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Frankfurt am Main, 01. November 2006

Deutsche Bank reports third quarter 2006 net income up 25% to EUR 1.2 billion, a record for a third quarter


Diese Information ist nur in englischer Sprache verfügbar.

  • Net income up 37% to EUR 4.2 billion for the first nine months
  • Total revenues of EUR 6.4 billion for the third quarter and EUR 21.2 billion for the first nine months
  • Income before income taxes of EUR 1.8 billion for the third quarter and EUR 6.3 billion for the first nine months
  • Pre-tax return on equity, per target definition, of 26% for the third quarter and 32% for the first nine months
  • Diluted earnings per share of EUR 2.45 for the third quarter and EUR 8.11 for the first nine months
  • Invested asset growth of EUR 34 billion, including net new money inflows of EUR 13 billion, in the third quarter

Deutsche Bank (XETRA: DBKGn.DE/ NYSE: DB) reported income before income taxes of EUR 1.8 billion, and net income of EUR 1.2 billion, for the third quarter 2006.  Reported pre-tax return on average active equity was 27%.  Per the Group’s target definition, which excludes restructuring charges and substantial gains on sale of industrial holdings, pre-tax return on average active equity was 26%, equal to the prior year quarter, while diluted earnings per share for the quarter were EUR 2.45, compared to EUR 1.89 in the prior year quarter.

For the first nine months of 2006, income before income taxes was EUR 6.3 billion.  Reported pre-tax return on average active equity was 32%.  Pre-tax return on average active equity, per target definition, was also 32%, compared to 28% in the first nine months of 2005.  Net income was EUR 4.2 billion, up 37% versus the prior year period.  Diluted earnings per share for the first nine months were EUR 8.11, compared to EUR 5.95 in the prior year period.

Dr. Josef Ackermann, Chairman of the Management Board, said: “We are pleased to deliver very solid results, with record third-quarter net income, despite market conditions which were less buoyant than in the third quarter last year. As a result, profits for the first nine months of this year have already surpassed the full-year total for 2005.”

He added: “Looking forward, we have been encouraged to note that the acceleration of business activity which we saw in September continued into October.  The corporate pipeline is strong.  Global financial markets remain robust.  Fundamental momentum in the world’s emerging financial markets has reasserted itself.  In addition, we continue to strengthen our business with our private clients, and to reap returns on investments in our platform.”


Group Highlights

Net revenues for the quarter were EUR 6.4 billion, compared to EUR 6.6 billion in the third quarter 2005.  In the third quarter 2005, net revenues included a EUR 337 million gain on the partial sale of the bank’s holding in DaimlerChrysler AG.  Net revenues in the third quarter 2006 included a gain of EUR 92 million from the sale of a number of Linde AG shares corresponding approximately to those acquired during the quarter in the capital increase of the company. In addition, net revenues in the current quarter included EUR 125 million from the settlement of insurance claims in respect of business interruption losses and costs related to the terrorist attacks of September 11, 2001 in the United States.

For the first nine months of 2006, Group net revenues were EUR 21.2 billion, up 11% versus the first nine months of 2005.

In the Corporate and Investment Bank (CIB), revenues were EUR 4.0 billion, essentially unchanged from the third quarter in 2005 despite lower levels of market activity in some key products compared to the prior year period.  Revenues in Sales & Trading (Debt and other products) were EUR 2.0 billion, the best ever for a third quarter, while revenues in Sales & Trading (Equity) were EUR 700 million, 32% lower than in the third quarter 2005, principally reflecting lower revenues in proprietary trading, which were nevertheless positive.  Revenues in Origination and Advisory rose 12% to EUR 642 million, reflecting best-ever quarterly revenues in Advisory and strong growth in Debt Origination.  Revenues in Global Transaction Banking rose 10% to EUR 541 million, reflecting growth in Cash Management and Trust & Securities Services.

In Private Clients and Asset Management (PCAM), revenues were EUR 2.1 billion, marginally below levels of the third quarter 2005.  Revenues in Asset Management were lower than in the prior year period, which included gains on the sale of businesses as well as the revenues from those businesses. Brokerage revenues in the current quarter were lower, reflecting reduced investor activity after the market volatility of the second quarter 2006, but this effect was offset by revenue growth in loans/deposits in Private & Business Clients (PBC).  PCAM’s invested assets grew by EUR 35 billion, including EUR 13 billion of net inflows of new money, during the quarter.

Provision for credit losses, which includes provisions for both loan losses and off-balance sheet positions (the latter reported in noninterest expenses), was EUR 70 million in the third quarter, down from EUR 91 million in the third quarter 2005.  Provisions in CIB continued to benefit from recoveries and releases, while provisions in PCAM principally reflected PBC’s strategy of growth in consumer lending.  Problem loans at the end of the third quarter were EUR 3.5 billion, unchanged from the previous quarter.

Noninterest expenses for the quarter were EUR 4.5 billion, down from EUR 4.7 billion in the third quarter 2005.  The reported cost/income ratio was 71%, compared to 70% in the prior year quarter.  Restructuring charges were EUR 18 million, down from EUR 156 million in the prior year quarter.  The operating cost base, which excludes restructuring and other items, was EUR 4.5 billion, up 1% compared to the third quarter 2005.  Compensation costs were EUR 2.8 billion, up 2% versus the third quarter 2005, while the reported compensation ratio was 44%.  The underlying compensation ratio was 45%, the same as in the prior year quarter. Non-compensation operating costs were essentially unchanged from the prior year quarter at EUR 1.7 billion.

For the first nine months, noninterest expenses were EUR 14.7 billion, up 7% on the first nine months of 2005, while the operating cost base was EUR 14.6 billion, up 10%, primarily reflecting variable compensation costs related to improved operating performance.  On both a reported and an underlying basis, the cost-income ratio was 70%, down from 72% in 2005.

Income before income taxes for the quarter was EUR 1.8 billion, compared to EUR 1.9 billion in the third quarter 2005.  Reported pre-tax return on average active equity was 27%, compared to 29% in the prior year quarter.  Per the bank’s target definition (which excludes restructuring charges, and substantial gains from sales of industrial holdings), pre-tax return on average active equity was 26%, equal to the prior year quarter.

For the first nine months, income before income taxes rose 23% to EUR 6.3 billion, while reported pre-tax return on average active equity was 32%, compared to 28% in 2005.  Per the bank’s target definition, nine-month pre-tax return on average active equity was also 32%, up from 28% in 2005.

Net income for the quarter was EUR 1.2 billion, up 25% versus the third quarter 2005.  The effective tax rate for the quarter was 31%, compared to 47% for the prior year quarter which included the impact of the tax reversal on the partial sale of the bank’s stake in DaimlerChrysler AG. The effective tax rate in the current quarter of 31%, compared to 34% in the second quarter of 2006, reflected the impact of tax free capital gains and tax audit settlements.  Diluted earnings per share for the quarter were EUR 2.45, up 30% versus the prior year quarter.  For the first nine months, net income rose 37% to EUR 4.2 billion, while diluted earnings per share were EUR 8.11, up 36% versus 2005, and EUR 1.16 higher than in the full year 2005.

The BIS Tier 1 ratio rose to 8.9% at the end of the third quarter, up from 8.7% at the end of the second quarter and within the bank’s target range of between 8% and 9%.  Deutsche Bank reaffirmed its capital management strategy, which combines the funding of business growth with generating attractive returns for shareholders.  The bank increased risk-weighted assets by EUR 9 billion to EUR 271 billion during the quarter.  Share repurchases also continued, although at lower volumes than during the first and second quarters, reflecting the capital requirements of recently-announced acquisitions.  The bank repurchased 1.6 million shares during the quarter, at an average price of EUR 88.66 per share.

Business Segment Review


Corporate and Investment Bank Group Division (CIB)

CIB recorded income before income taxes of EUR 1.1 billion in the third quarter 2006, a decrease of € 132 million, or 11% compared with the very strong third quarter 2005. The current quarter included restructuring charges of EUR 10 million compared to EUR 55 million in the third quarter of 2005. Underlying pre-tax profit, which excludes restructuring charges, was also EUR 1.1 billion in the current quarter and lower by EUR 177 million, or 13%, than in the third quarter 2005.

Corporate Banking & Securities (CB&S)

Sales & Trading (Debt and other products) generated revenues of EUR 2.0 billion in the third quarter 2006, an increase of 8% versus the previous record third quarter performance in 2005. Lower levels of business activity across virtually all products in July and August were partially offset by stronger customer flows in September. As a result, revenues were lower in distressed debt, foreign exchange and Emerging Markets Debt.  Revenue growth compared to last year’s third quarter was mostly achieved in the Structured Credit and Global Rates businesses, with money markets also performing strongly.

Sales & Trading (Equity) generated revenues of EUR 700 million, a decrease of 32% versus the third quarter 2005. Core customer business lines performed well, despite seasonally subdued order flows during early summer. Equity Derivatives, in particular, grew year on year, reflecting both the development of client solutions and overall revenues. Emerging Markets also remained strong, due in part to the market share gains made through successive bolt-on acquisitions in strategic markets such as Russia and Turkey. Revenues in Equity Proprietary Trading were marginally positive for the quarter as a whole, but substantially lower than in the third quarter 2005.  This development accounted for most of the year-on-year reduction in Equity revenues.

Origination and Advisory generated revenues of EUR 642 million in the third quarter 2006, up by EUR 71 million, or 12%, compared with the same period last year. Origination (Debt) revenues increased and Deutsche Bank maintained a top 5 position globally for the first nine months 2006 in the fee league tables in both high-grade and high-yield bonds, as well as in syndicated loans.  Origination (Equity) revenues declined consistent with a slowdown in global equity origination markets and the related fee pool. Deutsche Bank’s market share of equity fee pool doubled in the U.S. while our ranking in Asia Pacific excluding Japan also improved.  Advisory set a quarterly record for revenue reflecting higher market volumes globally and market share gains in Europe, Asia Pacific and Japan as measured by fee pool.  In European M&A, Deutsche Bank gained two places and achieved a top two position by fee pool (sources for all rankings, market volume and fee pool data: Thomson Financial, Dealogic).

Loan products revenues were EUR 203 million for the third quarter of 2006, a 15% decrease from the same period in 2005, driven by lower net interest and fee income.

In provision for credit losses, which includes both provisions for loan losses and for off-balance sheet positions (the latter reported in noninterest expenses), CB&S recorded a net release of EUR 19 million in the third quarter 2006, compared to a net increase of EUR 8 million in the same quarter last year. Recoveries and releases from various successful workouts more than offset the level of new provisions.

Noninterest expenses in CB&S increased by 3% to EUR 2.5 billion. Restructuring charges in the third quarter of 2006 were EUR 9 million compared to EUR 46 million in the third quarter 2005. The operating cost base, which excludes these charges, was also EUR 2.5 billion in the third quarter 2006 and increased by 6% compared to the same period last year largely driven by higher non-performance related compensation costs.

Income before income taxes in CB&S of EUR 957 million in the third quarter 2006 decreased by EUR 174 million, or 15%, compared to the same quarter last year.  Underlying pre-tax profit, which excludes restructuring charges, was EUR 966 million in the quarter, down EUR 211 million, or 18%, versus the third quarter 2005.

Global Transaction Banking (GTB)

Revenues from Transaction Services were EUR 541 million in the third quarter 2006, an increase of EUR 47 million, or 10%, compared with the same period last year. Revenue growth was mainly achieved in our Cash Management and Trust & Securities Services (TSS) businesses.  The Cash Management payments business generated significantly higher income due to improved interest margins, increased deposit balances in all regions and improved transaction volume in euro clearing.  Revenues from issuer-related services in TSS increased in line with capital markets activity, as did domestic custody revenues.

GTB recorded a net release of EUR 9 million in provision for credit losses in the third quarter 2006 compared to a net release of EUR 4 million for the same period last year. Provision for credit losses includes both provisions for loan losses and for off-balance sheet positions (the latter reported in noninterest expenses).

GTB’s noninterest expenses of EUR 369 million in the third quarter 2006 increased by 1% compared to the third quarter 2005. Restructuring charges declined from EUR 9 million in the third quarter last year to EUR 1 million in the current quarter. The operating cost base, which excludes restructuring charges and provision for off-balance sheet positions (the latter reported in provision for credit losses), was EUR 381 million in the third quarter 2006, an increase of EUR 18 million, or 5%, compared to the third quarter 2005. The cost-income ratio, both on a reported and an underlying basis, improved by 4 percentage points from the prior year period.

GTB’s income before income taxes was EUR 168 million in the third quarter 2006, an increase of EUR 41 million, or 33%, compared to the same quarter 2005. Underlying pre-tax profit was EUR 169 million, up EUR 34 million, or 25%, compared to the third quarter 2005.


 
Private Clients and Asset Management Group Division (PCAM)

Invested assets in PCAM grew significantly by EUR 35 billion from EUR 852 billion at the end of the second quarter 2006 to EUR 887 billion at the end of the current quarter. The increase was driven by market appreciation and net new asset inflows, which on a year-to-date basis already exceeded full year 2005 inflows. Loan volumes increased to EUR 88 billion at the end of the third quarter 2006, reflecting the progress in PCAM’s growth strategy in this area. Sales volumes in investment products decreased, driven by lower customer activity after corrections in equity markets in the second quarter this year and also reflecting typical seasonal patterns.

Net revenues of EUR 2.1 billion in PCAM declined by EUR 94 million, or 4%, compared to the third quarter last year. More than half of the decline was attributable to the non-recurrence of net gains of EUR 49 million on the sale of businesses recorded in the third quarter 2005. The balance of the remaining decline was in underlying revenues, which decreased by EUR 44 million, or 2%, mainly reflecting the absence of revenues in 2006 from the sold businesses.

Income before income taxes was EUR 429 million, an increase of EUR 21 million, or 5%, compared to the third quarter 2005. The increase was primarily due to EUR 93 million lower restructuring charges, partly offset by the aforementioned net gain from the sale of businesses last year. Underlying pre-tax profit, which excludes gains from business disposals and restructuring charges, was EUR 436 million in the third quarter 2006, down EUR 23 million, or 5%, compared to the third quarter last year. The decline mainly reflected additional costs from the repositioning and growth of the AWM franchise.

Asset and Wealth Management (AWM)

AWM gathered net new invested assets of EUR 12 billion during the third quarter 2006, the highest inflows in the past six quarters. Asset Management (AM) and Private Wealth Management (PWM) each contributed EUR 6 billion to this development. In the first nine months of 2006, AWM attracted net new invested assets of EUR 20 billion. This positive trend was driven by an overall increase in sales force productivity.

Net revenues of EUR 904 million in AWM in the third quarter 2006 decreased by EUR 110 million or 11% compared to the third quarter last year, which included a net gain of EUR 42 million on the sale of a substantial part of our UK- and Philadelphia-based AM businesses. Underlying revenues, which exclude this disposal gain, declined by EUR 68 million, or 7%. Portfolio/fund management revenues (AM) decreased by EUR 62 million, or 11%, compared to prior year’s third quarter, driven primarily by the non-recurrence in 2006 of revenues from the aforementioned sold businesses. Portfolio/fund management revenues (PWM) increased by 5%, mainly reflecting the growth in invested assets achieved since the third quarter last year. Brokerage revenues declined by 3% due to lower client activity after corrections in the equity markets in the second quarter this year. This decline was mostly offset by higher Loan/deposit revenues, which increased by 11%, mainly reflecting higher deposit volumes. Revenues from Other products declined by EUR 52 million, primarily due to the aforementioned disposal gain in 2005, and also reflecting the deconsolidation of Deutsche Wohnen AG, a real estate investment company, at the beginning of the current quarter.
 
Noninterest expenses decreased by EUR 114 million, or 14%, compared to the third quarter last year. The decline was driven by a reduction of EUR 67 million in restructuring charges and of EUR 14 million in minority interest, which mainly reflected the deconsolidation of Deutsche Wohnen AG. The operating cost base, which excludes restructuring charges and minority interest, decreased by EUR 32 million, or 4%, driven by the non-recurrence of operating costs from the aforementioned sold businesses. This was partly offset by the impact of continued investments in PWM, with an increase of more than 350 employees since the third quarter last year, and by expenses related to the reorganisation of the AM platform, mainly in the United States.

Income before income taxes in AWM in the current quarter was EUR 180 million, a slight increase of EUR 4 million, or 2%, compared to the third quarter last year. Underlying pre-tax profit, which excludes gains on the disposal of businesses and restructuring charges, declined by EUR 22 million, or 11%, to EUR 183 million reflecting, after adjusting for deconsolidation effects, stable revenues in a more challenging market environment and incremental costs related to the repositioning of the Asset Management platform and investments in the growth strategy of PWM.

Private & Business Clients (PBC)

In the third quarter 2006, PBC successfully continued to grow its business volumes. Loan volumes increased to EUR 76 billion, up EUR 1 billion compared to the end of the second quarter 2006 and up EUR 4 billion compared to year end 2005. Invested assets grew to EUR 169 billion with net new assets of EUR 2 billion in the current quarter. In the first nine months of 2006, PBC gathered net new invested assets of EUR 4 billion. Securities brokerage transactions decreased in the third quarter 2006 reflecting lower customer activity after the corrections in the equity markets in the second quarter of this year. At the same time, customers shifted investment focus from mutual funds to certificate products resulting in lower brokerage margins in the current quarter.

Net revenues were slightly above the level of the previous year’s third quarter, which included gains of EUR 8 million from the sale of businesses. Underlying revenues, which do not reflect such disposal gains, grew by EUR 24 million, or 2%. In particular, loan/deposit business revenues rose significantly by EUR 55 million, or 10%, as a result of growth in business volumes and stable margins. Revenues from Brokerage products declined in light of the aforementioned decrease in customer activity and the shift in choice of investment products.

The provision for credit losses, which includes both provisions for loan losses and for off-balance sheet positions (the latter reported in noninterest expenses), was EUR 99 million in the third quarter 2006, which represents an increase of EUR 8 million, or 9%, compared to the same quarter last year and is in line with the increased asset volumes.

Noninterest expenses in PBC decreased by EUR 8 million, or 1%, compared to the third quarter last year. The main reason for this decline was lower restructuring charges, which decreased from EUR 29 million in the third quarter 2005 to EUR 4 million in the current quarter. The operating cost base, which excludes these charges, increased by EUR 17 million, or 2%, in the same period. The increase mainly reflected the effects of continued investments in growth products and regions, in particular in Eastern Europe and Asia.

Income before income taxes was EUR 249 million in the third quarter 2006 compared to EUR 232 million in the third quarter last year. Underlying pre-tax profit, which excludes gains from the disposal of businesses as well as restructuring charges, was EUR 252 million in the current quarter, in line with the previous year’s third quarter and was above the EUR 250 million level for the fifth consecutive quarter.


Corporate Investments Group Division (CI)

CI’s income before income taxes was EUR 128 million in the third quarter 2006, reflecting gains of EUR 114 million from the sale of industrial holdings, mainly from the investment in Linde AG. Deutsche Bank participated in Linde AG’s capital increase early in the quarter, and subsequently sold a number of shares corresponding approximately to those acquired in the capital increase, resulting in a gain of EUR 92 million. In the third quarter last year, income before income taxes of EUR 375 million included industrial holdings gains of EUR 337 million from the partial sale of the bank’s investment in DaimlerChrysler AG.

Excluding such gains on industrial holdings, and other gains/losses related to principal investments or own use premises, CI recorded an underlying pre-tax loss of EUR 38 million in the current quarter compared to a loss of EUR 33 million in the same period last year.


Consolidation & Adjustments (C&A)

In the third quarter 2006 C&A recorded income before income taxes of EUR 99 million compared to a loss before income taxes of EUR 162 million in the third quarter last year. Revenues of EUR 113 million in the current quarter included EUR 125 million in settlement of insurance claims in respect of business interruption losses and costs related to the terrorist attacks of September 11, 2001 in the United States. Adjustments to revenues for different accounting methods used for management reporting and U.S. GAAP (e.g., related to economically-hedged issuances and short-term funding positions) were slightly positive in the current quarter and slightly negative in the third quarter last year. Noninterest expenses of EUR 15 million in the third quarter this year reflected provisions for legacy legal exposures and operational losses of approximately EUR 50 million, which was net of agreed indemnity settlements, partly offset by releases of EUR 28 million of provisions for indirect compensation related to grundbesitz-invest, the open-end real estate fund. In the third quarter last year, noninterest expenses of EUR 94 million included charges of EUR 108 million related to legacy legal exposures.

The complete Interim Report as of 30 September 2006 is available at http://www.deutsche-bank.com/3Q2006, the Financial Data Supplement for 3Q2006 at: http: //www.deutsche-bank.de/ir/financial-supplements



This Release contains forward-looking statements. Forward-looking statements are statements that are not historical facts; they include statements about our beliefs and expectations. Any statement in this Release that states our intentions, beliefs, expectations or predictions (and the assumptions underlying them) is a forward-looking statement. These statements are based on plans, estimates and projections as they are currently available to the management of Deutsche Bank. Forward-looking statements therefore speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.

By their very nature, forward-looking statements involve risks and uncertainties. A number of important factors could therefore cause actual results to differ materially from those contained in any forward-looking statement. Such factors include: the conditions in the financial markets in Germany, in Europe, in the United States and elsewhere from which we derive a substantial portion of our trading revenues; potential defaults of borrowers or trading counterparties; the implementation of our management agenda; the reliability of our risk management policies, procedures and methods; and other risks referenced in our filings with the U.S. Securities and Exchange Commission. Such factors are described in detail in our SEC Form 20-F of 23 March 2006 on pages 7 through 13 under the heading "Risk Factors." Copies of this document are readily available upon request or can be downloaded from www.deutsche-bank.com/ir.






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