In the first quarter of 2009, we saw some signs of stabilization in the world’s financial markets. Compared with the extremely turbulent conditions of the final months of 2008, global capital markets were less volatile, and liquidity returned in some areas. Nevertheless, conditions in the wider economy remained very difficult. We saw continued evidence of recessionary forces at work in major industrialized nations, and slowing growth in emerging economies. In the United States and other key markets, unemployment continued to rise, house prices declined further, and the credit environment deteriorated significantly. In our home market, Germany, exports and industrial production faced pressure from declining trade volumes and lower consumption around the world. Investor confidence remained fragile for much of the quarter.
Deutsche Bank once again demonstrated its strength, as we have consistently throughout the crisis. But in this quarter, we also proved our earnings power. We achieved net revenues of € 7.2 billion after absorbing legacy-related charges of € 1.5 billion. We delivered a pre-tax profit of € 1.8 billion and net income of € 1.2 billion, or € 1.92 per share on a diluted basis. Our pre-tax return on average active equity, per our target definition, was 25 %. Furthermore, we raised our Tier 1 capital ratio to 10.2 %, above our stated target of 10 %, and further reduced the size of our balance sheet. This enabled us to make further progress in reducing our balance sheet leverage. We continue to maintain a substantial and high-quality funding base, as we have throughout the crisis, and a substantial liquidity reserve.
This positive result was driven largely by the performance of our investment banking business, Corporate Banking & Securities, which returned to profitability in the quarter and delivered a pre-tax profit of € 1.3 billion. Our debt sales and trading business produced revenues which were among its best ever, even after increasing reserves against key exposures and absorbing the negative impact of some legacy trading positions. We reaped the benefits of our strategy of building up commanding franchises in ‘flow’ businesses such as foreign exchange, money markets and interest rate trading, and of investing in strategic growth areas such as commodities trading, prime services, and emerging markets debt. Very strong revenues in these businesses, together with healthier margins, more than compensated for the absence of revenues in illiquid, structured trading areas which have been severely affected by the credit crisis. We continued to reduce costs and risks across our sales and trading platform, and proved our ability to generate strong revenues from a smaller balance sheet. Our corporate finance business was boosted by strong revenues in investment grade debt issuance, in which we ranked second globally as measured by volume, as large corporate clients strengthened their balance sheets in difficult conditions. Advisory revenues were comparable to the first quarter of 2008, despite challenging conditions. In M&A we ranked fifth globally and first in Europe, as measured by announced transaction volumes, having won a number of prestigious and high-profile mandates during the quarter.
Global Transaction Banking generated a pre-tax profit of € 221 million. This was achieved despite a considerably more challenging environment in all business lines: lower interest rates affected net interest income, lower equity market valuations impacted custody revenues, while declines in the volume of international trade created headwinds for trade finance, and exchange rate movements adversely impacted dollar-based revenues. We were able partly to counterbalance these effects by winning market share across our business lines while additionally winning some important mandates in Trust & Securities Services.
Asset and Wealth Management reported a pre-tax loss of € 173 million for the quarter. Our Asset Management business was significantly impacted by impairment charges in our alternative assets business, RREEF, resulting from falls in real estate asset values in major markets across the world. In addition, revenues in both Asset Management and Private Wealth Management were negatively affected by lower equity valuations in major markets, and by lower business volumes reflecting wariness on the part of private investors in the wake of the market turbulence of the final months of last year. We remain firmly committed to the long-term development of our Asset and Wealth Management platform, but have taken a number of steps to substantially adjust our cost base, as appropriate in the current environment.
Our Private & Business Clients business reported a pre-tax profit of € 206 million. Revenues in brokerage and portfolio management were substantially lower than in recent quarters, reflecting greater caution on the part of retail investors, and lower interest rates affected revenues from deposits. Provision for credit losses was higher than in the first quarter last year, reflecting a more difficult economic environment in both Germany and Spain. We completed the acquisition of a minority stake in Deutsche Postbank during the quarter, and have launched collaboration initiatives with our Postbank counterparts which should deliver both cost and revenue synergies to both platforms.
Our capital position remains very solid. Our Tier 1 capital ratio at the end of the quarter of 10.2 % was up slightly compared to the end of last year; we were able to complete the acquisition of our minority stake in Deutsche Postbank without compromising our capital strength. Tier 1 capital increased by € 1.2 billion to € 32.3 billion, and our leverage ratio, per our target definition, further improved from 28 to 25 by the end of the quarter, and thus reached our published objective, thanks in part to sustained balance sheet discipline. We continue to maintain a very healthy funding position, with a substantial and high-quality unsecured funding base, and we enjoy some of the lowest funding costs of our industry. Our liquidity position also remains strong.
Looking forward, we see continued challenges, but also opportunities, in our business environment. The near-term outlook for the global economy remains difficult. Significant economic slow-down is evident in both mature and emerging markets, and continues to affect industrial activity, employment, and real estate markets, and the credit environment will likely continue to deteriorate. All our clients will be affected by these conditions. On a more positive note, world equity markets, and other important financial markets, have recently shown signs of recovery and the governments of the world’s most important nations have reaffirmed their determination to address the challenges facing the world economy. Nevertheless, continued caution and vigilance will be essential.
In all our core businesses, we have put in place strategies which seek both to address near-term challenges, and to seize opportunities to strengthen our platform for the future. In the first quarter, we made substantial progress in implementing these strategies. In investment banking, we attracted outstanding talent in growth areas, including key industry sectors. We continued to tighten our balance sheet usage, and to redeploy both human and financial capital away from businesses most severely affected by the credit crisis, and toward businesses with strong growth prospects, notably in our sales and trading platform. In our Asset and Wealth Management business, we sustained our focus on managing costs in a more challenging revenue environment. We invested further in Global Transaction Banking, leveraging the strong profit and market share momentum of recent years, and continued to implement a growth and efficiency program in Private & Business Clients in Germany and beyond. These strategies reflect our firm belief that Deutsche Bank is well-positioned not only to weather the current crisis, but also to emerge stronger than ever in the medium term. We have maintained the capital strength, and the strategic autonomy, which enable us to act on this belief.
We greatly appreciate the support we have enjoyed from you, our shareholders, throughout this exceptionally turbulent period for our industry and for the world economy. We have demonstrated not only resilience but also earnings power. We remain absolutely determined to continue to serve your interests, building a bank which is strong enough to weather harsh conditions, and dynamic enough to seize opportunities for long-term success.
I hope to see many of you at our Annual General Meeting, on 26th May in the Frankfurt Festhalle.
Yours sincerely,
Josef Ackermann
Chairman of the Management Board and
the Group Executive Committee
Frankfurt am Main, April 2009
