A message from Christian Sewing on recent developments

Dear colleagues

Let’s be straightforward: the news flow is not good. On Thursday, several media outlets reported that more than a year ago, the Federal Reserve had downgraded three of our US subsidiaries and classified them as being in “troubled condition”. Our share price fell sharply in reaction. This Friday morning, the news followed that S&P Global Ratings had downgraded one of our credit ratings, the Long Term Issuer Credit Rating.

I know that the current news flow must give you the feeling that the bank is not getting any respite. That’s why I think it’s important for me to put this news in perspective.

Let’s start with the Federal Reserve, our principal regulator in the US. We do not comment on the details of our dialogue with our regulators. But as we clearly noted in our annual report in March 2017, Deutsche Bank has been engaged in remediation work to strengthen our internal control environment and infrastructure and to address concerns that have been identified both internally and by our regulators.

On the Federal Reserve’s website (www.federalreserve.gov) you can read about four public resolutions of enforcement actions. These actions are principally related to or the result of weaknesses in our internal controls and infrastructure. These weaknesses have arisen over many years. As you know, we have made progress in remediating them in the past year. We’re not yet where we want to be, but we’re steadily getting there.

Financially, the US subsidiaries mentioned in the media are all very sound. For example, our principal US banking subsidiary, Deutsche Bank Trust Corporation Americas, or DBTCA, has a core capital ratio of 98.5 percent. At the end of the first quarter of 2018, it held 75 percent of its 42.1 billion-dollar balance sheet in cash. The problems we face are not a question of financial soundness, but involve identified infrastructure and control deficiencies, which we are tackling.

At Group level, our financial strength is beyond doubt. And here I’d like to quote today’s announcement by S&P: “…actions management took in 2017to strengthen the balance sheet (in terms of capitalisation, liquidity and asset quality)… gave the bank good solvency and liquidity buffers.”

At a glance, the facts are:

• Deutsche Bank Group’s common equity tier 1 ratio of 13.4 percent is higher than many peers and is well above the regulatory requirement of 10.65 percent.
• Our liquidity reserves were 279 billion euros at the end of the first quarter – close to their all-time highs.
• Our credit and market risk levels have rarely been so low. Speculation that we might be exposed to substantial hits from the political uncertainties in Italy is completely unfounded.
• And last but not least: our funding plan for this year is well advanced, and at very favourable rates. We’re very well positioned to react to excessive movements in debt markets.

So why were we downgraded?

S&P does not base its decision on any doubts about the strength of our balance sheet. Rather, we are quite simply not profitable enough. The rating agency writes that “the bank appears set for a period of sustained underperformance compared with peers” and sees “non-negligible execution risks” for our strategic plans.

The downgrade impacts the Long-Term Issuer Credit Rating, which was lowered by one notch from A- to BBB+. All our ratings remain in investment grade territory. It’s also important to point out that the outlook for all our ratings is stable. S&P comments that the stable outlook “reflects our view that management will execute its strategy in earnest and, over time, will show progress against its 2019 financial objectives and so achieve its longer term objective of a more stable and better-functioning business model.”

In this respect, there’s good news in the bad: they trust us to succeed with the change which is required. My dear colleagues, we won’t disappoint.

But that also means we have to deliver – speedily and rigorously. And that’s exactly what we’re doing. As I said at the Annual General Meeting – in a disciplined manner, we’re following through on what we started.

We already have the IPO of DWS and the legal merger of Postbank and Deutsche Bank’s Private & Commercial Clients business in our home market, completed a few days ago, under our belts. In Wealth Management, we’re on a growth trajectory around the globe.

And in our Corporate & Investment Bank we have a clear strategic direction and we’re well on the way to implementing what we recently announced. Now, we need to continue on that path. No ifs, no buts.

My dear colleagues, the last few years were tough. Many of you are sick and tired of bad news. That’s exactly how I feel.
But there’s no reason for us to be discouraged. Yes, our share price is at a historic low. But we’ll prove that we have earned a better valuation on the financial markets. We’ve achieved a lot we can be proud of. We have reduced risks by billions of euros, we have strengthened capital and we have reorganised our bank. We can tick those boxes.

Now we need to look forward. At the Annual General Meeting I asked shareholders to trust us and support our plans. From many personal conversations, I know you’re already doing that wholeheartedly. My Management Board colleagues and I will work with all our strength to repay that trust – with promises that are kept, better results and fewer headlines.

Thank you for your commitment. It’s what defines our bank.

Yours
Christian Sewing