20-F 1 y89965e20vf.htm FORM 20-F e20vf
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As filed with the Securities and Exchange Commission on March 15, 2011
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 20-F
     
o    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
or
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
or
     
o    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)
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   919,062,360
(as of December 31, 2010)
     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ           No o
     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 o           No þ
     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 þ           No o
     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 þ Accelerated filer o  Non-accelerated filer o
     Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
         
U.S. GAAP o
  International Financial Reporting Standards þ
as issued by the International Accounting Standards Board
  Other o
     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 o           Item 18 o
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 o           No þ
 
 


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Deutsche Bank
Annual Report 2010 on Form 20-F
    i
Securities registered or to be registered pursuant to Section 12(b) of the Act (as of February 18, 2011).
     
    Name of each exchange
Title of each class   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
6.375 % Noncumulative Company Preferred Securities of Deutsche Bank Capital Funding LLC VIII*
Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*
  New York Stock Exchange
6.55 % Trust Preferred Securities of Deutsche Bank Contingent Capital Trust II
6.55 % Company Preferred Securities of Deutsche Bank Contingent Capital LLC II*
Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*
  New York Stock Exchange
6.625 % Noncumulative Trust Preferred Securities of Deutsche Bank Capital Funding Trust IX
6.625 % Noncumulative Company Preferred Securities of Deutsch Bank Capital Funding LLC IX*
Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*
  New York Stock Exchange
7.350 % Noncumulative Trust Preferred Securities of Deutsche Bank Capital Funding Trust X
7.350 % Noncumulative Company Preferred Securities of Deutsche Bank Capital Funding LLC X*
Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*
  New York Stock Exchange
7.60 % Trust Preferred Securities of Deutsche Bank Contingent Capital Trust III
7.60 % Company Preferred Securities of Deutsche Bank Contingent Capital LLC III*
Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*
  New York Stock Exchange
8.05 % Trust Preferred Securities of Deutsche Bank Contingent Capital Trust V
8.05 % Company Preferred Securities of Deutsche Bank Contingent Capital LLC V*
Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*
  New York Stock Exchange
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
ELEMENTS Linked to the Benjamin Graham Large Cap Value Index – Total Return due August 14, 2023
  NYSE Arca
ELEMENTS Linked to the Benjamin Graham Small Cap Value Index – Total Return due August 14, 2023
  NYSE Arca
ELEMENTS Linked to the Benjamin Graham Total Market Value Index – Total Return due August 14, 2023
  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 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.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
    ii
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Deutsche Bank
Annual Report 2010 on Form 20-F
    iii
         
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Deutsche Bank
Annual Report 2010 on Form 20-F
    iv
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”, and “our” 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;
 
the implementation of our strategic initiatives and other responses to economic and business conditions;
 
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;

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
    v
 
our success in implementing our strategic initiatives and other responses to economic and business conditions 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
Net income (loss) attributable to Deutsche Bank shareholders (basis for target definition EPS)
  Net income (loss) attributable to Deutsche Bank shareholders
Total assets adjusted
  Total assets
Total equity adjusted
  Total equity
Leverage ratio (target definition) (total equity adjusted to total assets adjusted)
  Leverage ratio (total equity to total assets)
Diluted earnings per share (target definition)
  Diluted earnings per share
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 to pages S-17 through S-19 of the supplemental financial information, which are incorporated by reference herein, and the following paragraphs.
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.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
    vi
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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   1
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”). Until December 31, 2006, we prepared our consolidated financial information in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). All 2006 data included in this report, however, have been prepared in accordance with IFRS as issued by the IASB. 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 “Item 5: Operating and Financial Review and Prospects – Results of Operations by Segment (2010 vs. 2009).”

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   2
Income Statement Data
                                                 
    20101     2010     2009     2008     2007     2006  
    in U.S.$ m.     in m.     in m.     in m.     in m.     in m.  
Net interest income
    20,822       15,583       12,459       12,453       8,849       7,008  
 
                                   
Provision for credit losses
    1,702       1,274       2,630       1,076       612       298  
 
                                   
Net interest income after provision for credit losses
    19,120       14,309       9,829       11,377       8,237       6,710  
 
                                   
Commissions and fee income
    14,256       10,669       8,911       9,741       12,282       11,192  
Net gains (losses) on financial assets/liabilities at fair value through profit or loss
    4,482       3,354       7,109       (9,992 )     7,175       8,892  
Other noninterest income (loss)
    (1,388 )     (1,039 )     (527 )     1,411       2,523       1,476  
 
                                   
Total net revenues
    38,171       28,567       27,952       13,613       30,829       28,568  
 
                                   
Compensation and benefits
    16,931       12,671       11,310       9,606       13,122       12,498  
General and administrative expenses
    13,540       10,133       8,402       8,339       8,038       7,143  
Policyholder benefits and claims
    648       485       542       (252 )     193       67  
Impairment of intangible assets
    39       29       (134 )     585       128       31  
Restructuring activities
                            (13 )     192  
 
                                   
Total noninterest expenses
    31,158       23,318       20,120       18,278       21,468       19,931  
 
                                   
Income (loss) before income taxes
    5,311       3,975       5,202       (5,741 )     8,749       8,339  
Income tax expense (benefit)
    2,198       1,645       244       (1,845 )     2,239       2,260  
 
                                   
Net income (loss)
    3,113       2,330       4,958       (3,896 )     6,510       6,079  
 
                                   
Net income (loss) attributable to noncontrolling interests
    27       20       (15 )     (61 )     36       9  
Net income (loss) attributable to Deutsche Bank shareholders
    3,087       2,310       4,973       (3,835 )     6,474       6,070  
 
                                                 
    in U.S.$     in     in     in     in     in  
Basic earnings per share2,3
    4.10       3.07       7.21       (6.87 )     12.29       11.66  
Diluted earnings per share2,4
    3.90       2.92       6.94       (6.87 )     11.80       10.44  
Dividends paid per share5
    1.00       0.75       0.50       4.50       4.00       2.50  
 
1  
Amounts in this column are unaudited. We have translated the amounts solely for your convenience at a rate of U.S.$1.3362 per , the noon buying rate on December 31, 2010.
 
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
                                                 
    20101     2010     2009     2008     2007     2006  
    in U.S.$ m.     in m.     in m.     in m.     in m.     in m.  
Total assets
    2,546,303       1,905,630       1,500,664       2,202,423       1,925,003       1,520,580  
Loans
    544,807       407,729       258,105       269,281       198,892       178,524  
Deposits
    713,509       533,984       344,220       395,553       457,946       411,916  
Long-term debt
    226,700       169,660       131,782       133,856       126,703       111,363  
Common shares
    3,180       2,380       1,589       1,461       1,358       1,343  
Total shareholders’ equity
    65,264       48,843       36,647       30,703       37,893       33,169  
Tier 1 capital
    56,875       42,565       34,406       31,094       28,320       23,539  
Regulatory capital
    65,057       48,688       37,929       37,396       38,049       34,309  
 
1  
Amounts in this column are unaudited. We have translated the amounts solely for your convenience at a rate of U.S.$1.3362 per , the noon buying rate on December 31, 2010.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   3
Certain Key Ratios and Figures
                                         
    2010     2009     2008     2007     2006  
Share price at period-end1
    39.10       44.98       25.33       81.36       92.23  
Share price high1
    55.11       53.05       81.73       107.85       94.00  
Share price low1
    35.93       14.00       16.92       74.02       73.48  
Book value per basic share outstanding2
    52.38       52.65       47.90       71.39       63.31  
Return on average shareholders’ equity (post-tax)3
    5.5 %       14.6 %       (11.1)%       17.9 %       20.3 %  
Pre-tax return on average shareholders’ equity4
    9.5 %       15.3 %       (16.5)%       24.1 %       27.9 %  
Pre-tax return on average active equity5
    9.6 %       15.1 %       (17.7)%       29.0 %       32.5 %  
Cost/income ratio6
    81.6 %       72.0 %       134.3 %       69.6 %       69.7 %  
Compensation ratio7
    44.4 %       40.5 %       70.6 %       42.6 %       43.9 %  
Noncompensation ratio8
    37.3 %       31.5 %       63.7 %       27.1 %       25.8 %  
Core Tier 1 capital ratio1, 9
    8.7 %       8.7 %       7.0 %       6.9 %       6.9 %  
Tier 1 capital ratio1,9
    12.3 %       12.6 %       10.1 %       8.6 %       8.5 %  
Employees at period-end (full-time equivalent):
                                       
In Germany
    49,265       27,321       27,942       27,779       26,401  
Outside Germany
    52,797       49,732       52,514       50,512       42,448  
Branches at period-end:
                                       
In Germany
    2,087       961       961       976       934  
Outside Germany
    996       1,003       989       887       783  
 
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  
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.
Dividends
The following table shows the dividend per share in euro and in U.S. dollars for the years ended December 31, 2010, 2009, 2008, 2007 and 2006. 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, 2007 and 2006. For individual German tax residents, the withholding tax paid after January 1, 2009 represents, 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.
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, 2007 and 2006). 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.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   4
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 ratio2,3  
    Dividends     Dividends     Basic earnings     Diluted earnings  
    per share1     per share     per share     per share  
2010 (proposed)
    $ 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 %  
2006
    $ 5.28       4.00       34 %       38 %  
 
N/M – Not meaningful
 
1  
For your convenience, we present dividends in U.S. dollars for each year by translating the euro amounts at the noon buying rate described below under “Exchange Rate and Currency Information” on the last business day of that year.
 
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.$1.3362 per euro, the noon buying rate for euros on December 31, 2010. The “noon buying rate” is the rate the Federal Reserve Bank of New York announces for customs purposes as the buying rate for foreign currencies in the City of New York on a particular date. You should not construe any translations as a representation that the amounts could have been exchanged at the rate used on December 31, 2010 or any other date.
The noon buying rate for euros on December 31, 2010 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.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   5
The following table shows the period-end, average, high and low noon buying rates for the euro. In each case, the period-end rate is the noon buying rate announced on the last business day of the period.
                                 
 
in U.S.$ per   Period-end     Average1     High     Low  
2011
                               
March (through March 8)
    1.3898             1.4028       1.3809  
February
    1.3834             1.3834       1.3440  
January
    1.3692             1.3716       1.2903  
2010
                               
December
    1.3362             1.3435       1.3064  
November
    1.2998             1.4244       1.2998  
October
    1.3857             1.4101       1.3705  
September
    1.3648             1.3648       1.2697  
2010
    1.3362       1.3207       1.4563       1.1942  
2009
    1.4406       1.3963       1.5120       1.2555  
2008
    1.3919       1.4695       1.6010       1.2446  
2007
    1.4603       1.3797       1.4862       1.2904  
2006
    1.3197       1.2661       1.3327       1.1860  
 
1  
We calculated the average rates for each year using the average of the noon buying rates on the last business day of each month during the year. We did not calculate average exchange rates within months.
On March 8, 2011, the noon buying rate was U.S.$1.3898 per euro.
Capitalization and Indebtedness
The following table sets forth our consolidated capitalization in accordance with IFRS as of December 31, 2010:
         
    in m.  
Debt:1,2
       
Long-term debt
    169,660  
Trust preferred securities
    12,250  
Long-term debt at fair value through profit or loss
    15,280  
 
     
Total debt
    197,190  
 
     
 
       
Shareholders’ equity:
       
Common shares (no par value)
    2,380  
Additional paid-in capital
    23,515  
Retained earnings
    25,999  
Common shares in treasury, at cost
    (450 )
Accumulated other comprehensive income, net of tax
       
Unrealized net (losses) on financial assets available for sale, net of applicable tax and other
    (113 )
Unrealized net (losses) on derivatives hedging variability of cash flows, net of tax
    (179 )
Unrealized net gains (losses) on assets classified as held for sale, net of tax
    (11 )
Foreign currency translation, net of tax
    (2,333 )
Unrealized net gains from equity method investments
    35  
 
     
Total shareholders’ equity
    48,843  
 
     
Noncontrolling interests
    1,549  
 
     
Total equity
    50,392  
 
     
Total capitalization
    247,582  
 
     
 
1  
1,780 million (1 %) of our debt was guaranteed as of December 31, 2010. This consists of debt of a subsidiary of Deutsche Postbank AG which is guaranteed by the German government.
 
2  
 9,311 million (5 %) of our debt was secured as of December 31, 2010.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   6
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 the 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 recent global financial crisis and economic downturn.
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. 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. This materially and adversely affected the availability and performance of instruments used to hedge positions and manage risk. Furthermore, there was a widespread loss of investor confidence, both in our industry and the broader markets. Market conditions also led to the failure or merger under distressed conditions of a number of prominent financial institutions. These and other factors had combined to increase credit spreads, to cause ratings agencies to lower credit ratings and otherwise to increase the cost and decrease the availability of credit.
In the wake of the financial crisis, the world economy contracted in 2009. While the world economy grew in 2010, and financial markets for many classes of assets have 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 in 2010, and the building up of inventory, and momentum has slowed since autumn 2010 as the effect of these factors tailed off. Economic growth in the eurozone, where we are based, has lagged behind the global economic recovery. Also, the peripheral countries of the eurozone have been affected by depressed real estate markets, as well as increased concern in the financial markets about the peripheral states’ long-term solvency. These or other factors could render the improvements that have occurred fragile.
These adverse financial market and economic conditions have negatively impacted many of our businesses, particularly in 2008, with some effects persisting through 2010. If such conditions do not continue to improve, or if they worsen, our results of operations may be materially and adversely affected. In particular, these conditions required us to write down the carrying values of some of our portfolios of assets, including leveraged loans and loan commitments. Furthermore, we incurred sizeable losses in our equity derivatives trading and equity and credit proprietary trading businesses in 2008. Despite initiatives to reduce our exposure to the affected asset classes or activities, such reduction has not always been possible due to illiquid trading markets for many assets. As a result, we have substantial remaining exposures and thus continue to be exposed to any

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   7
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 and 2010, write-downs and losses in 2009 materially and negatively affected our results for that year. We may in the future be unable to offset the potential negative effects on our profitability through performance in our other businesses.
See “Item 5: Operating and Financial Review and Prospects – Update on Key Credit Market Exposures” for information on the impact of the recent financial market environment on a number of our key businesses.
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 or cause us to show material losses, as we did in 2008. Volatility 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.
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 make 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 both declining and volatile during the recent financial crisis. When we own assets, market price declines can expose us to losses. Many of the more sophisticated transactions we describe in our discussions 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.
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.
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. As we experienced during the recent financial crisis, these developments can lead to material losses if we cannot close out deteriorating positions in a timely way. 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.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   8
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 write-down is recognized in the income statement. These write-downs 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 write-downs 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 and may result in future losses.
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 and  1.3 billion in 2010. 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 recent 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  26.7 billion as of December 31, 2010, 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  2.6 billion provision for credit losses in 2009,  1.3 billion was attributable to these reclassified assets and related primarily to exposures in Leveraged Finance. Of our  1.3 billion provision for credit losses in 2010,  0.3 billion was attributable to these reclassified assets.
Even where losses are for our clients’ accounts, they may fail to repay us, leading to 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.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   9
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 one recently experienced. 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. 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.
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, our 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. In the volatile market environment of the recent financial crisis, these 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. 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.
In its March 2010 lowering of our long-term rating, Moody’s Investors Service noted the extent of our capital allocated to capital markets activities and the resulting challenges for our market risk management function to manage “tail risks” successfully.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   10
Our nontraditional 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, many of the businesses we have engaged in through our Corporate Banking & Securities Corporate Division entail 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.
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 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 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.
From 2005 through 2008, as part of our U.S. residential mortgage loan business, we sold approximately U.S.$85 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, 2010, we have approximately U.S.$588 million of outstanding mortgage repurchase demands (based on original principal balance of the loans). Against these claims, we have established reserves that are not material and that we believe to be adequate. As with reserves generally, however, it is possible that the reserves 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, 2010, we have completed repurchases and otherwise settled claims on loans with an original principal balance of approximately U.S.$1.8 billion. In connection with those repurchases and settlements, we have obtained releases for potential claims on approximately U.S.$21.9 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.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   11
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. Also as described therein, 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 early stages and we continue to defend these actions vigorously. As described further below, legal and regulatory proceedings are subject to many uncertainties, and the outcome of individual matters is not predictable with assurance.
We have a continuous demand for liquidity to fund our business activities. 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 costs. 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, like those experienced during 2008 and early 2009, negative developments concerning other financial institutions perceived to be comparable to us, or negative views about the financial services industry in general, or disruptions in the markets for any specific class of assets. Negative perceptions concerning 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.
Since the start of the financial crisis the major credit rating agencies have lowered our credit ratings or placed them on review or watch. Ratings downgrades may impact the cost and availability of our funding, collateral requirements and the willingness of counterparties to do business with us.
We require capital to support our business activities and meet regulatory requirements. Losses could diminish our capital, and market conditions may prevent us from raising additional capital or increase our cost of capital.
In the wake of the financial crisis in 2008 and early 2009, the price of our shares declined and the spreads on our credit default swaps widened. If the levels of market disruption and volatility experienced in 2008 and early 2009 recur, our ability to access the capital markets and obtain the necessary funding to support our business activities 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 unfavorable terms, as well as forcing us to curtail business, such as extending new credit. This could have an adverse effect on our business, financial condition and results of operations.
Also, regulatory reforms applicable to the financial services industry have been proposed that could subject us to more stringent regulatory capital requirements. Meeting any such requirements may require us to issue securities that qualify as regulatory capital, including equity securities, or to liquidate assets or curtail business, which may have adverse effects on our business, financial condition and results of operations, particularly if any such proposal becomes effective at a time when financial markets are distressed, but also under normal market conditions.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   12
In December 2010, the Basel Committee on Banking Supervision published its final standards on the revised capital adequacy framework, known as Basel III. These are significantly more stringent than the existing requirements. Basel III increases the quality and quantity of capital, increases capital against derivative positions and introduces a new liquidity framework as well as a leverage ratio. In addition, 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.
In addition, new rules regarding trading activities were finalized in mid-2010. These are commonly referred to as Basel II.5, and were translated into the Capital Requirements Directive in Europe (CRD 3). They will significantly increase capital levels relating to our trading book by introducing new risk measures (Stressed Value-at-Risk and the Incremental Risk Charge) and applying the banking book rules to trading book securitizations with a specific treatment for the Correlation Trading Portfolio.
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 financial 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 so 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 financial crisis may significantly affect our business model and the competitive environment.
In response to the financial markets 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 issued. The wide range of recent actions or current proposals includes, among others, provisions for: more stringent regulatory capital and liquidity standards; 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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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   13
Already-enacted legislation 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). 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.
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.
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.
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 recent financial crisis, in which the risk of counterparty default has increased, has 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 our profits.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   14
If we are unable to implement our strategic initiatives, we may be unable to achieve our pre-tax profit target and other 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 comprises the following key pillars: increasing profitability in our Corporate & Investment Bank Group Division with renewed risk and balance sheet discipline, focusing on core Private Clients and Asset Management businesses and home market leadership, focusing on Asia as a key driver of revenue growth and renewing emphasis on our performance culture. We have stated that, by delivering this strategy, we see a pre-tax profit potential in 2011 of approximately 10 billion from our operating businesses, before adjustments for Corporate Investments, Consolidations & Adjustments, and assuming no further market dislocations, normalization of asset valuations, growth in the global fee pool, an improved margin environment compared to pre-crisis, interest rates remaining at current low levels and continued macroeconomic recovery. Our assumptions also include that we do not incur significant further write-downs, that we achieve market-share gains, and that we realize savings from our efficiency and CIB integration efforts and contributions from our acquisition of Deutsche Postbank AG (“Postbank”). We have also set objectives for return on equity, Tier 1 capital ratio and balance sheet leverage, and to sustained capital and risk discipline.
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 these 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 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 execution of the takeover offer and the subsequent consolidation of the Deutsche Postbank AG may differ materially from our expectations.
Our largest acquisition in 2010 was the increase of our existing position in Deutsche Postbank AG to a majority stake by means of a public takeover offer, as a result of which Postbank became a consolidated subsidiary of ours in December 2010. The effects of this acquisition on us may differ materially from our expectations. Our assumptions underlying our expectations regarding its benefits, costs and effects may be inaccurate or incomplete, in particular because we had no access to Postbank’s internal information in preparing the takeover offer and still do not have the same degree of access as we would have for a wholly owned, fully integrated subsidiary. Our estimates of the synergies and other benefits that we expect to realize, and the costs that we might

 


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Annual Report 2010 on Form 20-F
  Item 3: Key Information   15
incur, as a result of the takeover and consolidation as well as the implementation of our strategic goals, such as the strengthening of our private banking business and the redeployment of capital in other business areas, involve subjective assumptions and judgments that are subject to significant uncertainties. These include, for example, assumptions and judgments relating to Postbank’s credit quality, the quality of other assets such as securities portfolios, liquidity and capital planning, risk management and internal controls. Postbank’s securities portfolio, for example, contains partially illiquid or only somewhat liquid structured products that may also be subject to a further decrease in value in a substantial amount.
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 our key personnel or Postbank’s key personnel. Any of these factors could adversely affect the benefits and synergies we expect to realize or increase our costs in connection with the integration. In addition, a variety of factors that are partially or entirely beyond our and Postbank’s control, such as negative market developments, could result in our failure to realize benefits and synergies to the full extent we expect or within the timeframe we expect, or increase our costs.
Also, while we own a majority of Postbank’s shares, and while, as of February 24, 2011, four 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 control 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.
Postbank reported a loss before tax in each of 2009 and 2008, and although it reported a net profit before tax in 2010, this does not indicate that it will be profitable in any future periods.
Postbank reported a loss before tax of  1,064 million in its 2008 financial year and a loss before tax of  398 million in its 2009 financial year. In its 2010 financial year, Postbank preliminarily reported a profit before tax of  315 million. However, this does not indicate that Postbank will be profitable in any future periods. In addition, a variety of factors that are partially or entirely beyond our and Postbank’s control, such as valuation risks in respect of Postbank’s investment portfolio, could have an adverse effect on its results of operations. Any failure by Postbank to achieve a sustainable improvement of its results could have a material adverse effect on our net assets, financial condition and results of operations following the consolidation of Postbank.
The consolidation of Postbank had a material adverse effect on our regulatory capital ratios, and our assumptions and estimates concerning the effects of the consolidation on our regulatory capital ratios may prove to be too optimistic.
The consolidation of Postbank had a material adverse effect on our regulatory capital ratios, reducing our Tier 1 capital ratio by 2.65 % and our core Tier 1 capital ratio by 2.45 %, although this effect was offset by the capital increase we implemented in October 2010. The consolidation also increased our risk-weighted assets by  60.4 billion (consisting of  66.9 billion of new risk weighted assets from Postbank and an elimination of  6.4 billion in relation to our pre-consolidation Postbank investment). The final purchase price allocation for the

 


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Annual Report 2010 on Form 20-F
  Item 3: Key Information   16
consolidation of Postbank may have further effects on our regulatory capital ratios. Any inability to maintain our regulatory capital ratios at or near current levels following our consolidation of Postbank may in particular lead to rating downgrades, the necessity for future capital increases or to the loss of business in the countries in which we operate. Any of these factors could have a material adverse effect on our business and our net assets, financial condition and results of operations.
Our takeover of Postbank generated a significant combined amount of goodwill and other intangible assets that must be tested for impairment periodically and at other times.
Our purchase price for the takeover of Postbank was  4.2 billion. Upon initial consolidation of Postbank, we recorded  2.0 billion in goodwill and  1.6 billion in other intangible assets following preliminary allocation of the price. As part of the purchase price allocation, the assets and liabilities of Postbank are valued at their fair values. Due to the transaction closing only shortly before year end 2010 and given its complexity, the allocation of the purchase price is preliminary. The goodwill that will be finally recorded may deviate substantially from the preliminary amounts. Furthermore, if our integration of Postbank meets with unexpected difficulties, if the business of Postbank does not develop as expected, or in any other case in which unanticipated developments occur in the business of our corporate division or our divisions that are assuming the business activities of Postbank, we may be required to record impairments on the goodwill and/or the other intangible assets in accordance with IFRS, which could have a material adverse effect on our net assets, financial condition and results of operations.
We may have difficulties selling noncore assets at favorable prices, or at all.
We may seek to sell certain noncore assets. Unfavorable business or market conditions may make it difficult for us to sell such assets at favorable prices, or may preclude such a sale altogether.
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 favorable. 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 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 financial crisis may place us at a competitive disadvantage.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 3: Key Information   17
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. We also had a representative office in Tehran, Iran, which we discontinued at December 31, 2007. 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.
Our existing 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 fulfill our contractual obligations. We do not believe our business activities with Iranian counterparties are material to our overall business, with our outstandings to Iranian borrowers representing substantially less than 0.1 % of our total assets as of December 31, 2010 and our revenues from all such activities representing substantially less than 0.1 % of our total revenues for the year ended December 31, 2010.
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 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 Iran. Such a result could have significant adverse effects on our business or the price of our securities.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   18
Item 4: Information on the Company
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, 2010:
 
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, its 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 December 2010 Deutsche Bank and LGT Group have announced that they had agreed on important aspects of the sale of BHF-BANK AG to LGT Group and therefore had also agreed to conduct exclusive negotiations. We expect that negotiations to finalize contractual details should be completed during the first quarter of 2011.
 
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  700 million in cash. The amount of the consideration was reduced in the fourth quarter 2010 by  13 million following preliminary adjustments made to the closing balance sheet of the acquired businesses. The adjusted total consideration of  687 million is considered preliminary until the closing balance sheet has been finalized. The acquired businesses have become part of our Global Transaction Banking Corporate Division and operate under the Deutsche Bank brand name.
 
In May 2010, we signed a binding agreement to subscribe to newly issued shares in Hua Xia Bank Co. Ltd. (“Hua Xia Bank”) for a total subscription price of up to RMB 5.7 billion ( 649 million as of December 31, 2010). Subject to regulatory approvals and upon final settlement of the transaction, this investment will increase 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 August 2010, we completed the spin-off of two independent investment boutiques offering global thematic equity and agribusiness strategies and a range of quantitative investment strategies.
 
In September 2010, we signed the agreement to sell our Polish subsidiary DWS Polska TFI S.A. to Investors Holding S.A. The transaction has been approved by local authorities and is expected to be completed during the first quarter of 2011. To continue distribution of our mutual funds products in the Polish market, we intend to enter into an agreement with Investors Holding to distribute our international mutual fund products.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   19
 
In October 2010, we made a voluntary public takeover offer (“PTO”) to the shareholders of Deutsche Postbank AG (“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 the Icelandic generic pharmaceutical group Actavis Group hF. (“Actavis”). 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 we 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.
Since January 1, 2010, there have been no public takeover offers by third parties with respect to our shares. As described above, in 2010, we made a public takeover offer for the shares of Postbank.
In October 2010, we completed a capital increase from authorized capital against cash contributions. Net proceeds from the issue amounted to  10.1 billion (after expenses of  0.1 billion, net of tax). The capital increase was primarily intended to cover capital consumption from the Postbank consolidation, and also to support our existing capital base.
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  1,906 billion as of December 31, 2010. As of that date, we employed 102,062 people on a full-time equivalent basis and operated in 74 countries out of 3,083 branches worldwide, of which 68 % 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, 2010, 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)
These divisions are supported by infrastructure functions. In addition, we have a regional management function that covers regional responsibilities worldwide.

 


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Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   20
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.   2010     2009     2008  
Germany:
                       
CIB
    2,864       2,353       2,997  
PCAM
    5,932       4,769       5,208  
 
                 
Total Germany
    8,796       7,122       8,205  
 
                 
Europe, Middle East and Africa:
                       
CIB
    8,258       8,485       (619 )
PCAM
    2,693       2,479       2,381  
 
                 
Total Europe, Middle East and Africa1
    10,951       10,964       1,762  
 
                 
Americas (primarily United States):
                       
CIB
    6,420       5,295       (838 )
PCAM
    1,032       724       971  
 
                 
Total Americas
    7,452       6,020       133  
 
                 
Asia/Pacific:
                       
CIB
    3,387       2,672       1,671  
PCAM
    387       289       471  
 
                 
Total Asia/Pacific
    3,774       2,961       2,142  
 
                 
CI
    (2,020 )     1,044       1,290  
Consolidation & Adjustments
    (386 )     (159 )     82  
 
                 
Consolidated net revenues2
    28,567       27,952       13,613  
 
                 
 
1  
For the years ended December 31, 2010 and December 31, 2009 the United Kingdom accounted for roughly 60 % of these revenues. The United Kingdom reported negative revenues for the year ended December 31, 2008.
 
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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Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   21
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
Our identity and mission. We are 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.
Our management agenda. Beginning in 2002, we initiated a multi-year and multi-phased agenda. The first phase of this agenda focused on management’s priorities to transform the bank. The second phase focused on a strategy of achieving sustainable profitable growth. The third phase focused on leveraging opportunities for our repositioned franchise to achieve accelerated growth.
With the onset of the financial crisis in 2008, the banking landscape changed, new long-term challenges have emerged and we recognized the underlying need to adapt our strategy and business model in order to capture the opportunities of a new era. Hence, we added a new, fourth chapter to our management agenda, as a continuation of the transformation we first launched in 2002. This new phase comprises the following key pillars:
 
Increasing profitability in Corporate & Investment Bank (CIB) with renewed risk and balance sheet discipline
 
Focusing on core Private Clients and Asset Management businesses and home market leadership
 
Focusing on Asia as a key driver of revenue growth
 
Renewing emphasis on our performance culture
Strategies in our CIB Businesses
Corporate & Investment Bank (CIB) comprises our Corporate Banking & Securities (CB&S) and Global Transaction Banking businesses. Furthermore, our Corporate Banking & Securities business comprises our Markets and Corporate Finance businesses.
Within CIB, we are focused on efficiently delivering a full suite of products to our clients across all regions. The integration of CIB announced in mid-2010 is intended to deliver cost and revenue synergies including more coordinated corporate client coverage, maximizing cross selling opportunities and bringing together best practices from across our organization.

 


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Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   22
In Markets, we leverage our diverse and client-focused business model. We have Top-3 client market share in almost every product and region in which we compete and aim to maintain this position (based on Dealogic). We continue to invest in areas such as cash equities and commodities. Given uncertain market conditions and ongoing changes in the regulatory environment we will remain focused on resource efficiency, targeted capital deployment and the ongoing reduction of legacy positions.
In Corporate Finance our counter cyclical investment in the business firmly established us as a Top-5 firm (based on Dealogic rankings and market shares). In 2010, we had the largest overall Corporate Finance market share increase versus peers, were the leader in Europe, and were Top-5 across all products, with notable improvements in ECM and M&A. In 2011, we aim to continue to consolidate our leadership in Europe while building further momentum in the U.S. and Asia. Our investments will be focused on those segments, such as Energy and Financial Institutions, which offer the greatest upside.
In Global Transaction Banking ongoing headwinds from the low interest rate environment have been partially offset by a strategic shift from margin-based to fee-based revenue streams. Going forward, we will continue to seek to capitalize on new high growth fee and margin products. With the acquisition of ABN AMRO’s corporate and commercial banking activities in the Netherlands, the focus in 2011 will be on further integration in order to deliver significant cost and revenue synergies. We believe that this acquisition will strengthen our footprint in Europe by achieving deeper client coverage and complementary product offerings.
Strategies in our PCAM Businesses
Asset and Wealth Management is comprised of our Asset Management and Private Wealth Management businesses.
In Asset Management, we will focus on our core businesses and investment competencies, seek to leverage market-leading positions through strategic partnerships and continue driving efficiency and cost reductions. The significant re-engineering initiatives achieved since 2008 have restored operating leverage to the business and we believe these initiatives have positioned us well to take advantage of financial market recovery. We are focusing on our growth strategy, building assets under management in areas such as retail retirement solutions, institutional fixed income and insurance outsourcing. There is also an emphasis on growing higher margin alternative investment businesses such as hedge fund fund-of-funds, infrastructure, and climate change.
In Private Wealth Management we continue to focus on improving our overall profitability, building upon our leading position in our domestic market and further expanding in our onshore locations. The integration of Sal. Oppenheim was concluded in 2010 and its alignment remains a key priority. Additionally, PWM remains focused on expanding its business in Asia Pacific, in line with DB’s overall commitment to growth in the region. PWM also continues to increase its collaboration with CIB in order to provide leading solutions for our target market segment of Ultra High Net Worth (UHNW) clients.
In Private & Business Clients (PBC), we continued to strengthen our leading position in our home market. After the acquisitions of Berliner Bank and Norisbank in 2007 and 2006, we acquired a majority participation in Postbank. Together with Postbank we expect to become a leader in Germany’s retail banking business and will close the gap to our European peers. In addition, we will further strengthen our advisory banking in mature markets in Europe. In Asia, we focus on benefitting from our stake increase in Hua Xia Bank and we will continuously expand our branch network in India.

 


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Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   23
We recognize that Asia has become a key driver of revenue growth in our industry. We already have a substantial presence in Asia, and in the next two years we plan to invest in the region in order to strengthen our growth potential and propel us into even better competitive positions in CIB and GTB. At the same time, we seek to double the size of our Private Wealth Management business within the region.
Overall, we aim to reinvigorate our performance culture, recommitting to efficiency across our businesses with an intense focus on costs and infrastructure optimization. As part of this, and to ensure clear accountability, we have implemented new performance metrics and a value-based management system aimed at delivering higher returns to shareholders. We will continue to invest in our corporate culture. Diversity will be integral from recruitment through to leadership. Talent management will be further embedded into our culture from career planning to compensation models.
Capital management strategy. Focused management of capital has been a critical part of all phases of our management agenda. In 2010, we increased our Tier 1 capital over the course of the year from 34.4 billion to 42.6 billion. At the end of 2010, our Tier 1 capital ratio, as measured under Basel II, stood at 12.3 % as compared to 12.6 % at the end of 2009.
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 73 % of our net revenues in 2010, 67 % of our net revenues in 2009 and 24 % of our net revenues in 2008 (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, 2010, CIB included two corporate divisions, comprising the following business divisions:
 
Corporate Banking & Securities Corporate Division (CB&S)
   
Corporate Finance
   
Markets (formerly known as Global 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 Business Division Corporate Finance, 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) and Emerging Markets, Equities, Global Finance and Foreign Exchange and 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.
On April 1, 2009, management responsibility for The Cosmopolitan of Las Vegas property changed from CB&S to the group division Corporate Investments.
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.

 


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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.
In October 2008, we closed the acquisition of the operating platform of Pago eTransaction GmbH into the Deutsche Card Services GmbH, based in Germany.
In January 2008, we acquired HedgeWorks LLC, a hedge fund administrator based in the United States.
Products and Services
Trade Finance offers local expertise, a range of international trade products and services, 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.

 


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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 35 % of our net revenues in 2010, 30 % of our net revenues in 2009 and 67 % of our net revenues in 2008 (on the basis of our management reporting systems).
At December 31, 2010, 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.
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 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 (non-insurance) institutional clients, such as pension funds, endowments and corporates

 


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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 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 will be 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.
On October 1, 2010, management responsibility for the Marblegate Special Opportunities Master Fund, L.P. changed from Private Wealth Management to Corporate Investments.
In September 2010, AM signed an agreement to sell its Polish subsidiary DWS Polska TFI S.A. to Investors Holding S.A. The transaction has been approved by local authorities and is expected to be completed during the first quarter of 2011. To continue distribution of our mutual funds products in the Polish market, AM intends to enter into an agreement with Investors Holding to distribute our international mutual fund products.
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. In December 2010 Deutsche Bank and LGT Group agreed on important aspects of the sale of BHF-BANK to LGT Group. The two parties have agreed to conduct exclusive negotiations, which are currently ongoing, concerning the sale of BHF-BANK. The negotiations to finalize the contractual details should be completed during the first quarter of 2011. As a result of intended closing of this transaction BHF-BANK will be reported under Corporate Investments (CI) from January 1, 2011.
As of January 1, 2010, management responsibility for Private Equity Group PWM 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 noncontrolling interest 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.

 


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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.
In December 2008 RREEF Alternative Investments acquired a significant noncontrolling interest in Rosen Real Estate Securities LLC (RRES), a long/short real estate investment advisor.
In November 2008, we acquired a 40 % stake in UFG Invest, the Russian investment management company of UFG Asset Management, with an option to become a 100 % owner in the future. The business is branded Deutsche UFG Capital Management.
In June 2008, AM sold its Italian life insurance company DWS Vita SpA to Zurich Financial Services Group. The transaction includes an exclusive 7-year agreement for the distribution of life insurance products via our financial advisors network in Italy, Finanza & Futuro Banca SpA.
Also in June 2008, AM sold DWS Investments Schweiz AG, consisting of the Swiss fund administration business, to State Street Bank.
On June 30, 2008, AM consolidated Maher Terminal LLC and Maher Terminals of Canada Corp., collectively and hereafter referred to as Maher Terminals, a privately held operator of port terminal facilities in North America acquired in July 2007. RREEF Infrastructure acquired all third party investors’ interests in the North Americas Infrastructure Fund, whose sole investment was Maher Terminals.
PWM increased its footprint in two large emerging markets with the opening of representative offices in St. Petersburg, Russia, in April 2008 and Kolkata, India, in February 2008.
Effective March 2008, AM completed the acquisition of a 60 % interest in Far Eastern Alliance Asset Management Co. Limited, a Taiwanese investment management firm.
In January 2008, AM increased its stake in Harvest Fund Management by 10.5 % to 30 %. Harvest is the third largest mutual fund manager in China, with a 6.4 % market share (source: Z-Ben Advisors, September 2010).
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, one of the world’s largest real estate investment businesses, DB Private Equity, a multi-billion dollar fund-of-funds manager, DB Climate Change Advisors, the world’s leading research and investment manager for sustainable investing, Infrastruc-

 


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ture Investment, a European and Australasian private equity infrastructure investor, and North American Energy Investment, which makes private equity investments in energy-related projects throughout North America.
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 our portfolio managers 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 unique 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.
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 na-

 


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tional 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.
Private & Business Clients Corporate Division
Corporate Division Overview
The Private & Business Clients Corporate Division 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.
In 2010, 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.

 


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In the German core market, we expanded our already strong position by attracting new customers and business volume 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 Deutsche Postbank AG (“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 is based on a total equity interest in Postbank of 79.40 %.
Prior to obtaining control, we directly held a 29.95 % of the shares and voting rights of Postbank. Accordingly, this investment was accounted for using the equity method. 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. According to the acquisition agreement, the MEB will be fully exchanged in 2012 for 60 million Postbank shares, or a 27.42 % stake. The MEB constitutes an equity investment for accounting purposes and in substance gives current access to the economic benefits associated with an ownership interest in the Postbank shares and therefore was included as part of the equity method investment. Along with the MEB, we and Deutsche Post had also entered into put and call options for another 26.4 million Postbank shares held by Deutsche Post (12.07 % stake) which are exercisable between February 2012 and February 2013. Under the acquisition agreement, Deutsche Post was contractually prevented from tendering the Postbank shares it holds in the event of a takeover offer for Postbank by us, such as the PTO.
Through the acquisition of a majority shareholding in Postbank, we intend to strengthen and expand 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. We expect that Postbank will continue to exist as a stand-alone stock corporation and to remain visible in the market under its own brand. We expect that the integration of Postbank into the Corporate Division Private & Business Clients will offer a significant potential for revenue and cost synergies.
In 2008 we implemented the cooperation with Postbank. Alongside standardized advisory services and sales initiatives of our investment products through distribution channels of Postbank, this cooperation also extends to IT and joint purchasing.
In our European core markets, we further increased our customer base and continued to steadily acquire new business volume. To cope with the impacts from the financial crisis, we realigned our business strategy, focusing on low risk products and advisory services for affluent customers. The strategic re-focusing yielded benefits in 2010, resulting in a stabilization of our loan portfolios and significantly improved risk levels.
The development of PBC in Asia has also maintained momentum. PBC further invested in its strategic partnership with Hua Xia Bank in China and further increased its shareholding from 17.12 % to 19.99 % by participating a private placement and subscribing for new shares up to a total amount of RMB 5.7 billion (approximately  649 million). The transaction was signed in May 2010 and is pending approval from the Chinese regulators expected for the end of the first quarter 2011.

 


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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 three branches in China and fifteen branches in India with the target of continuous expansions of our Indian distribution network. 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. In addition, our 10 % stake in Habubank in Vietnam, including a business cooperation arrangement, further demonstrates PBC’s confidence in the growth potential of Asia.
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.
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 2010. Supported by successfully launched campaigns we realized record revenues in deposits and payment services and were able to further grow our deposit base.
Other products include primarily activities related to asset and liability management.
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 look to 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:
 
Investment and Finance Centers. Investment and Finance Centers offer our entire range of products and advice. In 2010, several of our Investment and Finance Centers were refurbished according to innovative concepts which illustrate how we see branch banking in the future and which were introduced and tested in our flagship “Branch of the future – Q 110” in Berlin.
 
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.

 


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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 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. We also work together with ADAC (Germany’s and Europe’s largest automobile club with more than 15 million members), with whom we have an exclusive sales cooperation agreement in place. Additionally, we set up a valuable partnership with Vodafone in 2009, enabling both parties to benefit from each other’s customer base. 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. The principal investment activities include certain credit exposures, certain private equity and venture capital investments, certain private equity fund investments, certain corporate real estate investments, our industrial holdings and certain other non-strategic investments. 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 that the group division enhances the bank’s portfolio management and risk management capability.
In terms of balance sheet exposure, the largest assets held by Corporate Investments are certain credit exposures entered into as a response to the financial crisis. In the course of 2010 the liquidity facility for Deutsche Pfandbriefbank AG (formerly Hypo Real Estate Bank AG) of  9.2 billion, in which we 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  6.4 billion of ECB-eligible notes.
In December 2009, the existing liquidity facility for Deutsche Pfandbriefbank AG in which we participated in November 2008 with  12.0 billion was fully repaid, at which point we participated in a new liquidity facility for Deutsche Pfandbriefbank AG by subscribing to  9.2 billion of ECB-eligible notes fully guaranteed by SoFFin (Sonderfonds Finanzmarktstabilisierung, established by the German government in the context of the financial crisis).
In November 2010, we accepted the buyback offer for  433 million of the initial  2.3 billion liquidity facility for Sicherungseinrichtungsgesellschaft deutscher Banken mbH (“SdB”) in which we participated in February 2009. This liquidity facility consists of ECB-eligible notes guaranteed by SoFFin.

 


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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.
Corporate Investments also holds certain private equity type investments that have been transacted both on behalf of clients and for our own account, directly and through private equity funds, including venture capital opportunities and leveraged buy-out funds.
In addition, Corporate Investments took over management responsibility for certain assets that were transferred from other corporate divisions. In December 2010, The Cosmopolitan of Las Vegas, 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.
In 2009, we reduced our investment in Daimler AG from 2.7 % to 0.04 % and sold our remaining stake in Linde AG.
In 2008, we reduced our investment in Daimler AG from 4.4 % to 2.7 % and our investment in Linde AG from 5.2 % to 2.4 %. We sold our remaining stake in Allianz SE and our investment in Arcor AG & Co. KG.
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, audit, insurance and group strategy & planning), CRO functions (e.g., 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.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   35
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
Following the financial crisis in 2007 and 2008, many banks experienced strong recovery in 2009, driven by a pick-up of investment banking volumes, at significantly higher margins relative to pre-crisis levels. In 2010, however, these extraordinary conditions normalized, with many market participants seeing decreased margins in investment banking. This was positively counterbalanced by the credit cycle recovery, particularly among private clients.
Due to the substantial consolidation and merger activity in recent years, some banks have focused on the integration of the acquisitions made in the crisis and thus, in 2010, there was only limited M&A activity in the sector. In addition, global banks have largely digested the losses incurred by the market disruptions and mark-downs during the financial crisis. As a testament to the regained strength and improved outlook, many financial institutions have either completed or started to repay the direct equity investments made by the respective governments at the peak of the crisis.
The competitive environment in 2010 has also been characterized by the process of shaping the new regulatory environment, which created a high degree of uncertainty for banks. In this context, the adoption of a revised legal framework governing liquidity and capital levels (“Basel III”) has been an encouraging achievement, and the sector is now aiming for consistent implementation. Lastly, the banking sector is still facing persisting investor uncertainty driven by the ongoing uncertainty over the economic outlook, concerns regarding highly indebted peripheral countries in the eurozone as well as concerns regarding currency stability.
In 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 response to the financial markets 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. The wide range of current proposals, of which some have already been enacted, includes, among others:
 
Revising regulatory capital standards to require more capital in some cases, such as on trading book positions, in particular those resulting from securitization transactions, or for institutions that are of particular importance for the smooth functioning of the financial system more generally;
 
Tightening and modifying the definition of capital for regulatory purposes;
 
Introducing a maximum ratio of capital to total assets (leverage ratio);

 


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Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   36
 
Enhancing regulatory liquidity requirements;
 
Placing limits and restrictions on compensation practices;
 
Charging special levies and contributions to fund governmental intervention during the current crisis or in the event of future interventions;
 
Expanding the powers of regulators to restructure financial institutions that are in distress;
 
Separating certain businesses such as proprietary trading from deposit taking, in some cases requiring the split-up of institutions;
 
Breaking up financial institutions that are perceived to be too large for regulators to take the risk of their failure;
 
Encouraging banks to formulate “living wills” to prevent systemic impact from collapse; and
 
Reforming market infrastructures.
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 – has become more acute. 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.
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. Those banks which are well-capitalized and streamlined will be better-positioned to capture market share and extract sustainable growth opportunities from the changing landscape.
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, non-governmental 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.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   37
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. In Germany, savings and cooperative banks form our biggest group of competitors. These banks generally operate regionally. In other European countries, private universal banks and savings banks are our main competitors. The large Asian markets (India and China), where we have opened a limited number of retail branches, are dominated by local public and private sector banks. However, with deregulation, international financial institutions are likely to increase their investments in these markets and thereby intensify competition.
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 our main competitors are headquartered in Europe or the United States, though many operate globally.
Regulation and Supervision
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 II.5, will significantly affect 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 III, were published by The Basel Committee on Banking Supervision in December 2010. The implementation of Basel III is expected to impose new requirements in respect of regulatory capital, liquidity/funding and leverage ratios. 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 our businesses and the services and products that we will be able to offer.
In the following sections, we present a description of the supervision of our business by the authorities in Germany, our home market, 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.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   38
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). We are subject to comprehensive regulation and supervision by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, referred to as BaFin) and the Deutsche Bundesbank (referred to as 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 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.
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 aspects.
The Banking Act
The 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 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 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 III framework, which is expected to be implemented through European Union directives and subsequent national legislation, will provide for increased regulatory capital and liquidity requirements.
The German Securities Trading Act
Under the German Securities Trading Act (Wertpapierhandelsgesetz), the BaFin regulates and supervises securities trading in Germany. The 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 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 Securities Trading Act requires an independent auditor to perform an annual audit of the securities services provider’s compliance with its obligations under the Securities Trading Act.

 


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Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   39
Capital Adequacy Requirements
The Banking Act and the Solvency Regulation (Solvabilitätsverordnung) issued by the Federal Ministry of Finance thereunder reflect the capital adequacy rules of the Basel II framework of 2004 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 our regulatory capital see Note 36 “Regulatory Capital” to the consolidated financial statements.
Limitations on Large Exposures
The 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.
Consolidated Regulation and Supervision
The Banking Act’s provisions 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 the 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

 


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Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   40
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 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) is based on 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 bank’s continuous liquidity would otherwise not be ensured.
Financial Statements and Audits
As required by the German Commercial Code (Handelsgesetzbuch), we prepare our non-consolidated 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.
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 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 the bank’s annual financial statements or which would adversely affect the financial position of the bank. 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 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.

 


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Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   41
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.
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

 


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Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   42
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).
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

 


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Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   43
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.
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). 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 adopted a legislative proposal for a revision of the European Union directives on deposit guarantee and investor protection schemes. The purpose of the revision is among other things 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 European Commission envisages that most of the proposed measures will become effective by 2012 or 2013. Pursuant to this proposal, deposit protection schemes must have 1.5 % of the total eligible 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. There will be a ten year transition period in this respect. 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 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 2010 on Form 20-F
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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 (Dodd-Frank), which provides a broad framework for significant regulatory changes that will extend to almost every area of U.S. financial regulation. Implementation of Dodd-Frank 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, Dodd-Frank will 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 be able to engage in such activities solely outside the United States. Dodd-Frank 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 Deutsche Bank, 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.
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. Furthermore, Dodd-Frank 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

 


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Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   45
rules regarding the registration of swap dealers and major swap participants, and related capital, margin and business conduct standards for swap dealers and major swap participants. Dodd-Frank 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.
Dodd-Frank also establishes a new regime for the orderly liquidation of systemically significant financial companies and authorizes assessments on financial institutions with 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, Dodd-Frank requires issuers with listed securities, which may include foreign private issuers like Deutsche Bank, to establish a “clawback” policy to recoup previously awarded 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 in the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.
Implementation of Dodd-Frank and related final regulations could result in additional costs or limit or restrict the way we conduct our business, although uncertainty remains about the details, impact and timing of these reforms.
Regulatory Authorities
Deutsche Bank AG and Taunus Corporation, its 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”.
DBTCA is a New York state-chartered bank whose deposits are insured by the FDIC to the extent permitted by law. DBTCA is subject to regulation, supervision and examination by the Federal Reserve Board and the New York State Banking Department 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. Our New York branch is supervised by the Federal Reserve Board and the New York State Banking Department. Our federally chartered nondeposit trust companies are subject to regulation, supervision and examination by the Office of the Comptroller of the Currency. Certain of our subsidiaries are also subject to regulation, supervision and examination by state banking regulators of certain states in which we conduct banking operations, including New Jersey and New Hampshire.
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.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   46
Under U.S. law, our activities and those of our subsidiaries are generally limited to the business of banking, managing or controlling banks, and, so long as we remain a financial holding company under U.S. law, 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, but subject to certain limitations on the conduct of such activities and to prior regulatory approval in some cases, including under Dodd-Frank, where a bank holding company such as Deutsche Bank seeks to acquire shares of a company engaged in financial activities in the United States with assets exceeding U.S.$10 billion. 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 provided that 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, is dependent on Deutsche Bank AG and our two insured U.S. depository institutions remaining “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, we and our U.S. depository institutions 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 %.
Pursuant to current Federal Reserve Board policy, Taunus Corporation, as the top-tier U.S. bank holding company subsidiary of Deutsche Bank AG, is not required to comply with capital adequacy guidelines generally made applicable to U.S. banking organizations, as long as Deutsche Bank AG remains a financial holding company that the Federal Reserve Board continues to regard as well capitalized and well managed. Because Taunus Corporation is able to fund its subsidiaries via its parent, it does not maintain stand-alone capital. However, beginning five years after enactment of Dodd-Frank, the Federal Reserve Board will apply minimum capital requirements to all U.S. bank holding companies and companies designated as systemically important nonbank financial companies, including intermediate bank holding company subsidiaries of non-U.S. banks (such as Taunus Corporation). The exact requirements that will apply to Taunus Corporation are currently unknown; however, the Federal Reserve Board is expected to require a minimum Tier 1 risk-based capital ratio and total risk-based capital ratio based on then applicable Basel standards as implemented in the United States. If Deutsche Bank has not reorganized its holdings through Taunus Corporation by the time Taunus becomes subject to the minimum capital requirement, Taunus Corporation would need to reorganize its U.S. activities and/or materially increase its capital. The extent of such reorganization and recapitalization, and the adverse effects that they would have on our financial condition and operations cannot be estimated at this time.
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. 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 our 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.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   47
Dodd-Frank will remove, 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, Dodd-Frank will require that the lending limits applicable to our FDIC-insured bank subsidiaries and our New York branch take into account (effective by January 2013 and July 2012, respectively) 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 Dodd-Frank, the derivatives activities of FDIC-insured banks and U.S. branch offices of foreign banks will be restricted, 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 Dodd-Frank, 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-dealer and certain of our other affiliates. Effective in July 2012, Dodd-Frank 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.
Our New York Branch
Our New York branch is licensed by the New York Superintendent of Banks 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 our New York branch remains “well-rated” by the New York State Superintendent of Banks). Should our New York Branch cease to be “well-rated”, we may need to maintain substantial additional amounts of eligible assets. The Superintendent of Banks 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 Banks 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 Banks 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 Banks will turn over the remaining assets, if any, to the foreign bank or its duly appointed liquidator or receiver.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   48
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). Dodd-Frank 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. Dodd-Frank 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.
In addition, 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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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 4: Information on the Company   49
Under Dodd-Frank, 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. 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 and DB Valoren S.á.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 52.03 % of the equity and voting rights as of December 31, 2010, and, taking into account certain financial instruments held by us, a total equity interest of 79.45 %. These subsidiaries prepare financial statements as of December 31, 2010 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 Valoren S.á.r.l.6
  Luxembourg
DB Equity S.á.r.l.7
  Luxembourg
Deutsche Postbank AG8
  Bonn, Germany
 
1  
This company is a holding company for most of our subsidiaries in the United States.
 
2  
This company is a subsidiary of Taunus Corporation. 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 starting 2010 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  
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.á.r.l.
 
7  
The company is the holding company for a part of our stake in Deutsche Postbank AG.
 
8  
The business activities of this company comprise retail banking, business with corporate customers, money and capital markets activities as well as home savings loans.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 4A: Unresolved Staff Comments   50
Property and Equipment
As of December 31, 2010, we operated in 74 countries out of 3,083 branches around the world, of which 68 % were in Germany. We lease a majority of our offices and branches under long-term agreements.
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. As of December 31, 2009, we had premises and equipment with a total book value of approximately  2.8 billion. Included in this amount were land and buildings with a carrying value of approximately  880 million.
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
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   51
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, 2010, 2009 and 2008 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 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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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   52
Operating Results (2010 vs. 2009)
You should read the following discussion and analysis in conjunction with our consolidated financial statements.
Executive Summary
The Global Economy
Following the marked contraction in 2009, with a decline of almost 1 % in global GDP, the world economy grew again by an estimated 4.75 % in 2010. Three factors played a major role in this development: stimuli from expansive monetary and fiscal policies, investments that had been postponed in 2009 and were subsequently made in 2010, and the building up of inventory. However, momentum has slowed since around autumn 2010 as the effect of these factors tailed off.
While the U.S. economy is estimated to have grown by almost 3 % on average during 2010, the eurozone continued to lag behind in the global economic recovery with real growth of just 1.75 %. In some countries of the eurozone, the dampening effects of massive consolidation programs, and structural adjustments, especially in the real estate sector, made themselves felt. In addition, despite financial aid for Greece and Ireland and plans to establish a permanent crisis mechanism, by the end of the year concerns had increased in the financial markets about the long-term solvency of some countries of the eurozone. In line with this, there was a dramatic widening in yield spreads between government bonds from these countries and German government bonds. By contrast, the German economy – supported by strong stimuli stemming from external trade and also from a recovering domestic economy – expanded by 3.6 %, the highest growth rate since reunification. The German labor market continued to develop extremely favorably compared with that of other countries.
The emerging market economies grew by an estimated 7.5 % last year, compared with 2.5 % in 2009. Growth in the Asian emerging markets was probably even close to 9.5 %. In China, where the pace of growth had slowed only slightly in 2009 to 8.7 %, the economy grew by 10.3 % in 2010.
The Banking Industry
Three key issues dominated the global banking sector in the past year – business recovery after the slump during the financial crisis, preparations for the most extensive legal and regulatory reforms in decades, as well as the growing risks associated with high sovereign debt in many industrial countries.
In operating terms, banks made good progress overall, albeit from a low base. In traditional lending business, loan loss provisions reduced significantly, though the absolute burden was still high. At the same time, 2010 saw a stabilization in loan volumes, which had contracted the year before, thanks to a slight rise in demand. This was at least in part attributable to central banks’ continuing expansionary monetary policies.
Capital markets business produced mixed results compared with the very good performance of 2009. The volume of corporate and sovereign bond issues fell slightly over the high prior year figure, though high-yield paper issuance volumes rose. Equity issuance stayed robust, with growth especially strong in initial public offerings. The M&A business gained traction, but remained weak. Overall, investment banking saw a return of market participants who had cut back their activities during the financial crisis. This led to more intense competition and narrower margins.
In asset management, banks benefited from rising valuations in most asset classes and from higher inflows. In transaction business they profited from the economic recovery and a dynamic rebound in world trade, nearly to pre-crisis levels.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   53
Despite this growth, the banking industry continued to be only moderately profitable overall, recording single digit returns on equity for the most part. Almost all major European and U.S. banks reported net profits, while the share of unprofitable, smaller banks decreased significantly.
Alongside operating performance, 2010 was shaped primarily by far-reaching regulatory measures planned by legislators and supervisory authorities. The Basel III reform of capital requirements will probably prove to be the most significant change in the long term. The final details have been largely agreed so that the new standards are now set to be implemented in nearly all of the world’s major financial markets. It is still uncertain, though, whether implementation of the rules will actually be harmonized throughout each country and what concrete effects the new framework will have on banks’ business.
Together with the forthcoming regulatory changes, the banking environment in 2010 was also greatly impacted by the European sovereign debt crisis and fears of a weak recovery or even a relapse of some major economies into recession. While the robust recovery of the global economy over the last few months has brightened the prospects for banks’ business, the public debt problems encountered especially by several euro-area countries, and their lack of competitiveness, continued to weigh on market sentiment. These concerns spilled over into the banking sector at times – causing the funding markets for financial institutions in severely affected countries to dry up, and attracting criticism of the extensive cross-border activities of particular European banks as well as generally giving rise to significant financial market volatility.
Deutsche Bank
In this environment, we generated a net income of  2.3 billion in 2010, compared to  5.0 billion in 2009, a solid result considering the impact of several significant factors. These factors include, firstly, certain valuation- and integration-related charges from the acquisitions of the commercial banking activities from ABN AMRO in the Netherlands, of Sal. Oppenheim/BHF-BANK and of Postbank, the latter including a charge of  2.3 billion in the third quarter 2010. Secondly, during the year we invested in the integration of our CIB businesses, in our IT platform and in other business growth initiatives. Thirdly, deferred compensation expenses were significantly higher in 2010 reflecting changes in compensation structures implemented in 2009. Additionally, the aforementioned acquisitions increased our revenue and expenses run rates, as well as our balance sheet, risk weighted assets and invested assets. Moreover, a shift in foreign exchange rates, in particular between the U.S. dollar and the euro, contributed to an increase in our reported euro revenues and expenses, with an overall positive impact on net income.
Net revenues of  28.6 billion in 2010 were among the highest ever generated by us and increased by  615 million from  28.0 billion in 2009. CIB’s net revenues increased from  18.8 billion in 2009 to  20.9 billion in 2010. Overall Sales & Trading net revenues for 2010 were  12.8 billion, compared with  12.2 billion in 2009. This primarily reflects lower mark-downs from legacy positions, lower trading losses in Equity Derivatives as well as increased client activity across flow products and structured solutions in Credit Trading. This was partly offset by the normalization of bid-offer spreads and subdued client activity in Money Markets and Rates. Origination and Advisory revenues increased to  2.5 billion in 2010 (2009:  2.2 billion). PCAM’s net revenues were  10.0 billion in 2010, an increase of  1.8 billion compared to 2009. This development was mainly attributable to the first-time consolidation of Postbank as well as the acquisition of Sal. Oppenheim/BHF-BANK. In addition, higher deposits revenues in PBC were driven by improved margins. In AWM, the non-recurrence of impairment charges recognized in 2009 related to RREEF investments, as well as higher fee income in a more favorable market environment, also contributed to the increase. In CI, net revenues in the full year 2010 were negative  2.0 billion, versus positive  1.0 billion in 2009. Revenues in both years were materially impacted by our investment in Postbank, including the aforementioned charge in the third quarter 2010 and several positive effects in 2009.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   54
In 2010, provision for credit losses was  1.3 billion, versus  2.6 billion in 2009, primarily driven by significantly decreased provisions for assets reclassified in accordance with IAS 39.
Our noninterest expenses were  23.3 billion in 2010, versus  20.1 billion in 2009. Half of the increase was attributable to the aforementioned acquisitions in 2010. In addition, compensation expenses in 2010 reflected higher amortization expenses for deferred compensation following the aforementioned change in compensation structures, including the impact of accelerated amortization for employees eligible for career retirement. The remainder of the increase was due to the aforementioned investments in the integration of our CIB businesses, in our IT platform and in other business growth initiatives.
We recorded income before income taxes of  4.0 billion in 2010, including the aforementioned  2.3 billion charge taken in the third quarter 2010 related to the Postbank acquisition, compared with  5.2 billion for 2009. Our pre-tax return on average active equity was 9.6 % in 2010, versus 15.1 % in 2009. Our pre-tax return on average shareholders’ equity was 9.5 % in 2010 and 15.3 % in 2009. Diluted earnings per share were  2.92 in 2010 and  6.94 in 2009.
The aforementioned shifts in currencies led to an increase in our assets, liabilities and invested assets compared to December 31, 2009. After the successfully completed capital increase, our Tier 1 capital ratio was 12.3 % and our Core Tier 1 capital ratio was 8.7 % as of December 31, 2010. Risk-weighted assets at year-end 2010 were  346 billion, versus  273 billion at year-end 2009, largely as a result of  60 billion attributable to the first-time consolidation of Postbank.
Trends and Uncertainties
The development of our results in 2010 was significantly impacted by the aforementioned acquisitions, which will continue to impact our revenues and expenses going forward.
The development of revenues in CB&S showed a mixed trend in 2010. While certain flow businesses (such as Money Markets, Rates and Cash Equities) suffered from more normalized margins and subdued client activity, others (like Foreign Exchange and Flow Credit Trading) held up on the back of higher volumes and improved market share. Structured products benefited from lower mark-downs on legacy positions and lower trading losses. During 2010 we exited our designated equity proprietary business, following the closure of our designated proprietary credit trading business in 2009. Within Origination & Advisory we improved rank and market share in key markets. Changes in the regulatory landscape, in investor sentiment as well as in the competitive and macroeconomic environment would be likely to impact revenues in CB&S.
Revenues in GTB benefited from the aforementioned acquisition in the Netherlands (including a one-time recognition of negative goodwill in 2010) and from a shift towards fee income which partly offset the adverse impact from the continued low interest rate environment. Interest rate levels, international trade volumes, cross-border payments, corporate action as well as global growth are likely to impact the revenue development in GTB.
The further integration of the CIB businesses is expected to yield revenue and cost synergies.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   55
In PCAM, revenues reflected the aforementioned acquisitions of Sal. Oppenheim/BHF-BANK in the first quarter 2010 and of Postbank in December 2010. Additionally, PCAM’s investment management businesses recorded higher commissions and performance fees reflecting improved market conditions and client activity, with client demand shifting to less complex and lower margin products. 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 volume and margin developments. In Asia, the contribution of Hua Xia Bank is likely to impact revenues in PBC.
The integration of Sal. Oppenheim was concluded in 2010 and the sale of BHF-BANK is expected to be finalized in 2011. The integration of Postbank will continue in 2011 and is expected to yield revenue and cost synergies.
In CI, revenues will not continue to be impacted by the share price and the results of Postbank. In December, The Cosmopolitan of Las Vegas commenced its operations and will continue to be reported in CI, together with other investments.
The decrease in provision for credit losses in 2010 compared to 2009 resulted primarily from assets reclassified in accordance with IAS 39 in CB&S. The impact of the aforementioned acquisitions increased provision for credit losses. In PBC, provisions (excluding Postbank) decreased due to measures taken on portfolio and country level. A sharp drop in economic growth would be likely to increase provisions.
Compensation and benefits increased in 2010 compared to 2009 from the aforementioned acquisitions and due to higher amortization expenses for deferred compensation. The development of compensation expenses will continue to depend significantly on the operating performance of our businesses, the governance of bank executive compensation and future amortization of deferred compensation.
Severance charges in 2010 remained on prior year levels as a consequence of continued measures to reduce complexity in our operations and to standardize processes as well as the initiated integration of our CIB businesses. Similar measures, including integration-related initiatives, are expected to continue in 2011.
The increase in general and administrative expenses in 2010 primarily reflected the aforementioned acquisitions, including integration-related expenses. In addition, the increase included higher investment spend in IT and business growth (including operating costs related to our consolidated investments), partly offset by the non-recurrence of significant specific items recorded in 2009. While the acquisitions will continue to increase our expenses, the impact of savings from integration, complexity reduction and standardization measures should decrease them. The implementation of bank levies is expected to impact our expenses.
The actual effective tax rate of 41.4 % in 2010 was predominantly impacted by the Postbank related charge of  2.3 billion, which did not have a corresponding tax benefit. The future actual effective tax rate 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.

 


Table of Contents

Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   56
Financial Results
The following table presents our condensed consolidated statement of income for 2010, 2009 and 2008.
                                                         
                            2010 increase (decrease)     2009 increase (decrease)  
in m.                           from 2009     from 2008  
(unless stated otherwise)   2010     2009     2008     in m.     in %     in m.     in %  
Net interest income
    15,583       12,459       12,453       3,124       25       6       0  
Provision for credit losses
    1,274       2,630       1,076       (1,356 )     (52 )     1,554       144  
 
                                         
Net interest income after provision for credit losses
    14,309       9,829       11,377       4,480       46       (1,548 )     (14 )
 
                                         
Commissions and fee income
    10,669       8,911       9,741       1,758       20       (830 )     (9 )
Net gains (losses) on financial assets/liabilities at fair value through profit or loss
    3,354       7,109       (9,992 )     (3,755 )     (53 )     17,101       N/M  
Net gains (losses) on financial assets available for sale
    201       (403 )     666       604       N/M       (1,069 )     N/M  
Net income (loss) from equity method investments
    (2,004 )     59       46       (2,063 )     N/M       13       28  
Other income (loss)
    764       (183 )     699       947       N/M       (882 )     N/M  
 
                                         
Total noninterest income
    12,984       15,493       1,160       (2,509 )     (16 )     14,333       N/M  
 
                                         
Total net revenues
    27,293       25,322       12,537       1,971       8       12,785       102  
 
                                         
Compensation and benefits
    12,671       11,310       9,606       1,361       12       1,704       18  
General and administrative expenses
    10,133       8,402       8,339       1,731       21       63       1  
Policyholder benefits and claims
    485       542       (252 )     (57 )     (11 )     794       N/M  
Impairment of intangible assets
    29       (134 )     585       163       N/M       (719 )     N/M  
Restructuring activities
                            N/M             N/M  
 
                                         
Total noninterest expenses
    23,318       20,120       18,278       3,198       16       1,842       10  
 
                                         
Income (loss) before income taxes
    3,975       5,202       (5,741 )     (1,227 )     (24 )     10,943       N/M  
 
                                         
Income tax expense (benefit)
    1,645       244       (1,845 )     1,401       N/M       2,089       N/M  
 
                                         
Net income (loss)
    2,330       4,958       (3,896 )     (2,628 )     (53 )     8,854       N/M  
 
                                         
Net income (loss) attributable to noncontrolling interests
    20       (15 )     (61 )     35       N/M       46       (75 )
Net income (loss) attributable to Deutsche Bank shareholders
    2,310       4,973       (3,835 )     (2,663 )     (54 )     8,808       N/M  
 
                                         
 
N/M – Not meaningful
Net Interest Income
The following table sets forth data related to our Net interest income.
                                                         
                            2010 increase (decrease)     2009 increase (decrease)  
in m.                           from 2009     from 2008  
(unless stated otherwise)   2010     2009     2008     in m.     in %     in m.     in %  
 
                                         
Total interest and similar income
    28,779       26,953       54,549       1,826       7       (27,596 )     (51 )
Total interest expenses
    13,196       14,494       42,096       (1,298 )     (9 )     (27,602 )     (66 )
 
                                         
Net interest income
    15,583       12,459       12,453       3,124       25       6       0  
 
                                         
Average interest-earning assets1
    993,780       879,601       1,216,666       114,179       13       (337,065 )     (28 )
Average interest-bearing liabilities1
    933,537       853,383       1,179,631       80,154       9       (326,248 )     (28 )
Gross interest yield2
    2.90 %       3.06 %       4.48 %     (0.16) ppt     (5 )   (1.42) ppt     (32 )
Gross interest rate paid3
    1.41 %       1.70 %       3.57 %     (0.29) ppt     (17 )   (1.87) ppt     (52 )
Net interest spread4
    1.48 %       1.37 %       0.91 %     0.11 ppt     8     0.46 ppt     51  
Net interest margin5
    1.57 %       1.42 %       1.02 %     0.15 ppt     11     0.40 ppt     39  
 
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.

 


Table of Contents

Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   57
Net interest income in 2010 was 15.6 billion, an increase of  3.1 billion, or 25 %, versus 2009. The improvement was primarily driven by a decrease in interest expenses, mainly due to a shift in liabilities from higher yields, originated in prior years, to current market rates and due to higher market rates at the beginning of 2009. In addition, interest income improved due to an increase in average interest-earning assets by  114 billion, mainly in Corporate Banking & Securities, which exceeded the increase in average interest-bearing liabilities. These developments resulted in a widening of our net interest spread by 11 basis points and of our net interest margin by 15 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.
                                                         
                            2010 increase (decrease)     2009 increase (decrease)  
in m.                           from 2009     from 2008  
(unless stated otherwise)   2010     2009     2008     in m.     in %     in m.     in %  
CIB – Sales & Trading (equity)
    451       1,125       (1,513 )     (674 )     (60 )     2,638       N/M  
CIB – Sales & Trading (debt and other products)
    2,912       4,130       (6,490 )     (1,218 )     (29 )     10,620       N/M  
Other
    (9 )     1,854       (1,989 )     (1,863 )     N/M       3,843       N/M  
 
                                         
Total net gains (losses) on financial assets/ liabilities at fair value through profit or loss
    3,354       7,109       (9,992 )     (3,755 )     (53 )     17,101       N/M  
 
                                         
 
N/M – Not meaningful
Net gains on financial assets/liabilities at fair value through profit or loss decreased by  3.8 billion, particularly offset by increases in net interest income. In Sales & Trading (debt and other products), Net gains on financial assets/liabilities at fair value through profit or loss were  2.9 billion in 2010, compared to  4.1 billion in 2009. This decrease was mainly driven by Money Markets, Rates and Emerging Markets due to less favorable market conditions compared to 2009. Partly offsetting were lower mark-downs from legacy positions in Credit Trading. In Sales & Trading (equity), net gains (losses) on financial assets/liabilities at fair value through profit or loss were gains of  451 million in 2010, compared to  1.1 billion in 2009. This decline was mainly driven by Cash Trading, as client activity decreased, partly offset by lower trading losses in Equity derivatives. In other products, net gains on financial assets/liabilities at fair value through profit or loss in 2010 were negative  9 million, compared to positive  1.9 billion in 2009. The decrease reflects higher gains related to our stake in Postbank recognized in CI in 2009, gains from derivative contracts used to hedge effects on shareholders’ equity, resulting from obligations under share-based compensation plans, recorded in C&A in 2009, and mark-to-market losses on new loans and loan commitments held at fair value from Loan Products in CIB.

 


Table of Contents

Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   58
Net Interest Income and Net Gains (Losses) on Financial Assets/Liabilities at Fair Value through Profit or Loss
Our trading and risk management businesses include significant activities in interest rate instruments and related derivatives. Under IFRS, interest and similar income earned from trading instruments and financial instruments designated at fair value through profit or loss (e.g., coupon and dividend income), and the costs of funding net trading positions are part of net interest income. Our trading activities can periodically shift income between net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss depending on a variety of factors, including risk management strategies.
In order to provide a more business-focused discussion, the following table presents net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss by group division and by product within the Corporate & Investment Bank.
                                                         
                            2010 increase (decrease)     2009 increase (decrease)  
in m.                           from 2009     from 2008  
(unless stated otherwise)   2010     2009     2008     in m.     in %     in m.     in %  
Net interest income
    15,583       12,459       12,453       3,124       25       6       0  
 
                                         
Total net gains (losses) on financial assets/ liabilities at fair value through profit or loss
    3,354       7,109       (9,992 )     (3,755 )     (53 )     17,101       N/M  
 
                                         
Total net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss
    18,937       19,568       2,461       (631 )     (3 )     17,107       N/M  
 
                                         
Breakdown by Group Division/CIB product:1
                                                       
Sales & Trading (equity)
    2,266       2,047       (1,895 )     218       11       3,942       N/M  
Sales & Trading (debt and other products)
    9,204       9,725       409       (521 )     (5 )     9,315       N/M  
 
                                         
Total Sales & Trading
    11,469       11,772       (1,486 )     (302 )     (3 )     13,258       N/M  
 
                                         
Loan products2
    778       777       922       1       0       (145 )     (16 )
Transaction services
    1,497       1,180       1,368       317       27       (188 )     (14 )
Remaining products3
    336       240       (1,821 )     97       40       2,061       N/M  
 
                                         
Total Corporate & Investment Bank
    14,081       13,969       (1,017 )     112       1       14,986       N/M  
 
                                         
Private Clients and Asset Management
    4,708       4,157       3,861       550       13       297       8  
Corporate Investments
    (184 )     793       (172 )     (977 )     N/M       965       N/M  
Consolidation & Adjustments
    331       649       (211 )     (317 )     (49 )     859       N/M  
 
                                         
Total net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss
    18,937       19,568       2,461       (631 )     (3 )     17,107       N/M  
 
                                         
 
N/M – Not meaningful
 
1  
This breakdown reflects net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss only. For a discussion of the group divisions’ total revenues by product please refer to “Results of Operations by Segment”.
 
2  
Includes the net interest spread on loans as well as the fair value changes of credit default swaps and loans designated at fair value through profit or loss.
 
3  
Includes net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss of origination, advisory and other products.
Corporate & Investment Bank (CIB). Combined net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss from Sales & Trading were 11.5 billion in 2010, compared to 11.8 billion in 2009. The main driver for the decrease were lower revenues in Money Markets and Rates mainly due to lower bid-offer spreads and subdued client activity as a result of sovereign risk concerns. In addition, net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss were down in Emerging Markets, due to less favorable market conditions compared to 2009. Partly offsetting these decreases were lower mark-downs from legacy positions and lower trading losses in Equity Derivatives in 2010 compared to 2009. Loan products were virtually unchanged, while in Transaction services, combined net interest

 


Table of Contents

Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   59
income and net gains (losses) on financial assets/liabilities at fair value through profit or loss increased by  317 million. This increase was attributable to growth across all businesses in Global Transaction Banking (including the aforementioned acquisition). Remaining products increased by  97 million, mainly in Origination & Advisory.
Private Clients and Asset Management (PCAM). Combined net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss were  4.7 billion in 2010, an increase of  550 million, or 13 %, compared to 2009. The increase was mainly driven by the first-time consolidation of Postbank. In addition, the increase included higher net interest income from Credit products as well as from Deposits and Payment services.
Corporate Investments (CI). Combined net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss were negative  184 million in 2010, compared to positive  793 million in 2009. The development primarily reflects the non-recurrence of gains recorded in 2009 related to our minority stake in Postbank.
Consolidation & Adjustments. Combined net interest income and net gains (losses) on financial assets/ liabilities at fair value through profit or loss were  331 million in 2010, compared to  649 million in 2009. The main reason for the decrease were gains recorded in 2009 from derivative contracts used to hedge effects on shareholders’ equity, resulting from obligations under share-based compensation plans, and higher net interest income on non-divisionalized assets and liabilities, including taxes.
Provision for Credit Losses
Provision for credit losses was  1.3 billion in 2010, versus  2.6 billion in 2009. The provision in CIB was  488 million, versus  1.8 billion in the prior year, primarily reflecting a significant decrease in the provision for assets reclassified in accordance with IAS 39. The provision in PCAM was  789 million, including  56 million from Postbank. Excluding Postbank, the provision was  733 million, versus  806 million in the prior year. The development was influenced by measures taken on portfolio and country level. Provision for credit losses in 2009 was positively impacted by changes in certain parameter and model assumptions, which reduced the provision by  87 million in CIB and by  146 million in PCAM.
For further information on the provision for loan losses see “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Credit Risk – Movements in the Allowance for Loan Losses”.

 


Table of Contents

Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   60
Remaining Noninterest Income
The following table sets forth information on our Remaining noninterest income.
                                                         
                            2010 increase (decrease)     2009 increase (decrease)  
in m.                           from 2009     from 2008  
(unless stated otherwise)   2010     2009     2008     in m.     in %     in m.     in %  
Commissions and fee income1
    10,669       8,911       9,741       1,758       20       (830 )     (9 )
Net gains (losses) on financial assets available for sale
    201       (403 )     666       604       N/M       (1,069 )     N/M  
Net income (loss) from equity method investments
    (2,004 )     59       46       (2,063 )     N/M       13       28  
Other income (loss)
    764       (183 )     699       947       N/M       (882 )     N/M  
 
                                         
Total remaining noninterest income
    9,630       8,384       11,152       1,246       15       (2,768 )     (25 )
 
                                         
 
N/M – Not meaningful
 
1  
includes:
                                                         
    2010     2009     2008     in m.     in %     in m.     in %  
Commissions and fees from fiduciary activities:
                                                       
Commissions for administration
    491       392       384       99       25       8       2  
Commissions for assets under management
    2,833       2,319       2,815       514       22       (496 )     (18 )
Commissions for other securities business
    205       214       215       (9 )     (4 )     (1 )     (0 )
 
                                         
Total
    3,529       2,925       3,414       604       21       (489 )     (14 )
 
                                         
Commissions, broker’s fees, mark-ups on securities underwriting and other securities activities:
                                                       
Underwriting and advisory fees
    2,148       1,767       1,341       381       22       426       32  
Brokerage fees
    1,725       1,682       2,449       43       3       (767 )     (31 )
 
                                         
Total
    3,873       3,449       3,790       424       12       (341 )     (9 )
 
                                         
Fees for other customer services
    3,267       2,537       2,537       730       29       0       0  
 
                                         
Total commissions and fee income
    10,669       8,911       9,741       1,758       20       (830 )     (9 )
 
                                         
 
N/M – Not meaningful
Commissions and fee income. Total commissions and fee income was  10.7 billion in 2010, an increase of  1.8 billion, or 20 %, compared to 2009. Commissions and fees from fiduciary activities increased  604 million compared to the prior year, driven by higher asset based fees and performance fees in AM. Underwriting and advisory fees improved by  381 million, or 22 %, mainly from a number of large initial public offerings (IPOs). Brokerage fees increased by  43 million, or 3 %, primarily driven by the first-time consolidation of Sal. Oppenheim/BHF-BANK as well as a stronger performance in PBC compared to the prior year. This positive development is partly offset by a decrease in CB&S. Fees for other customer services were up by  730 million, or 29 %, from increased business activity.
Net gains (losses) on financial assets available for sale. Net gains on financial assets available for sale were  201 million in 2010, versus net losses of  403 million in 2009. The gains in 2010 mainly resulted from the sale of Axel Springer AG shares in CB&S, which had been pledged as loan collateral, and from the disposal of an available for sale security position in PBC. The losses in 2009 were primarily attributable to impairment charges related to investments in CB&S and to AM’s real estate business.
Net income (loss) from equity method investments. Net loss from equity method investments was  2.0 billion in 2010 versus a net gain of  59 million in 2009. The net loss in 2010 included a charge of  2.3 billion, partly offset by a positive equity pick-up, both related to our investment in Postbank. In 2009, the net income from equity method investments included gains from our investment in Postbank, partly offset by impairment charges on certain equity method investments in our commercial real estate business in CB&S.

 


Table of Contents

Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   61
Other income (loss). Total Other income (loss) was a gain of  764 million in 2010 versus a loss of  183 million in 2009. The development was mainly driven by significantly reduced impairments on The Cosmopolitan of Las Vegas, higher results from derivatives qualifying for hedge accounting and a gain representing negative goodwill related to the commercial banking activities acquired from ABN AMRO in the Netherlands.
Noninterest Expenses
The following table sets forth information on our noninterest expenses.
                                                         
                            2010 increase (decrease)     2009 increase (decrease)  
in m.                           from 2009     from 2008  
(unless stated otherwise)   2010     2009     2008     in m.     in %     in m.     in %  
Compensation and benefits
    12,671       11,310       9,606       1,361       12       1,704       18  
General and administrative expenses1
    10,133       8,402       8,339       1,731       21       63       1  
Policyholder benefits and claims
    485       542       (252 )     (57 )     (11 )     794       N/M  
Impairment of intangible assets
    29       (134 )     585       163       N/M       (719 )     N/M  
Restructuring activities
                            N/M             N/M  
 
                                         
Total noninterest expenses
    23,318       20,120       18,278       3,198       16       1,842       10  
 
                                         
 
N/M – Not meaningful
 
1  
includes:
                                                         
    2010     2009     2008     in m.     in %     in m.     in %  
IT costs
    2,274       1,759       1,818       515       29       (59 )     (3 )
Occupancy, furniture and equipment expenses
    1,665       1,457       1,434       208       14       23       2  
Professional service fees
    1,616       1,088       1,164       528       49       (76 )     (7 )
Communication and data services
    785       672       698       113       17       (26 )     (4 )
Travel and representation expenses
    558       408       504       150       37       (96 )     (19 )
Payment, clearing and custodian services
    418       406       415       12       3       (9 )     (2 )
Marketing expenses
    341       278       373       63       23       (95 )     (25 )
Other expenses
    2,476       2,334       1,933       142       6       401       21  
 
                                         
Total general and administrative expenses
    10,133       8,402       8,339       1,731       21       63       1  
 
                                         
Compensation and benefits. In the full year 2010, compensation and benefits were up by  1.4 billion, or 12 %, compared to 2009. The increase included  660 million related to the acquisitions in 2010. In addition, the increase reflected higher amortization expenses for deferred compensation consequent to changes in compensation structures, mainly with respect to an increase in the proportion of deferred compensation, including the impact of accelerated amortization for employees eligible for career retirement.
General and administrative expenses. General and administrative expenses increased by  1.7 billion versus 2009, reflecting  1.0 billion from the acquisitions in 2010 including higher professional service fees. The remainder of the increase was due to the impact of foreign exchange movements as well as to higher investment spend in our IT platform and in business growth in 2010. The increase also included higher operating costs related to our consolidated investments, particularly The Cosmopolitan of Las Vegas property, which commenced operations in December 2010. General and administrative expenses in 2009 included  316 million from a legal settlement with Huntsman Corp. and  200 million related to our offer to repurchase certain products from private investors.
Policyholder benefits and claims. Policyholder benefits and claims in 2010 were  485 million, a decrease of  57 million compared to the prior year, resulting primarily from our Abbey Life business. These insurance-related charges are offset by related net gains on financial assets/liabilities at fair value through profit or loss.
Impairment of intangible assets. In 2010, an impairment charge of  29 million on intangible assets relating to the client portfolio of an acquired domestic custody services business was recorded in GTB. In 2009, a rever-

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   62
sal of an impairment charge on intangible assets of 291 million was recorded in AM, related to DWS Investments in the U.S. (formerly DWS Scudder). This positive effect was partly offset by goodwill impairment charges of 151 million, which were related to a consolidated RREEF infrastructure investment.
Income Tax Expense
The income tax expense of 1.6 billion recorded for 2010 was impacted by the Postbank related charge of 2.3 billion, which did not have a corresponding tax benefit. This was partly offset by improved U.S. income tax positions and a favorable geographic mix of income. By contrast, income tax expense in 2009 of 244 million benefited from the recognition of previously unrecognized deferred tax assets in the U.S and favorable outcomes of tax audit settlements. The effective tax rates were 41.4 % in 2010 and 4.7 % in 2009.
Results of Operations by Segment (2010 vs. 2009)
The following is a discussion of the results of our business segments. See Note 05 “Business Segments and Related Information” to the consolidated financial statements for information regarding
 
our organizational structure;
 
effects of significant acquisitions and divestitures on segmental results;
 
changes in the format of our segment disclosure;
 
the framework of our management reporting systems;
 
consolidating and other adjustments to the total results of operations of our business segments, and
 
definitions of non-GAAP financial measures that are used with respect to each segment.
The criterion for segmentation into divisions is our organizational structure as it existed at December 31, 2010. Segment results were prepared in accordance with our management reporting systems.
                                                 
            Private                            
2010   Corporate &     Clients and             Total     Consoli-        
in m.   Investment     Asset     Corporate     Management     dation &     Total  
(unless stated otherwise)   Bank     Management     Investments     Reporting     Adjustments     Consolidated  
Net revenues
    20,929 1     10,043       (2,020 )2     28,953       (386 )     28,567  
 
                                   
Provision for credit losses
    488       789       (4 )     1,273       0       1,274  
 
                                   
Total noninterest expenses
    14,422       8,258       637       23,318       1       23,318  
 
                                   
therein:
                                               
Policyholder benefits and claims
    486       (0 )           485             485  
Impairment of intangible assets
    29                   29             29  
Restructuring activities
                                   
 
                                   
Noncontrolling interests
    20       6       (2 )     24       (24 )      
 
                                   
Income (loss) before income taxes
    5,999       989       (2,649 )     4,339       (363 )     3,975  
 
                                   
Cost/income ratio
    69 %       82 %       N/M       81 %       N/M       82 %  
Assets3
    1,519,983       412,477       17,766       1,894,282       11,348       1,905,630  
Average active equity4
    18,644       10,635       4,168       33,446       7,907       41,353  
Pre-tax return on average active equity5
    32 %       9 %       (64)%       13 %       N/M       10 %  
 
N/M – Not meaningful
 
1  
Includes a gain from the recognition of negative goodwill related to the acquisition of the commercial banking activities of ABN AMRO in the Netherlands of 208 million as reported in the second quarter 2010 which is excluded from the Group’s target definition.
 
2  
Includes a charge related to the investment in Deutsche Postbank AG of 2,338 million, which is excluded from the Group’s target definition.
 
3  
The sum of corporate divisions does not necessarily equal the total of the corresponding group division because of consolidation items between corporate divisions, which are to be eliminated on group division level. The same approach holds true for the sum of group divisions compared to ‘Total Consolidated’.
 
4  
For management reporting purposes goodwill and other intangible assets with indefinite lives are explicitly assigned to the respective divisions. Average active equity is first allocated to divisions according to goodwill and intangible assets; remaining average active equity is allocated to divisions in proportion to the economic capital calculated for them.
 
5  
For the calculation of pre-tax return on average active equity please refer to Note 05 “Business Segments and Related Information”. For ‘Total consolidated’, pre-tax return on average shareholders’ equity is 10 %.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   63
                                                 
    Corporate     Private                            
2009   &     Clients and             Total     Consoli-        
in m.   Investment     Asset     Corporate     Management     dation &     Total  
(unless stated otherwise)   Bank     Management     Investments     Reporting     Adjustments     Consolidated  
Net revenues
    18,807       8,261       1,044       28,112       (159 )     27,952  
Provision for credit losses
    1,816       806       8       2,630       (0 )     2,630  
 
                                   
Total noninterest expenses
    12,679       6,803       581       20,063       57       20,120  
 
                                   
therein:
                                               
Policyholder benefits and claims
    541                   541       2       542  
Impairment of intangible assets
    5       (291 )     151       (134 )           (134 )
Restructuring activities
                                   
 
                                   
Noncontrolling interests
    (2 )     (7 )     (1 )     (10 )     10        
 
                                   
Income (loss) before income taxes
    4,314       658       456       5,428       (226 )     5,202 1
 
                                   
Cost/income ratio
    67 %       82 %       56 %       71 %       N/M       72 %  
Assets2
    1,343,824       174,739       28,456       1,491,108       9,556       1,500,664  
Average active equity3
    19,041       8,408       4,323       31,772       2,840       34,613  
Pre-tax return on average active equity4
    23 %       8 %       11 %       17 %       N/M       15 %  
 
N/M – Not meaningful
 
1  
Includes a gain from the sale of industrial holdings (Daimler AG) of  236 million, a reversal of impairment of intangible assets (Asset Management) of  291 million (the related impairment had been recorded in 2008), an impairment charge of  278 million on industrial holdings and an impairment of intangible assets (Corporate Investments) of  151 million which are excluded from the Group’s target definition.
 
2  
The sum of corporate divisions does not necessarily equal the total of the corresponding group division because of consolidation items between corporate divisions, which are to be eliminated on group division level. The same approach holds true for the sum of group divisions compared to ‘Total Consolidated’.
 
3  
For management reporting purposes goodwill and other intangible assets with indefinite lives are explicitly assigned to the respective divisions. Average active equity is first allocated to divisions according to goodwill and intangible assets; remaining average active equity is allocated to divisions in proportion to the economic capital calculated for them.
 
4  
For the calculation of pre-tax return on average active equity please refer to Note 05 “Business Segments and Related Information”. For ‘Total consolidated’, pre-tax return on average shareholders’ equity is 15 %.
                                                 
    Corporate     Private                            
2008   &     Clients and             Total     Consoli-        
in m.   Investment     Asset     Corporate     Management     dation &     Total  
(unless stated otherwise)   Bank     Management     Investments     Reporting     Adjustments     Consolidated  
Net revenues
    3,211       9,031       1,290       13,532       82       13,613  
Provision for credit losses
    408       668       (1 )     1,075       1       1,076  
 
                                   
Total noninterest expenses
    10,214       7,971       95       18,279       (0 )     18,278  
 
                                   
therein:
                                               
Policyholder benefits and claims
    (273 )     18             (256 )     4       (252 )
Impairment of intangible assets
    5       580             585             585  
Restructuring activities
                                   
 
                                   
Noncontrolling interests
    (48 )     (20 )     2       (66 )     66        
 
                                   
Income (loss) before income taxes
    (7,362 )     411       1,194       (5,756 )     15       (5,741 )1
 
                                   
Cost/income ratio
    N/M       88 %       7 %       135 %       N/M       134 %  
Assets2
    2,047,181       188,785       18,297       2,189,313       13,110       2,202,423  
Average active equity3
    20,262       8,315       403       28,979       3,100       32,079  
Pre-tax return on average active equity4
    (36)%       5 %       N/M       (20)%       N/M       (18)%  
 
N/M – Not meaningful
 
1  
Includes gains from the sale of industrial holdings (Daimler AG, Allianz SE and Linde AG) of  1,228 million, a gain from the sale of the investment in Arcor AG & Co. KG of  97 million and an impairment of intangible assets (Asset Management) of 572 million, which are excluded from the Group’s target definition.
 
2  
The sum of corporate divisions does not necessarily equal the total of the corresponding group division because of consolidation items between corporate divisions, which are to be eliminated on group division level. The same approach holds true for the sum of group divisions compared to ‘Total Consolidated’.
 
3  
For management reporting purposes goodwill and other intangible assets with indefinite lives are explicitly assigned to the respective divisions. Average active equity is first allocated to divisions according to goodwill and intangible assets; remaining average active equity is allocated to divisions in proportion to the economic capital calculated for them.
 
4  
For the calculation of pre-tax return on average active equity please refer to Note 05 “Business Segments and Related Information”. For ‘Total consolidated’, pre-tax return on average shareholders’ equity is (17) %.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   64
Group Divisions
Corporate & Investment Bank Group Division
The following table sets forth the results of our Corporate & Investment Bank Group Division (CIB) for the years ended December 31, 2010, 2009 and 2008, in accordance with our management reporting systems.
                         
in m.                  
(unless stated otherwise)   2010     2009     2008  
Net revenues:
                       
Sales & Trading (equity)
    3,108       2,650       (736 )
Sales & Trading (debt and other products)
    9,740       9,557       323  
Origination (equity)
    706       663       334  
Origination (debt)
    1,199       1,127       (717 )
Advisory
    573       402       589  
Loan products
    1,736       1,949       1,296  
Transaction services
    3,223       2,609       2,784  
Other products
    644       (151 )     (661 )
 
                 
Total net revenues
    20,929       18,807       3,211  
 
                 
therein:
                       
Net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss
    14,081       13,969       (1,017 )
Provision for credit losses
    488       1,816       408  
 
                 
Total noninterest expenses
    14,422       12,679       10,214  
 
                 
therein:
                       
Policyholder benefits and claims
    486       541       (273 )
Impairment of intangible assets
    29       5       5  
Restructuring activities
                 
 
                 
Noncontrolling interests
    20       (2 )     (48 )
 
                 
Income (loss) before income taxes
    5,999       4,314       (7,362 )
 
                 
Cost/income ratio
    69 %       67 %       N/M  
Assets
    1,519,983       1,343,824       2,047,181  
Average active equity1
    18,644       19,041       20,262  
Pre-tax return on average active equity
    32 %       23 %       (36)%  
 
N/M – Not meaningful
 
1  
See Note 05 “Business Segments and Related Information” to the consolidated financial statements for a description of how average active equity is allocated to the divisions.
The following paragraphs discuss the contribution of the individual corporate divisions to the overall results of the Corporate & Investment Bank Group Division.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   65
Corporate Banking & Securities Corporate Division
The following table sets forth the results of our Corporate Banking & Securities Corporate Division (CB&S) for the years ended December 31, 2010, 2009 and 2008, in accordance with our management reporting systems.
                         
in m.                  
(unless stated otherwise)   2010     2009     2008  
Net revenues:
                       
Sales & Trading (equity)
    3,108       2,650       (736 )
Sales & Trading (debt and other products)
    9,740       9,557       323  
Origination (equity)
    706       663       334  
Origination (debt)
    1,199       1,127       (717 )
Advisory
    573       402       589  
Loan products
    1,736       1,949       1,296  
Other products
    428       (151 )     (661 )
 
                 
Total net revenues
    17,490       16,197       428  
 
                 
Provision for credit losses
    348       1,789       402  
 
                 
Total noninterest expenses
    12,028       10,891       8,568  
 
                 
therein:
                       
Policyholder benefits and claims
    486       541       (273 )
Impairment of intangible assets
          5       5  
Restructuring activities
                 
 
                 
Noncontrolling interests
    20       (2 )     (48 )
 
                 
Income (loss) before income taxes
    5,094       3,520       (8,494 )
 
                 
Cost/income ratio
    69 %       67 %       N/M  
Assets
    1,468,863       1,308,222       2,012,002  
Average active equity1
    17,096       17,881       19,181  
Pre-tax return on average active equity
    30 %       20 %       (44)%  
 
N/M – Not meaningful
 
1  
See Note 05 “Business Segments and Related Information” to the consolidated financial statements for a description of how average active equity is allocated to the divisions.
Comparison between 2010 and 2009
Sales & Trading (debt and other products) net revenues were  9.7 billion, an increase of 2 % compared to  9.6 billion in 2009. Net revenues in the prior year included net mark-downs of  1.0 billion, mainly related to provisions against monoline insurers and charges related to Ocala Funding LLC of approximately  350 million compared to Ocala-related charges of approximately  360 million and immaterial net mark-downs in the current year. Revenues in Money Markets and Rates were materially lower due to lower bid-offer spreads and subdued client activity as a result of sovereign risk concerns. Revenues in Credit Trading were significantly higher driven by lower mark-downs from legacy positions and increased client activity across flow and structured solutions. Revenues in the Foreign Exchange business were stable reflecting strong market share (source: Euromoney) and higher volumes, offsetting decreases in bid-offer spreads in a more normalized environment. Commodities revenues were higher than the prior year, despite a more challenging environment. Emerging Markets revenues were lower reflecting less favorable market conditions compared to 2009.
Sales & Trading (equity) net revenues were  3.1 billion, an increase of  458 million, or 17 %, compared to  2.7 billion in 2009. Equity Trading revenues were slightly down compared to the prior year, as decreased activity during the summer was partly offset by a pick-up towards the end of the year. Revenues from Equity Derivatives were significantly higher, reflecting the recalibration of the business and the non-recurrence of the trading losses that occurred in the first quarter 2009. In Prime Finance, revenues were slightly higher due to increased client balances, improved competitive positioning (source: Global Custodian) and the launch of new products and services. Revenues from dedicated Equity Proprietary Trading were not material and the business was exited during the third quarter of 2010.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   66
Origination and Advisory revenues were  2.5 billion in 2010, an increase of  286 million, or 13 %, compared to 2009. During 2010, we achieved and maintained our target of a top five ranking and were ranked number five globally in 2010 compared to number seven in 2009. Globally, we had top five ranks across all origination and advisory products. In Advisory, revenues were  573 million, up 43 % from 2009. The M&A business was ranked number one in EMEA, number six in the Americas and number five globally, a substantial improvement over the prior year. Debt Origination revenues of  1.2 billion increased by 6 % from the prior year. We were ranked fourth in Investment Grade and in High Yield, and number five in Leveraged Loans. In Equity Origination, revenues of  706 million increased by 6 % from prior year, despite lower deal activity compared to the prior year period. However, we were ranked number one in EMEA and number five in the U.S. Globally, we were ranked number five, up from number nine in 2009. (Source for all rankings and market shares: Dealogic)
Loan products revenues were  1.7 billion, a decrease of  213 million, or 11 %, from 2009. The decrease is primarily due to mark-to-market losses on new loans and loan commitments held at fair value.
Net revenues from other products were  428 million, an increase of  579 million from 2009, which included an impairment charge of  500 million related to The Cosmopolitan of Las Vegas property and losses on private equity investments in the first quarter 2009.
In provision for credit losses, CB&S recorded a net charge of  348 million, compared to a net charge of  1.8 billion in 2009. The decrease compared to the prior year was mainly attributable to lower provision for credit losses related to assets which had been reclassified in accordance with IAS 39.
Noninterest expenses were  12.0 billion, an increase of  1.1 billion, or 10 %, compared to 2009, which benefitted from changes in compensation structures, mainly with respect to an increase in the proportion of deferred compensation. Compensation expenses in 2010 reflected higher amortization expenses for deferred compensation as a consequence of the aforementioned change in compensation structures including the impact of accelerated amortization for employees eligible for career retirement. This increase was also driven by business growth, costs for strategic initiatives and complexity reduction efforts as well as the impact of foreign exchange rate movements. Partially offsetting this increase was the non-recurrence of prior year charges including  316 million from a legal settlement with Huntsman Corp. as well as  200 million related to an offer to repurchase certain products from private investors.
Amendments to IAS 39 and IFRS 7, “Reclassification of Financial Assets”
Under the amendments to IAS 39 and IFRS 7 issued in October 2008, certain financial assets were reclassified in the second half of 2008 and the first quarter of 2009 from the financial assets at fair value through profit or loss and the available for sale classifications into the loans classification. The reclassifications were made in instances where management believed that the expected repayment of the assets exceeded their estimated fair values, which reflected the significantly reduced liquidity in the financial markets, and that returns on these assets would be optimized by holding them for the foreseeable future. Where this clear change of intent existed and was supported by an ability to hold and fund the underlying positions, we concluded that the reclassifications aligned the accounting more closely with the business intent.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   67
The tables below show the incremental impact of the reclassification for CB&S. The tables show that the reclassifications resulted in a  753 million incremental loss to the income statement and a  325 million incremental loss to other comprehensive income for 2010. For the full year 2009, the reclassifications resulted in a  273 million incremental loss to the income statement and a  1.2 billion incremental loss to other comprehensive income. The consequential effect on credit market risk disclosures is provided in “Update on Key Credit Market Exposures”.
                                 
                    Year ended Dec 31, 2010  
                    Impact on     Impact on other  
    Dec 31, 2010     income before     comprehensive  
    Carrying value     Fair value     income taxes     income  
2010 impact of the reclassification   in bn.     in bn.     in m.     in m.  
Sales & Trading – Debt
                               
Trading assets reclassified to loans
    16.6       14.7       (582 )      
Financial assets available for sale reclassified to loans
    8.7       7.8       2       (325 )
Origination and Advisory
                               
Trading assets reclassified to loans1
    1.4       1.2       (173 )      
Loan products
                               
Financial assets available for sale reclassified to loans
                       
 
                       
Total
    26.7       23.7       (753 )2     (325 )
 
                       
 
1  
The significant decrease in carrying value and fair value of reclassified assets in Origination and Advisory since December 2009 is mainly due to the restructuring of loans to Actavis Group hF in 2010 with a carrying amount of  4.2 billion. There was no gain or loss recognized as a result of the restructuring. The restructuring is detailed further in Note 17 “Equity Method Investments”.
 
2  
In addition to the impact in CB&S, income before income taxes decreased by  3 million in PBC.
                                 
                    Year ended Dec 31, 2009  
                    Impact on     Impact on other  
    Dec 31, 2009     income before     comprehensive  
    Carrying value     Fair value     income taxes     income  
2009 impact of the reclassification   in bn.     in bn.     in m.     in m.  
Sales & Trading – Debt
                               
Trading assets reclassified to loans
    18.2       15.9       407        
Financial assets available for sale reclassified to loans
    9.3       8.2       (16 )     (1,102 )
Origination and Advisory
                               
Trading assets reclassified to loans
    6.1       5.7       (664 )      
Loan products
                               
Financial assets available for sale reclassified to loans
                      (114 )1
 
                       
Total
    33.6       29.8       (273 )2     (1,216 )
 
                       
 
1  
The negative amount shown as the annual movement in other comprehensive income is due to an instrument being impaired in the year. The decrease in fair value since reclassification that would have been recorded in equity would then be removed from equity and recognized through the income statement.
 
2  
In addition to the impact in CB&S, income before income taxes increased by  18 million in PBC.
During 2010 we sold reclassified assets with a carrying value of  2.0 billion. The sales resulted in a net loss on sale of  3 million. Sales were made due to circumstances that were not foreseen at the time of reclassification.
The assets reclassified included funded leveraged finance loans with a fair value on the date of reclassification of  7.5 billion which were entered into as part of an “originate to distribute” strategy. Assets with a fair value on the date of reclassification of  9.4 billion were contained within consolidated asset backed commercial paper conduits as of the reclassification date. Commercial real estate loans were reclassified with a fair value on the date of reclassification of  9.1 billion. These loans were intended for securitization at their origination or purchase date. The remaining reclassified assets, which comprised other assets principally acquired or originated for the purpose of securitization, had a fair value of  11.9 billion on the reclassification date.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   68
Global Transaction Banking Corporate Division
The following table sets forth the results of our Global Transaction Banking Corporate Division (GTB) for the years ended December 31, 2010, 2009 and 2008, in accordance with our management reporting systems.
                         
in m.                  
(unless stated otherwise)   2010     2009     2008  
Net revenues:
                       
Transaction services
    3,223       2,609       2,784  
Other products
    216              
 
                 
Total net revenues
    3,439       2,609       2,784  
 
                 
Provision for credit losses
    140       27       5  
 
                 
Total noninterest expenses
    2,394       1,788       1,646  
 
                 
therein:
                       
Restructuring activities
                 
Impairment on intangible assets
    29                  
 
                 
Noncontrolling interests
                 
 
                 
Income (loss) before income taxes
    905       795       1,132  
 
                 
Cost/income ratio
    70 %       69 %       59 %  
Assets
    71,877       47,414       49,469  
Average active equity1
    1,548       1,160       1,081  
Pre-tax return on average active equity
    58 %       68 %       105 %  
 
1  
See Note 05 “Business Segments and Related Information” to the consolidated financial statements for a description of how average active equity is allocated to the divisions.
Comparison between 2010 and 2009
GTB’s net revenues were a record  3.4 billion, an increase of 32 %, or  830 million, compared to 2009. Even excluding the impact of the commercial banking activities acquired from ABN AMRO in the Netherlands, which included a gain of  216 million related to negative goodwill resulting from the first-time consolidation of the acquired activities in 2010, GTB generated record revenues. This strong performance was predominantly attributable to growth in fee income in Trust & Securities Services, Trade Finance, and Cash Management offsetting the impact of the continuing low interest rate environment, mainly affecting the latter business. Trust & Securities Services benefitted from positive business momentum, especially in Asia in the fourth quarter.
Provision for credit losses was  140 million. The increase of  113 million versus 2009 was primarily related to the commercial banking activities acquired from ABN AMRO.
Noninterest expenses were  2.4 billion, an increase of 34 %, or  606 million, compared to 2009. The increase was mainly driven by operating and integration costs related to the commercial banking activities acquired from ABN AMRO, and significant severance expenses of  130 million in the fourth quarter related to specific measures associated with the realignment of infrastructure areas and sales units.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   69
Private Clients and Asset Management Group Division
The following table sets forth the results of our Private Clients and Asset Management Group Division (PCAM) for the years ended December 31, 2010, 2009 and 2008, in accordance with our management reporting systems.
                         
in m.                  
(unless stated otherwise)   2010     2009     2008  
Net revenues:
                       
Discretionary portfolio/fund management
    2,560       2,083       2,433  
Advisory/brokerage
    1,745       1,531       2,045  
Credit products
    2,708       2,605       2,232  
Deposits and payment services
    2,029       1,875       1,968  
Other products
    1,001       167       353  
 
                 
Total net revenues
    10,043       8,261       9,031  
 
                 
therein:
                       
Net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss
    4,708       4,157       3,861  
Provision for credit losses
    789       806       668  
 
                 
Total noninterest expenses
    8,258       6,803       7,971  
 
                 
therein:
                       
Policyholder benefits and claims
                18  
Impairment of intangible assets
          (291 )     580  
Restructuring activities
                 
 
                 
Noncontrolling interests
    6       (7 )     (20 )
 
                 
Income (loss) before income taxes
    989       658       411  
 
                 
Cost/income ratio
    82 %       82 %       88 %  
Assets
    412,477       174,739       188,785  
Average active equity1
    10,635       8,408       8,315  
Pre-tax return on average active equity
    9 %       8 %       5 %  
Invested assets2 (in bn.)
    1,179       880       816  
 
1  
See Note 05 “Business Segments and Related Information” to the consolidated financial statements for a description of how average active equity is allocated to the divisions.
 
2  
We define invested assets as (a) assets we hold on behalf of customers for investment purposes and/or (b) client assets that are managed by us. We manage invested assets on a discretionary or advisory basis, or these assets are deposited with us.
The following paragraphs discuss the contribution of the individual corporate divisions to the overall results of the Private Clients and Asset Management Group Division.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   70
Asset and Wealth Management Corporate Division
The following table sets forth the results of our Asset and Wealth Management Corporate Division (AWM) for the years ended December 31, 2010, 2009 and 2008, in accordance with our management reporting systems.
                         
in m.                  
(unless stated otherwise)   2010     2009     2008  
Net revenues:
                       
Discretionary portfolio/fund management (AM)
    1,733       1,562       1,859  
Discretionary portfolio/fund management (PWM)
    515       264       320  
 
                 
Total discretionary portfolio/fund management
    2,247       1,826       2,179  
 
                 
Advisory/brokerage
    857       689       878  
Credit products
    383       255       166  
Deposits and payment services
    138       169       191  
Other products
    282       (255 )     (159 )
 
                 
Total net revenues
    3,907       2,685       3,254  
 
                 
Provision for credit losses
    43       17       15  
 
                 
Total noninterest expenses
    3,765       2,475       3,793  
 
                 
therein:
                       
Policyholder benefits and claims
                18  
Impairment of intangible assets
          (291 )     580  
Restructuring activities
                 
 
                 
Noncontrolling interests
    (1 )     (7 )     (20 )
 
                 
Income (loss) before income taxes
    100       200       (534 )
 
                 
Cost/income ratio
    96 %       92 %       117 %  
Assets
    65,508       43,761       50,473  
Average active equity1
    6,737       4,791       4,870  
Pre-tax return on average active equity
    1 %       4 %       (11)%  
Invested assets2 (in bn.)
    873       686       628  
 
1  
See Note 05 “Business Segments and Related Information” to the consolidated financial statements for a description of how average active equity is allocated to the divisions.
 
2  
We define invested assets as (a) assets we hold on behalf of customers for investment purposes and/or (b) client assets that are managed by us. We manage invested assets on a discretionary or advisory basis, or these assets are deposited with us.
Comparison between 2010 and 2009
For the year 2010, AWM reported net revenues of  3.9 billion, up  1.2 billion, or 46 %, compared to 2009. The increase included  646 million attributable to the acquisition of Sal. Oppenheim/BHF-BANK in Private Wealth Management (PWM), which are reflected in revenues from discretionary portfolio management/fund management (up  250 million or 95 %), credit products (up  128 million, or 50 %) and other products (up  537 million from negative  255 million in 2009). Revenues in AWM also grew due to higher asset based fees and performance fees in Asset Management’s (AM) discretionary portfolio management/fund management (up  171 million, or 11 %). In addition, Advisory/brokerage revenues (up  168 million, or 24 %) benefitted from higher client activity and an improved market environment. Deposits and payment services revenues decreased by  31 million, or 18 %, mainly reflecting lower margins.
Provision for credit losses was  43 million in 2010, an increase of  27 million compared to 2009, mainly attributable Sal. Oppenheim/BHF-BANK.
Noninterest expenses in 2010 were  3.8 billion, an increase of  1.3 billion, or 52 %, compared to 2009. This development included the reversal of an impairment charge on intangible assets of  291 million in AM in 2009, which related to DWS Investments in the U.S. (formerly DWS Scudder). In addition, noninterest expenses in 2010 included  986 million related to Sal. Oppenheim/BHF-BANK.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   71
Invested assets in AWM were  873 billion at December 31, 2010, an increase of  188 billion compared to December 31, 2009. The increase included  112 billion from the acquisition of Sal. Oppenheim/BHF-BANK ( 68 billion related to Sal. Oppenheim and  45 billion related to BHF-BANK). The remaining increase was mainly driven by market appreciation and the weakening of the Euro. AWM recorded in 2010 net outflows of  2.5 billion, mainly driven by cash outflows in the Americas, which were largely offset by inflows in Europe and in insurance in the Americas.
Private & Business Clients Corporate Division
The following table sets forth the results of our Private & Business Clients Corporate Division (PBC) for the years ended December 31, 2010, 2009 and 2008, in accordance with our management reporting systems.
                         
in m.                  
(unless stated otherwise)   2010     2009     2008  
Net revenues:
                       
Discretionary portfolio/fund management
    313       257       255  
Advisory/brokerage
    887       841       1,167  
Credit products
    2,325       2,350       2,065  
Deposits and payment services
    1,891       1,706       1,777  
Other products
    720       422       513  
 
                 
Total net revenues
    6,136       5,576       5,777  
 
                 
Provision for credit losses
    746       790       653  
 
                 
Total noninterest expenses
    4,493       4,328       4,178  
 
                 
therein:
                       
Restructuring activities
                 
 
                 
Noncontrolling interests
    8       0       0  
 
                 
Income (loss) before income taxes
    890       458       945  
 
                 
Cost/income ratio
    73 %       78 %       72 %  
Assets
    346,998       131,014       138,350  
Average active equity1
    3,897       3,617       3,445  
Pre-tax return on average active equity
    23 %       13 %       27 %  
Invested assets2 (in bn.)
    306       194       189  
Loan volume (in bn.)
    255       96       91  
Deposit volume (in bn.)
    229       109       118  
 
1  
See Note 05 “Business Segments and Related Information” to the consolidated financial statements for a description of how average active equity is allocated to the divisions.
 
2  
We define invested assets as (a) assets we hold on behalf of customers for investment purposes and/or (b) client assets that are managed by us. We manage invested assets on a discretionary or advisory basis, or these assets are deposited with us.
Comparison between 2010 and 2009
Net revenues were  6.1 billion, up  560 million, or 10 %, versus 2009. Revenues in 2010 included the first-time consolidation of Postbank, which began on December 3, 2010. This resulted in additional net revenues of  414 million, recorded in the interim in revenues from other products. Thus, Postbank was the main contributor for the increase of  298 million, or 71 %, in revenues from other products, partly offset by lower revenues from PBC’s Asset and liability management function. Revenues from discretionary portfolio management/fund management revenues increased by  56 million, or 22 %, and Advisory/brokerage revenues by  46 million, or 5 %. Both products benefited from increased activity of retail investors in more favorable market conditions, as well as higher revenues related to insurance products sales. Credit products revenues were down by  25 million or 1 % driven by lower margins. Deposits and payment services revenues increased by  185 million, or 11 %, mainly driven by improved deposit margins.
Provision for credit losses was  746 million, of which  56 million related to Postbank. Excluding Postbank, provision for credit losses decreased by  100 million, or 13 %, compared to 2009, mainly attributable to measures taken on portfolio and country level.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   72
Noninterest expenses of  4.5 billion were  165 million, or 4 %, higher than in 2009. This increase was predominantly driven by  320 million related to the first-time consolidation of Postbank. Excluding Postbank, noninterest expenses decreased by  155 million, or 4 %, mainly attributable to lower severance payments.
Invested assets were  306 billion as of December 31, 2010, an increase of  112 billion compared to December 31, 2009, mainly driven by the Postbank consolidation. Excluding this effect, invested assets increased by  7 billion, including  5 billion due to market appreciation and  2 billion net inflows, mainly in deposits.
The number of clients in PBC was 28.8 million at year end 2010, including 14.2 million related to Postbank.
Corporate Investments Group Division
The following table sets forth the results of our Corporate Investments Group Division (CI) for the years ended December 31, 2010, 2009 and 2008, in accordance with our management reporting systems.
                         
in m.                  
(unless stated otherwise)   2010     2009     2008  
Net revenues
    (2,020 )     1,044       1,290  
therein:
                       
Net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss
    (184 )     793       (172 )
Provision for credit losses
    (4 )     8       (1 )
 
                 
Total noninterest expenses
    637       581       95  
 
                 
therein:
                       
Impairment of intangible assets
          151        
Restructuring activities
                 
 
                 
Noncontrolling interests
    (2 )     (1 )     2  
 
                 
Income (loss) before income taxes
    (2,649 )     456       1,194  
 
                 
Cost/income ratio
    N/M       56 %       7 %  
Assets
    17,766       28,456       18,297  
Average active equity1
    4,168       4,323       403  
Pre-tax return on average active equity
    (64)%       11 %       N/M  
 
N/M – Not meaningful
 
1  
See Note 05 “Business Segments and Related Information” to the consolidated financial statements for a description of how average active equity is allocated to the divisions.
Comparison between 2010 and 2009
Net revenues were negative  2.0 billion, versus positive  1.0 billion compared to 2009. Net revenues in 2010 were mainly impacted by a charge of  2.3 billion on our investment in Postbank, which was recorded in the third quarter. In addition, net revenues included an impairment charge of  124 million on The Cosmopolitan of Las Vegas. Net revenues in 2009 included  1.0 billion related to the Postbank transaction, mark-to-market gains of  83 million from our option to increase our share in Hua Xia Bank Co. Ltd. and an impairment charge of  75 million on The Cosmopolitan of Las Vegas.
Total noninterest expenses were  637 million, an increase of  56 million compared to the previous year. This increase was mainly due to higher expenses related to space and building optimization and higher operating costs of our consolidated investment in The Cosmopolitan of Las Vegas, which commenced operations in December 2010. Noninterest expenses in 2009 included a goodwill impairment charge of  151 million on our investment in Maher Terminals.
Consolidation & Adjustments
For a discussion of Consolidation & Adjustments to our business segment results see Note 05 “Business Segments and Related Information” to the consolidated financial statements.

 


Table of Contents

Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   73
Operating Results (2009 vs. 2008)
Net Interest Income
Net interest income in 2009 was  12.5 billion, virtually unchanged compared to 2008. Interest income and interest expenses decreased significantly by  27.6 billion each, mainly reflecting decreasing interest rate levels as a result of further rate cuts by central banks in 2009, in response to the credit crunch, and targeted asset reductions. Average interest earning assets, mainly trading assets, were reduced more significantly than average interest-bearing liabilities. The resulting decline in net interest income was offset by the positive effects from lower funding rates compared to 2008. These developments resulted in a widening of our net interest spread by 46 basis points and of our net interest margin by 40 basis points.
Net Gains (Losses) on Financial Assets/Liabilities at Fair Value through Profit or Loss
Net gains (losses) on financial assets/liabilities at fair value through profit or loss from Sales & Trading (debt and other products) were gains of  4.1 billion in 2009, compared to losses of  6.5 billion in 2008. This development was mainly driven by significant losses in our credit trading businesses and mark-downs relating to provisions against monoline insurers, residential mortgage-backed securities and commercial real estate loans recorded in 2008. In addition, the result in 2009 included a strong performance in ‘flow’ trading products. In Sales & Trading (equity), net gains (losses) on financial assets/liabilities at fair value through profit or loss were gains of  1.1 billion in 2009, compared to losses of  1.5 billion in 2008, mainly due to the non-recurrence of losses recognized in Equity Derivatives and Equity Proprietary Trading in 2008. In Other products, net gains of  1.9 billion on financial assets/liabilities at fair value through profit or loss in 2009 were mainly related to our minority stake in Deutsche Postbank AG recognized in CI and to gains from derivative contracts used to hedge effects on shareholders’ equity, resulting from obligations under share-based compensation plans recorded in C&A. Net losses of  2.0 billion from Other products in 2008 included net mark-downs of  1.7 billion on leveraged finance loans and loan commitments.
Net Interest Income and Net Gains (Losses) on Financial Assets/Liabilities at Fair Value through Profit or Loss
Corporate & Investment Bank (CIB). Combined net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss from Sales & Trading were  11.8 billion in 2009, compared to negative  1.5 billion in 2008. The main drivers for the increase were the non-recurrence of losses in Equity Derivatives, Equity Proprietary Trading and Credit Trading, as well as significantly lower mark-downs on credit-related exposures. In addition, the result in 2009 included a strong performance in ‘flow’ trading products. The decrease in Loan products was driven by lower interest income and gains (losses) on financial assets/liabilities at fair value through profit or loss in the commercial real estate business, partly offset by mark-to-market gains in 2009, versus losses in 2008, on the fair value loan and hedge portfolio. In Transaction services, combined net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss decreased by  188 million, primarily attributable to the low interest rate environment and lower depository receipts. The improvement of  2.1 billion in Remaining products resulted mainly from significantly lower net mark-downs on leveraged loans and loan commitments in 2009 compared to 2008. In addition mark-to-market gains in 2009, versus mark-to-market losses in 2008, on investments held to back insurance policyholder claims in Abbey Life (offset in Policyholder benefits and claims in Noninterest expenses) contributed to the increase.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   74
Private Clients and Asset Management (PCAM). Combined net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss were  4.2 billion in 2009, an increase of  297 million, or 8 %, compared to 2008. The increase included higher net interest income from Loan products, mainly in PBC from increased loan margins, and from Other products, mainly driven by PBC’s asset and liability management function.
Corporate Investments (CI). Combined net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss were  793 million in 2009, compared to negative  172 million in 2008. The development primarily reflects gains related to our minority stake in Deutsche Postbank AG recognized during 2009.
Provision for Credit Losses
Provision for credit losses was  2.6 billion in 2009, versus  1.1 billion in 2008. The provision in CIB was  1.8 billion in 2009, versus  408 million in 2008, primarily reflecting a significant increase in the provision for assets reclassified in accordance with IAS 39, relating predominantly to exposures in Leveraged Finance. The remaining increase reflects impairment charges taken on a number of our counterparty exposures in the Americas and in Europe on the back of an overall deteriorating credit environment. The provision in PCAM was  806 million in 2009, versus  668 million in 2008, predominantly reflecting a more challenging credit environment in Spain and Poland. Provision for credit losses in 2009 was positively impacted by changes in certain parameter and model assumptions, which reduced the provision by  87 million in CIB and by  146 million in PCAM.
Remaining Noninterest Income
Commissions and fee income. Total commissions and fee income was  8.9 billion in 2009, a decrease of  830 million, or 9 %, compared to 2008. Commissions and fees from fiduciary activities decreased  488 million compared to the prior year, driven by lower assets under management in AM, as a consequence of the prevailing weak market conditions (mainly in the first nine months of 2009). Underwriting and advisory fees improved by  426 million, or 32 %, mainly from increased primary issuances as market activity increased across all regions, partly offset by decreased fees from advisory services as a result of continued low volumes of market activity. Brokerage fees decreased by  767 million, or 31 %, primarily driven by lower customer demand in 2009 following the market turbulence in 2008. Fees for other customer services were unchanged compared to 2008.
Net gains (losses) on financial assets available for sale. Net losses on financial assets available for sale were  403 million in 2009, versus net gains of  666 million in 2008. The losses in 2009 were primarily attributable to impairment charges related to investments in CB&S and to AM’s real estate business. The net gains in 2008 were mainly driven by gains of  1.3 billion from the sale of industrial holdings in CI, partly offset by impairment charges in CIB’s sales and trading areas, including a  490 million impairment loss on available for sale positions.
Net income (loss) from equity method investments. Net income from equity method investments was  59 million and  46 million in 2009 and 2008, respectively. In 2009, income from our investment in Postbank, recorded in CI, was partly offset by impairment charges on certain equity method investments in our commercial real estate business in CB&S. There were no significant individual items included in 2008.
Other income. Total Other income (loss) was a loss of  183 million in 2009. The decrease of  882 million compared to 2008 reflected primarily an impairment charge of 575 million on The Cosmopolitan of Las Vegas property in 2009 and a lower result from derivatives qualifying for hedge accounting in 2009 compared to 2008.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   75
Noninterest Expenses
Compensation and benefits. The increase of  1.7 billion, or 18 %, in 2009 compared to 2008 reflected a higher variable compensation as a result of improved operating performance. It was also impacted by  225 million in respect of the bank payroll tax announced by the U.K. government. However, this increase was partially offset by the positive impact of changes to our compensation structure, mainly reflecting an increased proportion of deferred compensation compared with prior periods, in line with the requirements of the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin, German Financial Supervisory Authority) and the guidelines agreed at the G-20 meeting in Pittsburgh in the U.S., in September 2009.
General and administrative expenses. General and administrative expenses increased by  63 million in 2009 compared to 2008. The development in both years was impacted by specific significant charges, which were higher in 2009 than in 2008. In 2009, these included  316 million from a legal settlement with Huntsman Corp. and  200 million related to our offer to repurchase certain products from private investors, both reflected in Other expenses. In 2008, a provision of  98 million related to the obligation to repurchase Auction Rate Preferred (“ARP”) securities/Auction Rate Securities (“ARS”) at par from retail clients following a settlement in the U.S. was recorded in Other expenses. Without these specific charges, General and administrative expenses were down in 2009 compared to 2008, mainly from lower expenses for marketing, travel, professional services and IT.
Policyholder benefits and claims. The charge of  542 million in 2009, compared to a credit of  252 million in 2008, resulted primarily from the aforementioned effects from Abbey Life. These insurance-related charges are offset by related net gains on financial assets/liabilities at fair value through profit or loss.
Impairment of intangible assets. Included in 2009 was the reversal of an impairment charge on intangible assets of  291 million in AM, related to DWS Investments in the U.S. (formerly DWS Scudder), which had been taken in the fourth quarter 2008. Also included were goodwill impairment charges of  151 million in 2009 and of  270 million in 2008, which were related to a consolidated RREEF infrastructure investment.
Income Tax Expense
A tax expense of  244 million was recorded in 2009, compared to an income tax benefit of  1.8 billion 2008. The tax expense in 2009 benefited from the recognition of deferred tax assets in the U.S., which reflects strong current performance and improved income projections of Deutsche Bank entities within that tax jurisdiction, specific tax items including the resolution of tax audits relating to prior years, and tax exempt income. The net tax benefit in 2008 was mainly driven by the geographic mix of income/loss and the valuation of unused tax losses. The effective tax rates were 4.7 % in 2009 and 32.1 % in 2008.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   76
Results of Operations by Segment (2009 vs. 2008)
Corporate & Investment Bank Group Division
Corporate Banking & Securities Corporate Division
Net revenues in 2009 were  16.2 billion, after mark-downs of  925 million, versus  428 million, after mark-downs of  7.5 billion, in 2008. This development was due predominantly to strong performance in ‘flow’ trading products and the non-recurrence of trading losses recognized in the final quarter of 2008. Both factors reflected a successful reorientation of the sales and trading platform towards customer business and liquid, ‘flow’ products. 2009 revenues additionally benefited from favorable market conditions, including both margins and volumes, particularly in the first half of the year, together with record full-year revenues in Commodities and Emerging Market Debt trading.
Sales & Trading (debt and other products) revenues for 2009 were  9.6 billion, compared to  323 million in 2008. This increase primarily reflects significantly lower mark-downs of  1.0 billion in 2009, compared to  5.8 billion in 2008, and the non-recurrence of Credit Trading losses of  3.2 billion, mainly incurred in the fourth quarter of 2008. All ‘flow’ products benefited from wider bid-offer spreads and increased client volumes. Foreign Exchange and Money Markets reported strong revenues, although lower than the record levels seen in 2008. Rates and Emerging Markets generated record revenues, reflecting favorable market conditions. Commodities also had record revenues in 2009. Credit Trading had strong performance following a successful reorientation towards more liquid, client-driven business, which included the closure of our dedicated credit proprietary trading platform.
Sales & Trading (equity) revenues were  2.7 billion in 2009, compared to negative  736 million in 2008. The increase was driven by the non-recurrence of losses in Equity Derivatives of  1.4 billion and in Equity Proprietary Trading of  742 million, mainly in the fourth quarter 2008. In addition, there was a strong performance across all products, especially Equity Trading. Equity Derivatives performance improved significantly after the first quarter 2009 following the reorientation of the business. Equity Proprietary Trading performed well throughout 2009 with substantially lower risk than in 2008.
Origination and Advisory revenues were  2.2 billion in 2009, an increase of  2.0 billion versus 2008. This increase was mainly in debt origination, and reflected the non-recurrence of net mark-downs of  1.7 billion on leveraged loans and loan commitments in 2008, compared with net mark-ups of  103 million in 2009. Equity origination revenues grew substantially by  328 million to  663 million in 2009 as market activity increased across all regions. Advisory revenues decreased by  187 million, or 32 %, in 2009 as global volumes declined from 2008 and were at the lowest level since 2004.
Loan products net revenues were  1.9 billion, an increase of  652 million, or 50 %, versus 2008, mainly driven by mark-to-market gains on the investment grade fair value loan and hedge portfolio in 2009, compared with unrealized net mark-to-market losses in 2008.
Other products revenues were negative  151 million, an increase of  511 million over 2008. This development was driven by mark-to-market gains on investments held to back insurance policyholder claims in Abbey Life, partly offset by an impairment charge of  500 million relating to The Cosmopolitan of Las Vegas property and losses on private equity investments recorded in the first quarter 2009.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   77
Provision for credit losses was  1.8 billion, versus  402 million in 2008. The increase primarily reflected provisions for credit losses related to Leveraged Finance assets which had been reclassified in accordance with the amendments to IAS 39, together with additional provisions as a result of deteriorating credit conditions, predominantly in Europe and the Americas.
Noninterest expenses increased  2.3 billion, or 27 %, to  10.9 billion. The increase mainly reflects higher performance-related compensation in line with improved results and effects from Abbey Life. In addition, noninterest expenses included charges of  200 million related to our offer to repurchase certain products from private investors in the third quarter 2009, and of  316 million related to a legal settlement with Huntsman Corp. recorded in the second quarter 2009. These were partly offset by savings from cost containment measures and lower staff levels.
Global Transaction Banking Corporate Division
Net revenues were  2.6 billion, a decrease of  175 million, or 6 %, compared to 2008. The decrease was attributable to a low interest rate environment, depressed asset valuations during the first nine months of 2009, lower depository receipts and reduced dividend activity. These were partly offset by continued growth in Trade Finance products and a positive impact of  160 million related to a revision of our risk-based funding framework.
Provision for credit losses was  27 million for 2009, versus  5 million for 2008.
Noninterest expenses were  1.8 billion, an increase of  142 million, or 9 %, compared to 2008. The increase was driven by higher regulatory costs related to deposit and pension protection, growing transaction-related expenses as well as increased performance-related compensation in line with improved Group-wide results. In addition, the formation of Deutsche Card Services in the fourth quarter 2008 contributed to higher noninterest expenses.
Private Clients and Asset Management Group Division
Asset and Wealth Management Corporate Division
For the year 2009, AWM reported net revenues of  2.7 billion, a decrease of  569 million, or 17 %, compared to 2008. Discretionary portfolio/fund management revenues in Asset Management (AM) decreased by  297 million, or 16 %, and in Private Wealth Management (PWM) by  55 million, or 17 %, compared to 2008. This development was primarily driven by lower management fees as a result of lower asset valuations during the first nine months of 2009, while the fourth quarter 2009 included positive revenue impacts following a stabilization of the capital markets after market turbulence in the prior year quarter. Advisory/brokerage revenues decreased by  188 million, or 21 %, compared to 2008, affected by continued lower customer activity due to the uncertainties in securities markets, and by a shift towards lower-margin products. Revenues from credit products were up  89 million, or 53 %, due to higher loan margins and the positive impact from the revision of our risk-based funding framework in the second quarter 2009. Revenues from Other products were negative  255 million for 2009 compared to negative revenues of  159 million in 2008. This development mainly resulted from higher impairment charges related to AM’s real estate business, partially offset by lower discretionary injections into money market funds and lower impairment charges on seed capital and other investments.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   78
Noninterest expenses in 2009 were  2.5 billion, a decrease of  1.3 billion, or 35 %, compared to 2008. This development included the reversal of an impairment charge on intangible assets of  291 million in AM, related to DWS Investments in the U.S. (formerly DWS Scudder), which had been taken in 2008. In addition, noninterest expenses in 2008 were negatively affected by a goodwill impairment of  270 million in a consolidated RREEF infrastructure investment (transferred to Corporate Investments in 2009). Higher severance payments compared to 2008, reflecting our continued efforts to reposition our platform, were partly offset by the non-recurrence of an  98 million provision related to the obligation to repurchase Auction Rate Preferred (“ARP”) securities/Auction Rate Securities (“ARS”) at par from retail clients following a settlement in the U.S. in 2008.
Invested assets in AWM were  686 billion at December 31, 2009, an increase of  58 billion compared to December 31, 2008. In AM, invested assets increased by  33 billion mainly due to market appreciation and net new money of  9 billion. Invested assets in PWM increased by  25 billion, also predominantly resulting from market appreciation and net new money of  7 billion.
Private & Business Clients Corporate Division
Net revenues were  5.6 billion, down  201 million, or 3 %, versus 2008. Discretionary portfolio/fund management revenues remained virtually unchanged compared to 2008. Advisory/brokerage revenues decreased by  326 million, or 28 %, mainly reflecting wariness on the part of retail investors in the wake of market turbulence in the fourth quarter 2008. Credit products revenues increased by  285 million, or 14 %, resulting from higher loan volumes and margins, partly offset by lower deposit margins. Deposits and payment services revenues decreased by  71 million, or 4 %, mainly driven by lower revenues related to insurance products sales. Revenues from Other products of  422 million in 2009 decreased by  91 million, or 18 %, mainly driven by the non-recurrence of a post-IPO dividend income from a co-operation partner and subsequent gains related to the disposal of a business, both recorded in 2008.
Provision for credit losses was  790 million, an increase of  136 million, or 21 %, compared to 2008. This development reflects the continued deterioration of the credit environment in Spain and Poland, and generally higher credit costs in the other regions, partly offset by releases and lower provisions of  146 million in 2009 related to certain revised parameter and model assumptions.
Noninterest expenses of  4.3 billion were  150 million, or 4 %, higher than in 2008. This increase was predominantly driven by higher severance payments of  192 million, up from  84 million in 2008, related to measures to improve our efficiency.
Invested assets were  194 billion as of December 31, 2009, an increase of  5 billion compared to December 31, 2008, mainly driven by market appreciation, amounting to  10 billion, partly offset by outflows reflecting maturities in time deposits, which were acquired in the fourth quarter of 2008.
The number of clients in PBC was 14.6 million at year end 2009, unchanged compared to December 31, 2008.
Corporate Investments Group Division
Net revenues were  1.0 billion, a decrease of  245 million compared to 2008. Net revenues in 2009 included three significant components which were related to Postbank: mark-to-market gains of  476 million from our derivatives related to the acquisition of shares, mark-to-market gains of  352 million from the put/call options to increase our investment and a positive equity pick-up of  200 million. In addition, net revenues in 2009 included mark-to-market gains of  83 million from our option to increase our share in Hua Xia Bank Co. Ltd. and gains of  302 million from the sale of industrial holdings (mainly related to Daimler AG and Linde AG). These positive items were partly offset by impairment charges of  302 million on our industrial holdings and

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   79
 75 million on The Cosmopolitan of Las Vegas property. Net revenues in 2008 included net gains of  1.3 billion from the sale of industrial holdings (mainly related to Daimler AG, Allianz SE and Linde AG), a gain of  96 million from the disposal of our investment in Arcor AG & Co. KG, dividend income of  114 million, as well as mark-downs, including the impact from our option to increase our share in Hua Xia Bank Co. Ltd.
Total noninterest expenses were  581 million, an increase of  487 million compared to 2008. This increase was mainly related to our investment in Maher Terminals (for which management responsibility changed from AWM to CI in the first quarter 2009), including a goodwill impairment charge of  151 million.
At year end 2009, the alternative assets portfolio of CI had a carrying value of  2.1 billion compared to  434 million at year end 2008. This increase was mainly related to the change in management responsibilities for certain assets from AWM and CB&S to CI.
Liquidity and Capital Resources
For a detailed discussion of our liquidity risk management, see “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Liquidity Risk.” For a detailed discussion of our capital management, see “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Liquidity Risk – Capital Management” and Note 36 “Regulatory Capital” to the consolidated financial statements.
Post-Employment Benefit Plans
We sponsor a number of post-employment benefit plans on behalf of our employees, both defined contribution plans and defined benefit plans.
Defined benefit plans with a benefit obligation exceeding  2 million are included in our globally coordinated accounting process. Reviewed by our global actuary, the plans in each country are evaluated by locally appointed actuaries.
By applying our global principles for determining the financial and demographic assumptions we ensure that the assumptions are unbiased and mutually compatible and that they follow the best estimate and ongoing plan principles.
For a further discussion on our employee benefit plans see Note 33 “Employee Benefits” to our consolidated financial statements.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   80
Update on Key Credit Market Exposures
The following is an update on the development of certain credit positions (including protection purchased from monoline insurers) of those CB&S businesses on which we have previously provided additional risk disclosures. These positions were those that significantly impacted the performance of CB&S during the recent financial crisis. In addition to these CB&S positions, we have also provided information about positions acquired from Postbank where relevant.
Mortgage Related Exposure: We have mortgage related exposures through a number of our businesses, including our CDO trading and origination and U.S. and European mortgage businesses. The following table presents the mortgage related exposure from the businesses described net of hedges and other protection purchased. Hedges consist of a number of different market instruments, including protection provided by monoline insurers, single name credit default swap contracts with market counterparties and index-based contracts.
                                                 
    Dec 31, 2010     Dec 31, 2009  
Mortgage related exposure in our CDO trading           Hedges                     Hedges        
and origination, U.S. and European residential           and other                     and other        
mortgage businesses   Gross     protection             Gross     protection        
in   m.   exposure     purchased     Net exposure     exposure     purchased     Net exposure  
Subprime1 and Alt-A2 CDO exposure in trading and origination businesses:                                                
CDO subprime exposure – Trading
    420       75       345       688       371       317  
CDO subprime exposure – Available for sale
    34             34       34             34  
CDO Alt-A exposure – Trading
    56       49       7       77       55       22  
Residential mortgage trading businesses:
                                               
Other U.S. residential mortgage business exposure3,4
    3,428       3,153       275       4,315       3,201       1,114  
European residential mortgage business exposure
    169             169       179             179  
 
1  
In determining subprime, we apply industry standard criteria including FICO (credit quality) scores and loan-to-value ratios. In limited circumstances, we also classify exposures as subprime if 50 % or more of the underlying collateral is home equity loans which are subprime.
 
2  
Alt-A loans are loans made to borrowers with generally good credit, but with non-conforming underwriting ratios or other characteristics that fail to meet the standards for prime loans. These include lower FICO scores, higher loan-to-value ratios and higher percentages of loans with limited or no documentation.
 
3  
Thereof   (267) million Alt-A,  10 million Subprime,  52 million Other and  480 million Trading-related net positions as of December 31, 2010 and  202 million Alt-A,  71 million Subprime,  244 million Other and  597 million Trading-related net positions as of December 31, 2009.
 
4  
The reserves included in the ‘Other U.S residential mortgage business’ disclosure have been revised to factor in an updated calculation of credit risk and is intended to better reflect fair value of the instruments underlying the exposure. We have revised the exposure as of December 31, 2009, which results in a reduction in the net exposure of  187 million to  1.1 billion. As of December 31, 2010, the exposure was also calculated on this basis and results in a reduction in the net exposure of  320 million to  275 million.
In the above table, net exposure represents our potential loss in the event of a 100 % default of securities and associated hedges, assuming zero recovery. It is not an indication of net delta adjusted trading risk (the net delta adjusted trading risk measure is used to ensure comparability between different exposures; for each position the delta represents the change of the position in the related security which would have the same sensitivity to a given change in the market).
The table above relates to key credit market positions exposed to fair value movements. It excludes assets reclassified from trading or available for sale to loans and receivables in accordance with the amendments to IAS 39 with a carrying value as of December 31, 2010 of  1.8 billion (which includes European residential mortgage exposure of  1.0 billion, Other U.S. residential mortgage exposure of  339 million, CDO subprime exposure – Trading of  402 million) and as of December 31, 2009 of  1.9 billion (which includes European residential mortgage exposure of  1.1 billion, Other U.S. residential mortgage exposure of  370 million, CDO subprime exposure – Trading of  432 million).

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   81
In addition to these CB&S positions, Postbank has exposure to European commercial mortgage-backed securities of  192 million as well as residential mortgage-backed securities of  428 million (which includes  398 million in Europe,  27 million in U.S). In addition, Postbank has exposure to non-corporate CDOs of  69 million where the underlying assets include both commercial mortgage-backed securities and residential mortgage-backed securities. These positions are mainly classified as loans and receivables and available for sale.
The table also excludes both agency mortgage-backed securities and agency eligible loans, which we do not consider to be credit sensitive products, and interest-only and inverse interest-only positions which are negatively correlated to deteriorating markets due to the effect on the position of the reduced rate of mortgage prepayments. The slower prepayment rate extends the average life of these interest-only products which in turn leads to a higher value due to the longer expected interest stream.
The various gross components of the overall net exposure shown above represent different vintages, locations, credit ratings and other market-sensitive factors. Therefore, while the overall numbers above provide a view of the absolute levels of our exposure to an extreme market movement, actual future profits and losses will depend on actual market movements, basis movements between different components of our positions, and our ability to adjust hedges in these circumstances.
Ocala Funding LLC: We own 71.4 % of the commercial paper issued by Ocala Funding LLC (Ocala), a commercial paper vehicle sponsored by Taylor Bean & Whitaker Mortgage Corp. (TBW), which ceased mortgage lending operations and filed for bankruptcy protection in August 2009. We classify the commercial paper as a trading asset and measure it at fair value through profit or loss. As of December 31, 2010, the total notional value of the commercial paper issued by Ocala which was held by the Group was  904 million. As a result of TBW filing for bankruptcy and based on information available at the time, we recognized a fair value loss of approximately  350 million for 2009 related to the Ocala commercial paper. On July 1, 2010, additional information about the collateral held by Ocala was included in an Asset Reconciliation Report filed with the bankruptcy court with respect to the TBW estate. Based on this new information and certain management assumptions related to the eligibility of claims raised against the bankruptcy administrators, we recognized an additional fair value loss in the second quarter 2010 of approximately  270 million. In the third quarter 2010, we recorded a further fair value charge of approximately  90 million resulting in a fair value loss adjustment for 2010 of approximately  360 million.
Exposure to Monoline Insurers: The deterioration of the U.S. subprime mortgage and related markets has generated large exposures to financial guarantors, such as monoline insurers, that have insured or guaranteed the value of pools of collateral referenced by CDOs and other market-traded securities. Actual claims against monoline insurers will only become due if actual defaults occur in the underlying assets (or collateral). There is ongoing uncertainty as to whether some monoline insurers will be able to meet all their liabilities to banks and other buyers of protection. Under certain conditions (e.g., liquidation) we can accelerate claims regardless of actual losses on the underlying assets.
The following tables summarize the fair value of our counterparty exposures to monoline insurers with respect to U.S. residential mortgage-related activity and other activities, respectively, in each case on the basis of the fair value of the assets compared with the notional value guaranteed or underwritten by monoline insurers. The other exposures described in the second table arise from a range of client and trading activity, including collateralized loan obligations, commercial mortgage-backed securities, trust preferred securities, student loans and public sector or municipal debt. The tables show the associated credit valuation adjustments (“CVA”) that we

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   82
have recorded against the exposures. CVAs are assessed using a model-based approach with numerous input factors for each counterparty, including the likelihood of an event (either a restructuring or insolvency), an assessment of any potential settlement in the event of a restructuring and recovery rates in the event of either restructuring or insolvency. The ratings in the tables below are the lower of Standard & Poor’s, Moody’s or our own internal credit ratings as of December 31, 2010 and December 31, 2009.
                                                                 
    Dec 31, 2010     Dec 31, 2009  
Monoline exposure related to U.S.           Fair value                             Fair value                
residential mortgages   Notional     prior to             Fair value     Notional     prior to             Fair value  
in   m.   amount     CVA     CVA     after CVA     amount     CVA     CVA     after CVA  
AA Monolines:
                                                               
Other subprime
    139       60       (6 )     54       142       70       (6 )     64  
Alt-A
    4,069       1,539       (308 )     1,231       4,337       1,873       (172 )     1,701  
 
                                               
Total AA Monolines
    4,208       1,599       (314 )     1,285       4,479       1,943       (178 )     1,765  
 
                                               
                                                                 
    Dec 31, 2010     Dec 31, 2009  
            Fair value                             Fair value                
Other Monoline exposure   Notional     prior to             Fair value     Notional     prior to             Fair value  
in   m.   amount     CVA     CVA     after CVA     amount     CVA     CVA     after CVA  
AA Monolines:
                                                               
TPS-CLO
    2,988       837       (84 )     753       2,717       925       (85 )     840  
CMBS
    1,084       12       (1 )     11       1,004       68       (6 )     62  
Corporate single name/Corporate CDO
    602       (1 )           (1 )     2,033       (3 )           (3 )
Student loans
    295       19       (2 )     17       232       39       (4 )     35  
Other
    925       226       (23 )     203       902       249       (23 )     226  
 
                                               
Total AA Monolines
    5,894       1,093       (110 )     983       6,888       1,277       (117 )     1,160  
 
                                               
Non Investment Grade Monolines:
                                                               
TPS-CLO
    917       215       (49 )     166       876       274       (100 )     174  
CMBS
    6,024       547       (273 )     274       5,932       813       (355 )     458  
Corporate single name/Corporate CDO
    2,180       12       (6 )     6       4,366       26       (12 )     14  
Student loans
    1,308       597       (340 )     257       1,221       560       (319 )     241  
Other
    1,807       226       (94 )     132       1,645       278       (102 )     176  
 
                                               
Total Non Investment Grade Monolines     12,236       1,597       (762 )     835       14,040       1,950       (887 )     1,063  
 
                                               
Total
    18,130       2,690       (872 )     1,818       20,928       3,227       (1,004 )     2,223  
 
                                               
The tables exclude counterparty exposure to monoline insurers that relates to wrapped bonds. A wrapped bond is one that is insured or guaranteed by a third party. As of December 31, 2010 and December 31, 2009, the exposure on wrapped bonds related to U.S. residential mortgages was  67 million and  100 million, respectively, and the exposure on wrapped bonds other than those related to U.S. residential mortgages was  58 million and  54 million, respectively. In each case, the exposure represents an estimate of the potential mark-downs of wrapped assets in the event of monoline defaults.
A proportion of the mark-to-market monoline exposure has been mitigated with CDS protection arranged with other market counterparties and other economic hedge activity.
As of December 31, 2010 and December 31, 2009 the total credit valuation adjustment held against monoline insurers was  1,186 million and  1,182 million respectively.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   83
Commercial Real Estate Business: Our Commercial Real Estate business takes positions in commercial mortgage whole loans which are originated and either held with the intent to sell, syndicate, securitize or otherwise distribute to third party investors, or held on an amortized cost basis. The following is a summary of our exposure to commercial mortgage whole loans as of December 31, 2010 and December 31, 2009. This excludes our portfolio of secondary market commercial mortgage-backed securities which are actively traded and priced.
                 
Commercial Real Estate whole loans            
in m.   Dec 31, 2010     Dec 31, 2009  
Loans held on a fair value basis, net of risk reduction1
    2,265       1,806  
Loans reclassified in accordance with the amendments to IAS 392
    4,941       6,453  
Loans related to asset sales3
    2,186       2,083  
Other loans classified as loans and receivables4
    15,814        
 
1  
Risk reduction trades represent a series of derivative or other transactions entered into in order to mitigate risk on specific whole loans. Fair value of risk reduction amounted to  689 million as of December 31, 2010 and  1.0 billion as of December 31, 2009.
 
2  
Carrying value.
 
3  
Carrying value of vendor financing on loans sold since January 1, 2008.
 
4  
Carrying value of loans acquired from Postbank.
Leveraged Finance Business: The following is a summary of our exposures to leveraged loan and other financing commitments arising from the activities of our Leveraged Finance business as of December 31, 2010 and December 31, 2009. These activities include private equity transactions and other buyout arrangements. The table excludes loans transacted prior to January 1, 2007, which were undertaken prior to the disruption in the leveraged finance markets, and loans that have been classified as held to maturity since inception.
                 
Leveraged Finance            
in m.   Dec 31, 2010     Dec 31, 2009  
Loans held on a fair value basis
    2,263       505  
thereof: loans entered into since January 1, 2008
    2,230       385  
Loans reclassified in accordance with the amendments to IAS 391
    1,367       6,152  
Loans related to asset sales2
    5,863       5,804  
 
1  
Carrying value. The significant decrease in carrying value since December 2009 is mainly due to the restructuring of loans with Actavis Group hF, as described in Note 17 “Equity Method Investments”.
 
2  
Carrying value of vendor financing on loans sold since January 1, 2008.
Special Purpose Entities
We engage in various business activities with certain entities, referred to as special purpose entities (SPEs), which are designed to achieve a specific business purpose. The principal uses of SPEs are to provide clients with access to specific portfolios of assets and risk and to provide market liquidity for clients through securitizing financial assets. SPEs may be established as corporations, trusts or partnerships.
We may or may not consolidate SPEs that we have set up or sponsored or with which we have a contractual relationship. We will consolidate an SPE when we have the power to govern its financial and operating policies, generally accompanying a shareholding, either directly or indirectly, of more than half the voting rights. If the activities of the SPEs are narrowly defined or it is not evident who controls the financial and operating policies of the SPE we will consider other factors to determine whether we have the majority of the risks and rewards. We reassess our treatment of SPEs for consolidation when there is a change in the SPE’s arrangements or the substance of the relationship between us and an SPE changes. For further detail on our accounting policies regarding consolidation and reassessment of consolidation of SPEs please refer to Note 01 “Significant Accounting Policies” in our consolidated financial statements.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   84
In limited situations we consolidate some SPEs for both financial reporting and German regulatory purposes. However, in all other cases we hold regulatory capital, as appropriate, against all SPE-related transactions and related exposures, such as derivative transactions and lending-related commitments and guarantees. To date, our exposures to non-consolidated SPEs have not had a material impact on our debt covenants, capital ratios, credit ratings or dividends.
The following sections provide detail about the assets (after consolidation eliminations) in our consolidated SPEs and our maximum unfunded exposure remaining to certain non-consolidated SPEs. These sections should be read in conjunction with the Update on Key Credit Market Exposures.
Total Assets in Consolidated SPEs
                                                 
    Asset type  
    Financial                                  
    assets at     Financial                            
    fair value     assets             Cash and              
Dec 31, 2010   through     available             cash              
in m.   profit or loss1     for sale     Loans     equivalents     Other assets     Total assets  
Category:
                                               
Group sponsored ABCP conduits
          431       15,304             59       15,794  
Group sponsored securitizations
    3,168       369       1,250       20       23       4,830  
Third party sponsored securitizations
    189             507       2       18       716  
Repackaging and investment products
    6,606       1,053       206       2,211       664       10,740  
Mutual funds
    4,135       9             465       654       5,263  
Structured transactions
    2,533       269       5,315       386       381       8,884  
Operating entities
    1,676       3,522       3,309       514       3,582       12,603  
Other
    199       300       556       117       304       1,476  
 
                                   
Total
    18,506       5,953       26,447       3,715       5,685       60,306  
 
                                   
 
1  
Fair value of derivative positions is  158 million.
                                                 
    Asset type  
    Financial                                  
    assets at     Financial                            
    fair value     assets             Cash and              
Dec 31, 2009   through     available             cash              
in m.   profit or loss1     for sale     Loans     equivalents     Other assets     Total assets  
Category:
                                               
Group sponsored ABCP conduits
    30       279       15,222             33       15,564  
Group sponsored securitizations
    3,409             1,175       4       57       4,645  
Third party sponsored securitizations
    200             516       3       73       792  
Repackaging and investment products
    5,789       1,973       36       661       557       9,016  
Mutual funds
    5,163                   1,313       35       6,511  
Structured transactions
    2,531       108       5,207       26       423       8,295  
Operating entities
    1,603       3,319       1,898       501       2,416       9,737  
Other
    610       240       786       59       453       2,148  
 
                                   
Total
    19,335       5,919       24,840       2,567       4,047       56,708  
 
                                   
 
1  
Fair value of derivative positions is  250 million.
Group Sponsored ABCP Conduits
We set up, sponsor and administer our own asset-backed commercial paper (ABCP) programs. These programs provide our customers with access to liquidity in the commercial paper market and create investment products for our clients. As an administrative agent for the commercial paper programs, we facilitate the purchase of non-Deutsche Bank Group loans, securities and other receivables by the commercial paper conduit (conduit), which then issues to the market high-grade, short-term commercial paper, collateralized by the underlying assets, to fund the purchase. The conduits require sufficient collateral, credit enhancements and liquidity support to maintain an investment grade rating for the commercial paper. We are the liquidity provider to

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   85
these conduits and therefore exposed to changes in the carrying value of their assets. We consolidate the majority of our sponsored conduit programs because we have the controlling interest.
Our liquidity exposure to these conduits is to the entire commercial paper issued of  16.3 billion and  16.2 billion as of December 31, 2010 and December 31, 2009, of which we held  2.2 billion and  8.2 billion, respectively. The decrease in the commercial paper held is due to improved liquidity in the market during the year.
The collateral in the conduits includes a range of asset-backed loans and securities, including aircraft leasing, student loans, trust preferred securities and residential- and commercial-mortgage-backed securities. There has been no significant movement in the collateral held in these conduits during the period.
Group Sponsored Securitizations
We sponsor SPEs for which we originate or purchase assets. These assets are predominantly commercial and residential whole loans or mortgage-backed securities. The SPEs fund these purchases by issuing multiple tranches of securities, the repayment of which is linked to the performance of the assets in the SPE. When we retain a subordinated interest in the assets that have been securitized, an assessment of the relevant factors is performed and, if SPEs are controlled by us, they are consolidated. The fair value of our retained exposure in these securitizations as of December 31, 2010 and December 31, 2009 was  3.2 billion and  3.0 billion, respectively.
Third Party Sponsored Securitizations
In connection with our securities trading and underwriting activities, we acquire securities issued by third party securitization vehicles that purchase diversified pools of commercial and residential whole loans or mortgage-backed securities. The vehicles fund these purchases by issuing multiple tranches of securities, the repayment of which is linked to the performance of the assets in the vehicles. When we hold a subordinated interest in the SPE, an assessment of the relevant factors is performed and if SPEs are controlled by us, they are consolidated. As of December 31, 2010 and December 31, 2009 the fair value of our retained exposure in these securitizations was  0.7 billion and  0.7 billion, respectively.
Repackaging and Investment Products
Repackaging is a similar concept to securitization. The primary difference is that the components of the repackaging SPE are generally securities and derivatives, rather than non-security financial assets, which are then “repackaged” into a different product to meet specific individual investor needs. We consolidate these SPEs when we have the majority of risks and rewards. Investment products offer clients the ability to become exposed to specific portfolios of assets and risks through purchasing our structured notes. We hedge this exposure by purchasing interests in SPEs that match the return specified in the notes. We consolidate the SPEs when we hold the controlling interest or have the majority of risks and rewards. In 2010, consolidated assets increased by  1.7 billion as a result of new business during the period.
Mutual Funds
We offer clients mutual fund and mutual fund-related products which pay returns linked to the performance of the assets held in the funds. We provide a guarantee feature to certain funds in which we guarantee certain levels of the net asset value to be returned to investors at certain dates. The risk for us as guarantor is that we have to compensate the investors if the market values of such products at their respective guarantee dates are lower than the guaranteed levels. For our investment management service in relation to such products, we earn management fees and, on occasion, performance-based fees. We are not contractually obliged to support these funds and have not done so during 2010. In 2009, we made a decision to support the funds’ target yields by injecting cash of  16 million.

 


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Deutsche Bank
Annual Report 2010 on Form 20-F
  Item 5: Operating and Financial Review and Prospects   86
During 2010 the amount of assets held in consolidated funds decreased by  1.2 billion. This movement was predominantly due to cash outflows during the period.
Structured Transactions
We enter into certain structures which offer clients funding opportunities at favorable rates. The funding is predominantly provided on a collateralized basis. These structures are individually tailored to the needs of our clients. We consolidate these SPEs when we hold the controlling interest or we have the majority of the risks and rewards through a residual interest holding and/or a related liquidity facility. The composition of the SPEs that we consolidate is influenced by the execution of new transactions and the maturing, restructuring and exercise of early termination options with respect to existing transactions.
Operating Entities
We establish SPEs to conduct some of our operating business when we benefit from the use of an SPE. These include direct holdings in certain proprietary investments and the issuance of credit default swaps where our exposure has been limited to our investment in the SPE. We consolidate these entities when we hold the controlling interest or are exposed to the majority of risks and rewards of the SPE. In 2009, our exposure to Maher Terminals LLC and Maher Terminals of Canada Corp. was reclassified from Repackaging and Investment Products to Operating Entities. During 2010 the amount of assets held in Operating entities increased by  2.9 billion. This movement was predominantly due to the consolidation of Postbank SPEs of  1.4 billion and  1.1 billion following the completion of The Cosmopolitan of Las Vegas.
Exposure to Non-consolidated SPEs
                 
in bn.   Dec 31, 2010     Dec 31, 2009  
Maximum unfunded exposure by category:
               
Group sponsored ABCP conduits
    2.5       2.7  
Third party ABCP conduits1
    2.4       2.5 1
Third party sponsored securitizations
               
U.S.
    1.5       3.9  
non-U.S.
    1.2       2.5  
Guaranteed mutual funds2
    10.7       12.4  
Real estate leasing funds
    0.8       0.8  
 
1