,402          2,524          25          1,731          21     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Policyholder benefits and claims

    207          485          542          (278)         (57)         (57)          (11)    

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Impairment of intangible assets

    –          29          (134)          (29)         N/M          163          N/M     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Restructuring activities

    –          –          –          –          N/M          –          N/M     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expenses

    25,999          23,318          20,120          2,681          11          3,198          16     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    5,390          3,975          5,202          1,415          36          (1,227)         (24)    

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

    1,064          1,645          244          (581)         (35)         1,401          N/M     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    4,326          2,330          4,958          1,996          86          (2,628)         (53)    

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to

noncontrolling interests

    194          20          (15)         174          N/M          35          N/M     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to

Deutsche Bank shareholders

    4,132          2,310          4,973          1,822          79          (2,663)         (54)    

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
N/M – Not meaningful
1 

After provision for credit losses.

 

 


Table of Contents
Deutsche Bank    Item 5: Operating and Financial Review and Prospects    64
Annual Report 2011 on Form 20-F      
     
     

 

Net Interest Income

The following table sets forth data related to our Net interest income.

 

in m.                     2011 increase  (decrease)
from 2010
    2010 increase  (decrease)
from 2009
 

(unless stated otherwise)

  2011       2010       2009       in m.                      in %       in m.                        in %    

Total interest and similar income

    34,878          28,779          26,953          6,099          21          1,826          7     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expenses

    17,433          13,196          14,494          4,237          32          (1,298)         (9)    

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    17,445          15,583          12,459          1,862          12          3,124          25     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average interest-earning assets1

      1,174,201            993,780            879,601          180,421          18          114,179          13     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average interest-bearing liabilities1

      1,078,721            933,537            853,383          145,184          16          80,154          9     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross interest yield2

    2.97%          2.90%          3.06%          0.07 ppt          2          (0.16)ppt          (5)    

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross interest rate paid3

    1.62%          1.41%          1.70%          0.21 ppt          15          (0.29)ppt          (17)    

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest spread4

    1.35%          1.48%          1.37%          (0.13)ppt          (9)         0.11 ppt          8     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest margin5

    1.49%          1.57%          1.42%          (0.08)ppt          (5)         0.15 ppt          11     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

ppt – Percentage points
1 

Average balances for each year are calculated in general based upon month-end balances.

2 

Gross interest yield is the average interest rate earned on our average interest-earning assets.

3

Gross interest rate paid is the average interest rate paid on our average interest-bearing liabilities.

4 

Net interest spread is the difference between the average interest rate earned on average interest-earning assets and the average interest rate paid on average interest-bearing liabilities.

5 

Net interest margin is net interest income expressed as a percentage of average interest-earning assets.

Net interest income in 2011 was 17.4 billion, an increase of 1.9 billion, or 12 %, versus 2010. The improvement was primarily driven by the consolidation of Postbank. The Postbank consolidation was also the main contributor to the increase in average interest-earning assets and average interest-bearing liabilities, resulting in substantially higher interest income and expenses. Excluding Postbank, net interest income in 2011 was down versus 2010. The decrease was mainly driven by CB&S, predominantly due to increased costs of funding due to higher spreads and lower net interest income on trading positions. These develop-ments resulted in a tightening of our net interest spread by 13 basis points and of our net interest margin by 8 basis points.

The development of our net interest income is also impacted by the accounting treatment of some of our hedging-related derivative transactions. We enter into nontrading derivative transactions primarily as economic hedges of the interest rate risks of our nontrading interest-earning assets and interest-bearing liabilities. Some of these derivatives qualify as hedges for accounting purposes while others do not. When derivative transactions qualify as hedges of interest rate risks for accounting purposes, the interest arising from the derivatives is reported in interest income and expense, where it offsets interest flows from the hedged items. When derivatives do not qualify for hedge accounting treatment, the interest flows that arise from those derivatives will appear in trading income.

Net Gains (Losses) on Financial Assets/Liabilities at Fair Value through Profit or Loss

The following table sets forth data related to our Net gains (losses) on financial assets/liabilities at fair value through profit or loss.

 

in m.                     2011 increase (decrease)
from 2010
    2010 increase (decrease)
from 2009
 
(unless stated otherwise)           2011               2010               2009               in  m.                in %              in  m.                in %   
             

CIB – Sales & Trading (equity)

    412          451          1,125          (39)         (9)         (674)         (60)    

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CIB – Sales & Trading (debt and other products)

    2,640          3,046          4,223          (406)         (13)         (1,177)         (28)    

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other

    6          (144)         1,761          150          N/M          (1,905)         N/M     

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total net gains (losses) on financial assets/liabilities at fair value through profit or loss     3,058          3,354          7,109          (296)         (9)         (3,755)         (53)