In the third quarter of 2004, Deutsche Bank reported the best third-quarter net income since our conversion to U.S. GAAP. In the first nine months of 2004, we have also delivered significant profit growth over the same period last year.

We achieved these results despite a business environment which remains very challenging. We continue to reap the benefits of our ‘transformation’ strategy, and our overall performance in this environment was very robust. However, specific business areas were impacted by the tough operating conditions, and the management team has taken decisive action to boost performance. This action reflects our determination to meet the ambitious goals we have set ourselves, and our commitment to our shareholders.

Income before income tax expense was € 1.0 billion, up by 33% over the third quarter of 2003. Net income was € 680 million, a gain of 18% over the prior year period. For the first nine months, income before income tax expense was € 3.7 billion, a gain of 79% over the first nine months of 2003, and 35% higher than the full year 2003. Net income rose 145% to € 2.3 billion. Diluted earnings per share rose by 28% in the third quarter to € 1.28, and by 166% to € 4.13 in the first nine months of 2004.

In the Corporate and Investment Bank (CIB), the performance of our Debt Sales and Trading businesses was very resilient. Our Origination and Advisory business continued to make good progress, particularly in Debt Origination, and we ranked among the top three M&A advisors in North America according to Thomson Financial, a leading market data provider. In our Equities business, Equity Derivatives and Prime Services performed well, but other products continue to be impacted by lower volatility and pressure on margins, exacerbated in the third quarter by seasonal patterns.

Within Private Clients and Asset Management (PCAM), we achieved another excellent quarterly result in Private and Business Clients (PBC). I was particularly pleased that our intense focus on the private client is paying off. Above all, I am delighted to see that client satisfaction improved during the quarter. We monitored client satisfaction very closely during our restructuring program, and this positive reaction from our clients is critically important as we look forward. Revenues grew by 6% over the same period last year - a significant achievement in the current environment. This growth was driven by our German business, and reflects our strength in investment products and transaction/intermediary services. Strong revenues, combined with the continuing benefits of our restructuring, put PBC fully on track to reach our target of € 1 billion of underlying pre-tax profits for the full year 2004.
 

Asset and Wealth Management (AWM) also proved the strength of our franchise with private clients in Germany. In the third quarter our mutual fund provider, DWS, further improved its share of mutual funds to over 25%  – but our share of new money inflows into mutual funds was over 50% in the year to date, according to the German Investment Association (BVI). Other parts of our Asset Management platform continue to be affected by negative asset flows – resulting, for example, from shifts in institutional portfolio management trends in the UK.

We continued to exercise tight discipline in capital and risk management. Provisions for credit losses declined for the eighth consecutive quarter, reflecting improvements in the credit environment, and the continued benefits of our effective credit risk management. This was accompanied by a significant reduction in market risk during the quarter. We made further progress with our third share buyback program, which you authorized at our AGM in June. At the same time, we maintained the strength of our core capital ratio, which remains above the top of our target range.

In order to maintain our momentum, we must take all necessary steps to gain revenue momentum and drive cost-efficiency. During the third quarter, we streamlined the bank’s management structure, aligning complementary business lines in a way which enables us to unlock revenue and cost synergies. We are currently reconfiguring our Debt and Equities Sales and Trading businesses into a unified platform, providing our clients with an integrated service across both equity and debt.  We are also aligning our corporate banking businesses – Corporate Finance, Global Banking and Transaction Banking, to create a more unified approach to corporate clients. This enables us to exploit revenue synergies from a more co-ordinated approach to our clients, as well as cost synergies across the value chain, including our infrastructure and support functions. We will, in addition, accelerate our program of structural and process improvements in Asset Management.

We also strengthened the voice of regional management, by appointing a Group Executive Committee member as Head of Regions. This gives us the focus and responsiveness to local conditions which both clients and regulators demand. In our home market, Germany, we are already reaping the benefits of our transformation strategy, and of our leading position; in order to capture further business potential and improve delivery to German clients, the Head of Regions will chair a dedicated Management Committee Germany.

 

We are totally committed to delivering superior returns to you, our shareholders. This remains the ultimate objective of our management agenda. Our profitability in this quarter reflects the progress we have made; but we are convinced we can do more. Our recently-announced management initiatives reflect our determination to continue our progress.

Yours sincerely,


Josef Ackermann
Spokesman of the Board of Managing Directors and
Chairman of the Group Executive Committee

Frankfurt am Main, October 2004