I am pleased to be able to report to you on a successful second quarter of 2003 for Deutsche Bank. Revenues and profits surpassed our expectations.

Improved conditions on the international financial markets contributed to this as market participants’ confidence slowly returned after the end of the military conflict in Iraq, the international lending environment brightened, interest rates again decreased, and share prices rebounded on the stock markets, particularly strongly in Germany in the second quarter (DAX + 33%).

Above all, however, our gratifying business performance is the outcome of a fundamental transformation of Deutsche Bank over the last 15 months, based on the implementation of our strategic initiatives. By concentrating on core businesses, the Group’s operating leverage continues to improve steadily.

In the second quarter, Deutsche Bank achieved an underlying pre-tax profit of € 1.2 billion, an increase of 30% over the first quarter of 2003 and 70% over the same quarter of the previous year. This was our best quarter since we began reporting under U.S. GAAP, despite a few special charges we had to absorb, such as for the reorganization of our Private & Business Clients Corporate Division and our business in France.

Underlying revenues totaled € 6 billion, which represents an increase of 8% in comparison to the first quarter of 2003. The Corporate and Investment Bank Group Division (CIB) reported an outstanding result, particularly in Sales & Trading. At € 2.7 billion, its revenues were 13% above the first quarter of 2003 and 30% above the same quarter of the previous year. The result reflects both the broad range and attractiveness of our products as well as our global presence.

In our equity and related derivatives sales and trading business, we took advantage of the renewed market opportunities and generated revenues of € 0.9 billion, 52% higher than in the first quarter of 2003 and 61% above the second quarter of 2002. Against the overall industry trend in sales and trading of debt and other products, we matched our record performance of the first quarter of 2003 with revenues of € 1.8 billion and exceeded the level of the second quarter of last year by 18%. This solid performance once again illustrates the stability of these revenues as a result of our heavy emphasis on customer flow business. In the second quarter of 2003, we achieved the highest revenues of all our competitors in sales and trading in capital market products.

Our leading position in this field is also recognized by the industry itself. In July, for example, Euromoney named Deutsche Bank as the winner of three of its most prestigious investment banking awards: World’s Best at Risk Management, World’s Best Asset-Backed Securities House and World’s Best Credit Bond House.

Our Private Clients and Asset Management Group Division (PCAM) earned revenues totaling € 2 billion in the second quarter. This matches the average figure for the last four quarters and vouches for PCAM’s steady revenue performance. Losses incurred through reorganizational measures in the second quarter of 2003 were compensated for by growth in other areas.

Charges in the Corporate Investments Group Division declined significantly. The streamlining process we initiated is progressing according to plan. As a result of the recovery in share prices, our listed shareholdings again reported unrealized gains, amounting to € 0.6 billion as of June 30, 2003.

The provision for credit losses declined for the third consecutive quarter, to € 333 million. We continued to reduce problem loans (by € 0.9 billion). In contrast to the improving global lending environment, however, the situation in Germany has not eased yet.

The gratifying development of the Group’s business is also reflected by the fact that the key underlying figures were our best since we began reporting under U.S. GAAP. The cost/income ratio fell to 74% (compared to 77% in the first quarter of 2003) while the profit margin grew to 20% (previously 17%). Our pre-tax return on equity increased to 17% (previously 13%) and thus exceeded the cost of capital.

Ladies and gentlemen, Deutsche Bank again proved its outstanding international competitiveness in the second quarter. But our goal is to become even better. To this end, we recently approved a new management program in which four strategic initiatives will again be the focal points of our activities during the next few months:

• First, we will further enhance the reputation and value of the Deutsche Bank brand name. We intend to establish it as a leading brand in all major countries in a worldwide marketing campaign to be launched at the end of August. We systematically and regularly monitor the level of satisfaction of our clients, shareholders and employees to focus our market activities.
  
• Secondly, we will leverage our global lead in investment banking to increase shareholder value. We have now achieved the necessary critical mass in all important businesses and major countries.
  
• Thirdly, to generate profitable growth in our PCAM Group Division, we intend to strengthen our position, in particular as an international asset manager. Furthermore, we will push forward the restructuring of our Private & Business Clients Corporate Division to increase its efficiency and optimize the range of its products and services.
  
• Finally, as our fourth initiative, we will maintain our strict cost, capital and risk discipline. We will not become complacent, but will continue to work hard to build on the progress we have made, for example, in reducing costs.

Our goal is to take on a leading position in all of our core business lines by offering our demanding clients high-quality products and customized financial solutions at competitive conditions. This is absolutely essential for achieving our top priority – to sustainably increase the value of Deutsche Bank for you, our shareholders.

Deutsche Bank is strong: we have a first-class business model backed by knowledgeable and experienced employees. All of us in the bank strive to give our best at all times and to achieve maximum performance. That is what is behind the motto of our new campaign – “A Passion to Perform”.

Yours sincerely, 

 

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

Frankfurt am Main, July 2003