Deutsche Bank - 20-F annual report

Securities registered or to be registered pursuant to Section 12(b) of the Act (as of February 27, 2009).

Deutsche Bank Aktiengesellschaft, which we also call Deutsche Bank AG, is a stock corporation organized under the laws of the Federal Republic of Germany. Unless otherwise specified or required by the context, in this document, references to “we”, “us”, and “our” are to Deutsche Bank Aktiengesellschaft and its consolidated subsidiaries.

Due to rounding, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.

Our registered address is Theodor-Heuss-Allee 70, 60486 Frankfurt am Main, Germany, and our telephone number is +49-69-910-00.

In addition, we may from time to time make forward-looking statements in our periodic reports to the United States Securities and Exchange Commission on Form 6-K, annual and interim reports, invitations to Annual General Meetings and other information sent to shareholders, offering circulars and prospectuses, press releases and other written materials. Our Management Board, Supervisory Board, officers and employees may also make oral forward-looking statements to third parties, including financial analysts.

Forward-looking statements are statements that are not historical facts, including statements about our beliefs and expectations. We use words such as “believe”, “anticipate”, “expect”, “intend”, “seek”, “estimate”, “project”, “should”, “potential”, “reasonably possible”, “plan”, “aim” and similar expressions to identify forward-looking statements.

By their very nature, forward-looking statements involve risks and uncertainties, both general and specific. We base these statements on our current plans, estimates, projections and expectations. You should therefore not place too much reliance on them. Our forward-looking statements speak only as of the date we make them, and we undertake no obligation to update any of them in light of new information or future events.

We caution you that a number of important factors could cause our actual results to differ materially from those we describe in any forward-looking statement. These factors include, among others, the following:

For descriptions of these non-GAAP financial measures and the adjustments made to the most directly comparable IFRS financial measures to obtain them, please refer to pages S-17 through S-19 of the supplemental financial information, which are incorporated by reference herein, and the following paragraphs.

Our target definition of IBIT attributable to Deutsche Bank shareholders excludes significant gains (such as gains from the sale of industrial holdings, businesses or premises) and charges (such as charges from restructuring, goodwill impairment or litigation) if we believe they are not indicative of the future performance of our core businesses.

When used with respect to future periods, our non-GAAP financial measures are also forward-looking statements. We cannot predict or quantify the levels of the most directly comparable IFRS financial measures (listed in the table above) that would correspond to these non-GAAP financial measures for future periods. This is because neither the magnitude of such IFRS financial measures, nor the magnitude of the adjustments to be used to calculate the related non-GAAP financial measures from such IFRS financial measures, can be predicted. Such adjustments, if any, will relate to specific, currently unknown, events and in most cases can be positive or negative, so that it is not possible to predict whether, for a future period, the non-GAAP financial measure will be greater than or less than the related IFRS financial measure.

Not required because this document is filed as an annual report.

Not required because this document is filed as an annual report.

We have derived the data we present in the tables below from our audited consolidated financial statements for the years presented. You should read all of the data in the tables below together with the consolidated financial statements and notes included in “Item 18: Financial Statements” and the information we provide in “Item 5: Operating and Financial Review and Prospects.” Except where we have indicated otherwise, we have prepared all of the consolidated financial information in this document in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and as endorsed by the European Union (“EU”). Until December 31, 2006, we prepared our consolidated financial information in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). All 2006 data included in this report has been prepared in accordance with IFRS as issued by the IASB. Our group division and segment data come from our management reporting systems and are not necessarily based on, or prepared in accordance with, IFRS. For a discussion of the major differences between our management reporting systems and our consolidated financial statements under IFRS, see “Item 5: Operating and Financial Review and Prospects – Results of Operations by Segment (2008 vs. 2007).”

The following table shows the dividend per share in euro and in U.S. dollars for the years ended December 31, 2008, 2007 and 2006. We declare our dividends at our Annual General Meeting following each year. Our dividends are based on the non-consolidated results of Deutsche Bank AG as prepared in accordance with German accounting principles. Because we declare our dividends in euro, the amount an investor actually receives in any other currency depends on the exchange rate between euro and that currency at the time the euros are converted into that currency.

Effective January 1, 2009, the German withholding tax applicable to dividends increased to 26.375 % (consisting of a 25 % withholding tax and an effective 1.375 % surcharge) compared to 21.1 % applicable for the years 2008, 2007 and 2006. For individual German tax residents, the withholding tax represents, generally, the full and final income tax applicable to the dividends. Dividend recipients who are tax residents of countries that have entered into a convention for avoiding double taxation may be eligible to receive a refund from the German tax authorities of a portion of the amount withheld and in addition may be entitled to receive a tax credit for the German withholding tax not refunded in accordance with their local tax law.

U.S. residents will be entitled to receive a refund equal to 11.375 % of the dividends received after January 1, 2009 (compared to an entitlement to a refund of 6.1 % of the dividends received in the years 2006 through 2008). For U.S. federal income tax purposes, the dividends we pay are not eligible for the dividends received deduction generally allowed for dividends received by U.S. corporations from other U.S. corporations.

Dividends in the table below are presented before German withholding tax.

See “Item 10: Additional Information – Taxation” for more information on the tax treatment of our dividends.

Germany’s currency is the euro. For your convenience, we have translated some amounts denominated in euro appearing in this document into U.S. dollars. Unless otherwise stated, we have made these translations at U.S.$ 1.3919 per euro, the noon buying rate for euros on December 31, 2008. The “noon buying rate” is the rate the Federal Reserve Bank of New York announces for customs purposes as the buying rate for foreign currencies in the City of New York on a particular date. You should not construe any translations as a representation that the amounts could have been exchanged at the rate used on December 31, 2008 or any other date.

The noon buying rate for euros on December 31, 2008 may differ from the actual rates we used in the preparation of the financial information in this document. Accordingly, U.S. dollar amounts appearing in this document may differ from the actual U.S. dollar amounts that we originally translated into euros in the preparation of our financial statements.

Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar equivalent of the euro price of our shares quoted on the German stock exchanges and, as a result, are likely to affect the market price of our shares on the New York Stock Exchange. These fluctuations will also affect the U.S. dollar value of cash dividends we may pay on our shares in euros. Past fluctuations in foreign exchange rates may not be predictive of future fluctuations.

The following table shows the period-end, average, high and low noon buying rates for the euro. In each case, the period-end rate is the noon buying rate announced on the last business day of the period.

On March 17, 2009, the noon buying rate was U.S.$ 1.2942 per euro.

We believe that maintaining a strong credit quality is a key part of the value we offer to our clients, bondholders and shareholders. Below are our long-term credit ratings. On December 5, 2008, Moody’s Investors Service changed the outlook on our rating to negative, citing for instance the continuous impact on our revenues and earnings streams of the persistent turmoil in international capital markets. Our long-term credit rating was lowered by Standard & Poor’s on December 19, 2008 to A+ with stable outlook from AA- with negative outlook. Among the reasons stated was the significant pressure on large complex financial institutions’ future performance due to increasing bank industry risk and the deepening global economic slowdown, as well as earnings prospects. On January 16, 2009, Fitch Ratings placed our long-term credit rating on rating watch negative, naming concerns over our profitability, vulnerability to market volatility and asset depreciation, and the need to reduce our balance sheet leverage.

As of the date of this document, there has been no change in any of the above ratings.

Each rating reflects the view of the rating agency only at the time it gave us the rating, and you should evaluate each rating separately and look to the rating agencies for any explanations of the significance of their ratings. The rating agencies can change their ratings at any time if they believe that circumstances so warrant. You should not view these long-term credit ratings as recommendations to buy, hold or sell our securities.

The following table sets forth our consolidated capitalization in accordance with IFRS as of December 31, 2008:

Not required because this document is filed as an annual report.

An investment in our securities involves a number of risks. You should carefully consider the following information about the risks we face, together with the other information in this document, when you make investment decisions involving our securities. If one or more of these risks were to materialize, it could have a material adverse effect on our financial condition, results of operations, cash flows or prices of our securities.

Since the second half of 2007, and particularly since September 2008, the financial services industry, including ourselves, and the global financial markets have been materially and adversely affected by significant declines in the values of nearly all classes of financial assets. The declines initially occurred in financial assets linked to or backed by U.S. subprime residential mortgages, but soon spread to nearly all other asset classes, including mortgage and real estate asset classes, leveraged finance loans and equities. The financial markets have been, and continue to be, characterized by unprecedented levels of volatility (rapid changes in price direction) and the breakdown of historically observed correlations (the extent to which prices move in tandem) across asset classes, compounded by extremely limited liquidity. This has materially and adversely affected the availability and performance of instruments used to hedge positions and manage risk. Furthermore, there has been a widespread loss of investor confidence, initially and most severely in financial institutions, but more recently also in companies in a number of other industries and in the broader markets.

Market conditions have also led to the failure or merger under distressed conditions of a number of prominent financial institutions. Financial institution failures or near-failures have resulted in losses, including for us, as a consequence of defaults on securities issued by them and defaults under bilateral derivatives and other contracts entered into with such entities as counterparties. Furthermore, declining asset values, defaults on mortgages and consumer loans, and the lack of market and investor confidence, as well as other factors, have all combined to increase the spreads, or costs, on credit default swaps, which are instruments used to manage credit risks, to cause rating agencies to lower credit ratings, including our own, and to otherwise increase the cost and decrease the availability of liquidity, despite very significant declines in central bank borrowing rates and other government actions. While governments, regulators and central banks worldwide, including in Germany and the U.S., have taken numerous steps to increase liquidity and to restore investor confidence, asset values have continued to decline and access to liquidity continues to be very limited.

As of the end of 2008, Europe, the U.S. and other important economies were contracting. Business activity across a wide range of industries and regions continues to be greatly reduced and local governments and many companies are in serious economic difficulty due to the lack of consumer spending and the lack of liquidity in the credit markets. Unemployment has increased significantly.

As described further below, these extremely adverse financial market and economic conditions have negatively impacted many of our businesses, particularly our credit trading, equity and derivatives trading, mortgage, leveraged finance, corporate finance and investment management businesses, and we have no reason to expect that these conditions will improve in the near or medium term. Until they do, we expect our results of operations to continue to be materially and adversely affected.

In each of the product and business lines in which we enter into these kinds of positions, part of our business entails making assessments about the financial markets and trends in them. The revenues and profits we derive from many of our positions and our transactions in connection with them can be negatively impacted by market prices, which have recently been both declining and volatile. When we own assets, market price declines can expose us to losses. Many of the more sophisticated transactions we describe in our discussions of our Corporate Banking & Securities Corporate Division are designed to profit from price movements and differences among prices. If prices move in a way we have not anticipated, we may experience losses. Also, when markets are volatile, the assessments we have made may prove to lead to lower revenues or profits, or may lead to losses, on the related transactions and positions. In addition, we commit capital and take market risk to facilitate certain capital markets transactions; doing so can result in losses as well as income volatility.

Since the second half of 2007, and particularly since September 2008, financial markets have experienced exceptionally difficult conditions, which have been reflected in material declines in the values of financial assets, considerably lower volumes of business activity in the areas most directly affected and slowing economic and business momentum more generally. Among the principally affected areas in which we do business have been the leveraged finance and structured credit markets. In addition to causing reduced business activity and revenues in these and other areas, continuing difficult market conditions have required us to write down the carrying values of some of our portfolios of assets, including leveraged loans and loan commitments. Furthermore, we incurred sizeable losses in our equity

derivatives trading and equity and credit proprietary trading businesses. Despite initiatives to reduce our exposure to the affected asset classes or activities, such reduction has not always been possible due to illiquid trading markets for many assets. As a result, we have substantial remaining exposures and thus continue to be exposed to further deterioration in prices for the remaining positions. These write-downs and losses led us to incur a loss in 2008, as performance in our other businesses was not sufficient to offset them. Our inability to offset the potential negative effects on our profitability through performance in our other businesses may continue in the future, which may further adversely affect our business and financial condition.

See “Item 5: Operating and Financial Review and Prospects – Results of Operations by Segment (2008 vs. 2007) – Corporate Banking & Securities Corporate Division” for information on the impact of the current market environment on a number of our key businesses.

The exceptionally difficult market conditions since the second half of 2007, and particularly since September 2008, have resulted in greatly diminished liquidity in certain markets in which we do business, including the leveraged finance and structured credit markets. We have already written down, and continuing difficult market conditions may require us to write down further, the carrying values of some of our portfolios of assets, which could have a material adverse effect on our financial condition. In the third and fourth quarter of 2008, we have, as permitted by recent amendments to IFRS, reclassified certain financial assets out of financial assets carried at fair value through profit or loss or available for sale into loans. While such reclassified assets, which had a carrying value of€ 34.4 billion as of December 31, 2008, are no longer subject to mark-to-market accounting, we continue to be exposed to the risk of impairment of such assets. In addition, to the extent we are unable to sell assets, we bear additional funding and capital costs with respect to them. See “Item 5: Operating and Financial Review and Prospects – Results of Operations by Segment (2008 vs. 2007) – Group Divisions – Corporate and Investment Bank Group Division – Corporate Banking & Securities Corporate Division” for information on the impact of the current market environment on a number of our key businesses.

a forced or liquidation sale. If the value of an asset carried at fair value declines (or the value of a liability carried at fair value increases) a corresponding write-down is recognized in the income statement. These write-downs have been and could continue to be significant.

Observable prices or inputs are not available for certain classes of financial instruments. Fair value is determined in these cases using valuation techniques we believe to be appropriate for the particular instrument. The application of valuation techniques to determine fair value involves estimation and management judgment, the extent of which will vary with the degree of complexity of the instrument and liquidity in the market. Management judgment is required in the selection and application of the appropriate parameters, assumptions and modeling techniques. If any of the assumptions change due to negative market conditions or for other reasons, subsequent valuations may result in significant changes in the fair values of our financial instruments, requiring us to record losses.

Our exposure and related write-downs are reported net of any fair value gains we may record in connection with hedging transactions related to the underlying assets. However, we may never realize these gains, and the fair value of the hedges may change in future periods for a number of reasons, including as a result of deterioration in the credit of our hedging counterparties. Such declines may be independent of the fair values of the underlying hedged assets and may result in future losses.

Our results for the fiscal year 2008 included losses on trading activities in relative value trading in both debt and equity, CDO correlation trading and residential mortgage-backed securities, and the leveraged loan book including loan commitments. We continue to have significant exposures to these markets and products and therefore are exposed to the risk of further losses. Such losses could have a material adverse effect on our results of operations and financial condition. See “Item 5: Operating and Financial Review and Prospects – Results of Operations by Segment (2008 vs. 2007) – Group Divisions – Corporate and Investment Bank Group Division – Corporate Banking & Securities Corporate Division” for information on the impact of the current market environment on a number of our key businesses.

For example, the value-at-risk approach we use to derive quantitative measures for our trading book market risks is designed to model risk factors assuming normal market conditions, and the statistical parameters required for the value-at-risk calculation are based on a 261 trading day history with equal weighting being given to each observation. However, in our regulatory back-testing in 2008, we observed 35 outliers (as compared to 12 in 2007), which are hypothetical buy-and-hold losses that exceeded our value-at-risk estimate for the trading units as a whole versus two to three outliers statistically expected in any one year. While we believe that the majority of these outliers were related to extreme events outside standard market conditions, we are also re-evaluating our modeling assumptions and parameters for potential improvements in such unusual market conditions.

In addition, our more qualitative approach to managing those risks not taken into account by our quantitative methods could also prove insufficient, exposing us to material unanticipated losses. See “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk” for a more detailed discussion of the policies, procedures and methods we use to identify, monitor and manage our risks. Also, if existing or potential customers believe our risk management is inadequate, they could take their business elsewhere. This could harm our reputation as well as our revenues and profits.

In particular, many of the businesses we have engaged in through our Corporate Banking & Securities Corporate Division entail credit transactions, frequently ancillary to other transactions. Nontraditional sources of credit risk can arise, for example, from holding securities of third parties; entering into swap or other derivative contracts under which counterparties have obligations to make payments to us; executing securities, futures, currency or commodity trades that fail to settle at the required time due to nondelivery by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries; and extending credit through other arrangements. Parties to these transactions, such as trading counterparties, may default on their obligations to us due to bankruptcy, political and economic events, lack of liquidity, operational failure or other reasons.

Many of our derivative transactions are individually negotiated and non-standardized, which can make exiting, transferring or settling the position difficult. Certain credit derivatives require that we deliver to the counterparty the underlying security, loan or other obligation in order to receive payment. In a number of cases, we do not hold, and may not be able to obtain, the underlying security, loan or other obligation. This could cause us to forfeit the payments otherwise due to us or result in settlement delays, which could damage our reputation and ability to transact future business, as well as increased costs to us.

The exceptionally difficult market conditions since the second half of 2007 have severely adversely affected certain areas in which we do business that entail nontraditional credit risks, including the leveraged finance and structured credit markets, and appear likely to continue to do so in 2009. See “Item 5: Operating and Financial Review and Prospects – Results of Operations by Segment (2008 vs. 2007) – Corporate Banking & Securities Corporate Division” for information on the impact of the current market environment on a number of our key businesses.

In December 2008, Moody’s Investors Service changed the outlook on our ratings to negative and Standard & Poor’s lowered our long-term credit rating to A+ with stable outlook from AA- with negative outlook. In January 2009, Fitch Ratings placed our long-term credit rating on rating watch negative. Ratings downgrades may impact the cost and availability of our funding, collateral requirements and the willingness of counterparties to do business with us.

Such interventions involve significant amounts of money and have significant effects on both institutions that participate in them and institutions that do not participate including with respect to access to funding and capital and recruiting and retention of talent. Institutions that do not receive such government support may be in a position to preserve greater autonomy in their strategy, lending and compensation policy but may suffer competitive disadvantages on their cost base, in particular their cost of funding and of capital. They also may suffer a decline in depositor or investor confidence thus risking a loss of liquidity. Institutions that receive such government support will, as described above, have to make certain commitments and become subject to certain constraints.

In Germany, the Financial Market Stabilization Act of October 17, 2008 (Finanzmarktstabilisierungsgesetz) provides for the temporary suspension of otherwise applicable stock corporation and takeover law, in particular with respect to the rights of the shareholders to resolve on capital increases, preemptive rights of shareholders, reporting duties, and obligations to make public tender offers upon acquiring a controlling stake, in connection with the implementation of the stabilization measures. Access to judicial review of stabilization measures is limited. In addition, the Financial Market Stabilization Fund will generally seek remuneration for stabilization measures that ranks senior to the other shareholders’ rights in the profits of that financial institution, and may condition such measures on a ban on dividends. See also “Item 10: Additional Information – Memorandum and Articles of Association” and “Item 8: Financial Information – Dividend Policy.” Our senior management has stated that it currently does not intend to participate in the program of the Financial Market Stabilization Fund. However, further deteriorations in market conditions or the competitive environment might require a change of such intention.

The German government has recently presented a draft bill which will extend the scope of the above-described suspensions and that also provides for the temporary authorization (through October 31, 2009) to nationalize financial institutions that are essential to the functioning of the German financial market through the expropriation (with compensation) of its shareholders or the holders of financial instruments qualifying as own funds (Eigenmittel) of the financial institution if such expropriation is necessary to safeguard the stability of the financial market, and no other less restrictive legally and economically reasonable and equally effective means are available in order to achieve this goal. Conversion or option rights relating to expropriated shares or expropriated other financial instruments would terminate by operation of law. The government aims to complete legislative action on its draft bill by April 3, 2009.

The implementation of any stabilization measures with respect to our company could adversely affect the legal or economic position of our shareholders or other investors.

In addition, there is a wide variety of proposals on a reform of the regulatory framework for financial services which are presently being discussed. Such proposals relate in particular to increased capital requirements, additional regulatory oversight and reporting, business models and business practices. If these proposals in whole or in part become law, they may significantly increase our costs.

Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies, and certain of the transactions we process have become increasingly complex. Consequently, we rely heavily on our financial, accounting and other data processing systems. If any of these systems do not operate properly, or are disabled, we could suffer financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage.

In addition, despite the contingency plans we have in place, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities in which we are located. This may include a disruption involving electrical, communications, transportation or other services used by us or third parties with which we conduct business, terrorist activities or disease pandemics.

In February 2009, we acquired a stake of 22.9 % in Deutsche Postbank AG, bringing our total stake to 25% plus one share, and bonds of Postbank’s parent that are mandatorily exchangeable in 2012 into an additional 27.4 % of Postbank’s shares, for a total consideration of € 3.8 billion. If we continue to hold the bonds when they are exchanged, we would own a majority of Postbank’s shares. As our current holding does not give us control of Postbank, we are not in a position to influence the business of Postbank which, like that of many financial institutions, has been affected by the financial crisis. While we are able to determine, in the implementation of our strategy, whether to hold the exchangeable bonds at the time of their mandatory exchange, and accordingly whether we will in fact acquire control of Postbank, we remain exposed to the risk of loss on our present investment in Postbank. Any such loss could be material.

In recent years there has been substantial consolidation and convergence among financial services companies. In 2008, the banking sector witnessed further substantial consolidation and merger activity, some of it in distressed circumstances, including the merger of some U.S. investment banks with commercial banks, the conversion of others into bank holding companies and, in Germany, the merger of the second and third largest private sector banks together with an infusion of capital by the German government. This trend has significantly increased the capital base and geographic reach of some of our competitors and has hastened the globalization of the securities and other financial services markets. In order to meet of some of our most significant challenges and to take advantage of related opportunities, we must compete with financial institutions that may be larger and better capitalized than we are and that may have a stronger position in local markets. Also, as described above, governmental action in response to the financial crisis may place us at a competitive disadvantage.

Due to the nature of our business, we and our subsidiaries are involved in litigation, arbitration and regulatory proceedings in Germany and in a number of jurisdictions outside Germany, including the U.S. Such matters are subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. We may settle litigation or regulatory proceedings prior to a final judgment or determination pursuant to which our liability is established and quantified. We may do so to avoid the cost, management efforts or negative business, regulatory or reputational consequences of continuing to contest liability, even when we believe we have valid defenses to liability. We may also do so when the potential economic, business, regulatory or reputational consequences of failing to prevail would be disproportionate to the costs of settlement. Furthermore, we may, for similar reasons, reimburse counterparties for losses incurred by them even in situations where we do not believe that we are legally compelled to do so. See “Item 8: Financial Information – Legal Proceedings” and Note [25] to our consolidated financial statements for information on our legal, regulatory and arbitration proceedings.

The financial impact of legal risks might be considerable but may be hard or impossible to estimate and so to quantify, so that amounts eventually paid may exceed the amount of reserves set aside to cover such risks. See “Item 5: Operational and Financial Review and Prospects – Significant Accounting Policies and Critical Accounting Estimates – Legal and Regulatory Contingencies and Tax Risks”.

Our existing business with Iranian counterparties consists mostly of participations as lender and/or agent in a few large trade finance facilities arranged some years ago to finance the export contracts of exporters in Europe and Asia, which exporters are primarily multinational corporations supplying goods, equipment and related services in the petrochemical and hydrocarbon processing industries. The lifetime of most of these facilities is ten years or more and we are legally obligated to fulfill our contractual obligations. Other business activities, such as correspondent banking services to banks located in Iran and private banking loans to Iranian citizens, have already been terminated or closed down. We do not believe our business activities with Iranian counterparties are material to our overall business, with our outstandings to Iranian borrowers representing less than 0.1 % of our total assets as of December 31, 2008 and our revenues from all such activities representing less than 0.1 % of our total revenues for the year ended December 31, 2008.

We are aware, through press reports and other means, of initiatives by governmental entities in the U.S. and by U.S. institutions such as universities and pension funds, to adopt laws, regulations or policies prohibiting transactions with or investment in, or requiring divestment from, entities doing business with Iran. It is possible that such initiatives may result in our being unable to gain or retain entities subject to such prohibitions as customers or as investors in our securities. In addition, our reputation may suffer due to our association with Iran. Such a result could have significant adverse effects on our business or the price of our securities.

The legal and commercial name of our company is Deutsche Bank Aktiengesellschaft. It is a stock corporation organized under the laws of Germany.

Deutsche Bank Aktiengesellschaft originated from the reunification of Norddeutsche Bank Aktiengesellschaft, Hamburg, Rheinisch-Westfälische Bank Aktiengesellschaft, Düsseldorf and Süddeutsche Bank Aktiengesellschaft, Munich. Pursuant to the Law on the Regional Scope of Credit Institutions, these were disincorporated in 1952 from Deutsche Bank, which had been founded in 1870. The merger and the name were entered in the Commercial Register of the District Court Frankfurt am Main on May 2, 1957.

We are registered under registration number HRB 30 000. Our registered address is Theodor-Heuss-Allee 70, 60486 Frankfurt am Main, Germany, and our telephone number is +49-69-910-00. Our agent in the United States is: Peter Sturzinger, Deutsche Bank Americas, c/o Office of the Secretary, 60 Wall Street, Mail Stop NYC60-4006, New York, NY 10005.

We have made the following significant capital expenditures or divestitures since January 1, 2008:

Since January 1, 2008, there have been no public takeover offers by third parties with respect to our shares.

We are organized into three group divisions, two of which are further sub-divided into corporate divisions. As of December 31, 2008, our group divisions were:

These divisions are supported by infrastructure functions and our Corporate Center. In addition, we have a regional management function that covers regional responsibilities worldwide.

We have operations or dealings with existing or potential customers in most countries in the world. These operations and dealings include:

The following table shows our net revenues by geographical region, based on our management reporting systems.

The Management Board has the overall responsibility for the management of Deutsche Bank, as provided by the German Stock Corporation Act. Its members are appointed and removed by the Supervisory Board, which is a separate corporate body. Our Management Board focuses on strategic management, corporate governance, resource allocation, risk management and control, assisted by Functional Committees.

The Group Executive Committee (GEC), established in 2002, comprises the members of the Management Board, the heads of the business divisions within our client-facing group divisions, CIB and PCAM, and one member representing the management of our regions. The GEC is a body that is not required by the Stock Corporation Act. It serves as a tool to coordinate our businesses and regions. We believe this underscores our commitment to a virtual holding company structure.

Within each group division and region, coordination and management functions are handled by Operating Committees and Executive Committees, which helps ensure that the implementation of the strategy of individual businesses and the plans for the development of infrastructure areas are integrated with global business objectives.

Our identity. We are a leading global investment bank with a strong private clients franchise. These are mutually reinforcing businesses; taking full advantage of the synergy potential between these businesses is a strategic priority for us. We are a leader in Europe, with strong positions in North America, Asia, and key emerging markets. Growth initiatives include both organic investment and selective, incremental acquisitions.

Our mission and values. We compete to be the leading global provider of financial solutions for demanding clients, and to create exceptional value for our shareholders and people. We are committed to our core values of customer focus, teamwork, innovation, performance and trust.

Our brand. Our brand is synonymous with strength and quality throughout the world and our logo is one of the best-recognized brand symbols in the global financial industry as confirmed by Global B2B Brand Monitor. Our brand campaign aims to leverage a distinctive logo, our business achievements, and our offering to clients. This campaign has further strengthened our profile in established markets and built awareness in new growth markets.

Our management agenda. In 2002, we initiated a multi-year and multi-phased agenda. The first phase of this agenda focused on management’s priorities to transform Deutsche Bank and the second phase focused on a strategy of achieving sustainable profitable growth. The implementation of these two phases of our strategy was successful. Between 2002 and 2007, we made significant gains in profitability as measured by growth in net income and pre-tax return on average active equity; we reached positions among the leaders in our chosen core businesses; we substantially reduced our credit risk and alternative asset risk; and we pursued a clear capital management strategy, which allowed us to maintain core capital strength within our stated target range while simultaneously investing in business growth and returning cash to shareholders during this period.

In 2006, we launched “Phase 3” of our management agenda, covering the period 2006-2008. Our overall objective was to leverage our global platform for accelerated growth. We defined four specific goals. First, to maintain our cost, risk, capital and regulatory discipline; second, to continue to invest in organic growth and bolt-on acquisitions; third, to further grow our businesses which we believe are viewed by the market as having more stable earnings streams, namely Private Clients and Asset Management (PCAM) and Global Transaction Banking; and fourth, to build on our competitive strength in the Corporate and Investment Bank (CIB).

The financial crisis which began in the second half of 2007, and particularly the rapid deterioration of conditions in financial markets during the fourth quarter 2008, saw the banking industry significantly and negatively impacted by considerably lower volumes of business activity in many key areas, together with mark-downs and losses related to the decline in value of some classes of assets. Following the insolvency of a large U.S. investment bank in September 2008, capital markets faced conditions of acute stress, with interbank lending severely reduced, extreme illiquidity in credit and other markets, and exceptional volatility, including sharp falls, in major equity markets. Bank balance sheets also came under pressure from exposures to assets which had deteriorated in value during the credit crisis and from a

worsening credit environment as the financial crisis spread to the wider economy. Central banks and governments intervened on an unprecedented scale, injecting liquidity in key markets and recapitalizing banks through direct equity stakes. Against the backdrop of these extremely challenging conditions, we were unable to reach all of our objectives in “Phase 3” of our management agenda. We were considerably less impacted than some of our peers by losses related to declines in the value of collateralized debt obligations and some other types of securities which were directly impacted by the credit crisis; however, our performance in 2008 was substantially and adversely affected by losses in certain sales and trading businesses, write-downs on leveraged loans and loan commitments, and lower revenues, notably from declining fee and commission income in our investment management activities.

We responded to these developments with a number of initiatives in 2008. We strengthened capital ratios and bolstered our funding base via capital market issuance and several other measures. We recalibrated our investment banking business model by reducing our exposure to, and activity in, certain businesses which have been directly impacted by the financial crisis, including global credit trading and some proprietary trading activities. We have also reduced legacy trading-book exposures in key areas such as leveraged finance and commercial real estate, and made substantial reductions in non-derivative trading assets. We continue to invest selectively in growth initiatives in our ‘stable’ businesses, balancing these investments with efficiency measures. At Group level, we are reducing complexity in our operations, standardizing processes across businesses and improving our functions through additional offshoring, which enables us to achieve cost savings by relocating certain activities to lower-cost locations. We have also initiated a review of our compensation procedures.

In Corporate Finance, we have built a powerful European franchise, and our principal strategic objective is to build a sustainable top-5 position globally, as measured by the industry fee pool. We aim to achieve this goal by building on our leading position in Europe; by growing market share, profitably, in the U.S. market; and by continuing to build our presence in important emerging growth markets. The financial crisis, and the impact of this crisis on the wider economy, caused a reduction in market activity in some corporate finance businesses, including highly-leveraged M&A and leveraged buyouts, initial public offerings, leveraged finance and commercial real estate, counterbalanced to some extent by demand for corporate restructuring and recapitalization, as the corporate client base reacts to a more difficult business environment. In response to these conditions, we are recalibrating our activities in Commercial Real Estate

and Leveraged Finance, aiming to capture opportunities in capital raising and restructuring advisory, and selectively investing in our advisory capability in particular industry sectors.

In Global Transaction Banking, we achieved significant growth in pre-tax profitability between 2004 and 2008. Our strategic aim is to leverage this momentum by expanding into new markets, attracting new clients in core markets, increasing the penetration of our existing client base, and further developing our product offering. Wherever GTB is present, we offer comprehensive services for domestic and cross-border trade, including structuring, financing and risk mitigation. We continue to develop flexible, innovative solutions in areas such as the credit card business and low-value cross-currency payments. For this purpose we aim to continue to invest in new technologies and improve our range of products. GTB aims both to grow organically and to take advantage of opportunities for attractive bolt-on acquisitions.

In Private Wealth Management, our aim is to build on the strong Deutsche Bank brand, continue to attract net new money inflows and profit from a “flight to quality”. Key measures to achieve profitable growth and net new money inflows are to selectively recruit top talent and to build out our discretionary portfolio management business along with our wealth advisory mandate business. In addition, we will respond to challenging conditions in financial markets by continuing to focus on front-office productivity and cost efficiency. Our strategy contemplates both organic growth and focused bolt-on acquisition opportunities.

In Private & Business Clients (PBC), our strategy is to build on our position in Germany and other core European markets, while also expanding our platform in growth markets in Central Eastern Europe and Asia. Our business model is based on the two core competencies of advisory banking and consumer banking. As the financial crisis developed through 2008, PBC experienced a decline in revenues from investment and brokerage products against a backdrop of falling equity markets, higher provisions for credit losses and margin compression in deposit and other basic banking products. In response, we will continue to implement our Growth and Efficiency Program, launched in 2008, which comprises efficiency measures in both middle and back offices, integration of credit operations, and selective investments in distribution. In advisory banking, we aim to position PBC for a recovery in investment products

via selective investments. In consumer banking, we are addressing margin compression via cost-efficiency measures. We also aim to fully leverage the growth of our customer and deposit base during 2008 and in prior years. In 2008 alone, PBC attracted 800,000 net new clients and € 19 billion in new customer deposits, which supports revenue generation in the future.

PBC’s commitment to growth in our home market – already underlined by our acquisitions of Berliner Bank and norisbank in 2006 and 2007, respectively – was further emphasized in February 2009 by our acquisition of a minority stake in Deutsche Postbank, Germany’s largest private retail bank, from Deutsche Post, Postbank’s parent. We also acquired mandatorily-exchangeable bonds issued by Deutsche Post which will be exchanged for an additional 27.4 % stake in Postbank in February 2012, as well as the exclusive option to acquire an additional 12.1 % stake between February 2012 and February 2013. If we acquired a majority stake in Postbank, the combined entity would enjoy a clear leadership position in retail banking in Germany (as measured by number of clients), and would serve nearly 30 million clients across Europe. In addition, we have reached an agreement with Postbank on comprehensive business cooperation regarding investment products, loans and partnerships in the areas of IT and sourcing. This agreement aims to deliver cost and revenue synergies for both parties.

Outside Germany, PBC aims to grow in “core” European markets: Italy, Spain, Portugal and Belgium. Our organic expansion in Poland continued in 2008, with growth in revenues and business volume, reflecting the expansion of our network in both advisory banking and consumer banking.

Capital management strategy. Focused management of capital has been a clearly-stated part of all phases of our management agenda. In the current difficult conditions, we view a strong capital base, liquidity and funding position as key assets. In 2008, we increased our Tier 1 capital over the course of the year from € 28.3 billion to € 31.1 billion. At the end of 2008, our Tier 1 capital ratio, as measured under Basel II, stood at 10.1 %, higher than at the beginning of the financial crisis. We also reduced our leverage ratio – the ratio of total assets to equity – during the second half of 2008. We remain committed to maintaining a Tier 1 capital ratio of approximately 10 % and to making further progress on bringing down our leverage ratio.

The Corporate and Investment Bank Group Division primarily serves large and medium-sized corporations, financial institutions and sovereign, public sector and multinational organizations. This group division generated 23 % of our net revenues in 2008, 62 % of our net revenues in 2007 and 66 % of our net revenues in 2006 (on the basis of our management reporting systems).

The Corporate and Investment Bank Group Division’s operations are predominantly located in the world’s primary financial centers, including London, New York, Frankfurt, Tokyo, Singapore and Hong Kong.

The businesses that comprise the Corporate and Investment Bank Group Division seek to reach and sustain a leading global position in corporate and institutional banking services, as measured by financial performance, market share, reputation and customer franchise, while making optimal usage of, and achieving optimal return on, our capital. The

division also continues to exploit business synergies with the Private Clients and Asset Management Group Division and the Corporate Investments Group Division. The Corporate and Investment Bank Group Division’s activities and strategy are primarily client-driven. Teams of specialists in each business division give clients access not only to their own products and services, but also to those of our other businesses.

At December 31, 2008, this group division included two corporate divisions, comprising the following business divisions:

Corporate Banking & Securities includes our debt and equity sales and trading businesses, which are housed in our Global Markets Business Division. Global Markets has eight primary business lines and three horizontally-integrated client-facing groups (Debt Capital Markets/Corporate Coverage, the Institutional Client Group, and Research), unified at a local level by strong regional management. Corporate Banking & Securities also includes the Corporate Finance Business Division, which focuses on providing advisory, equity and debt financing and structuring services to corporates and financial institutional clients and also includes our commercial real estate business. CIB’s client coverage functions are also a key part of the Corporate Finance Business Division.

Global Transaction Banking is closely aligned with Corporate Finance, but is a separately managed corporate division, providing trade finance, cash management and trust & securities services.

Corporate Banking & Securities and Global Transaction Banking are supported by the Loan Exposure Management Group (LEMG). LEMG has responsibility for a range of loan portfolios, actively managing the risk of these through the implementation of a hedging regime on a selective basis. LEMG manages the credit risk of loans and lending-related commitments related to both our investment-grade portfolio and our medium-sized German companies portfolio.

In July 2007, we announced the acquisition of Abbey Life Assurance Company Limited, a UK company that consists primarily of unit-linked life and pension policies and annuities. The acquisition was completed in October 2007.

In July 2006, we announced the signing of a definitive agreement to acquire MortgageIT Holdings, Inc., a residential mortgage real estate investment trust (REIT) based in the U.S. The acquisition was closed in January 2007.

In April 2006, we closed the purchase of a 30.99 % stake in Paternoster Limited, a UK life assurance company that is focused on bulk annuity purchases.

In February 2006 we closed the purchase of the remaining 60 % of United Financial Group (“UFG”), a Moscow investment bank, having purchased an initial 40 % stake in January 2004.

Within our Corporate Finance Business Division, our clients are offered mergers and acquisitions and general corporate finance advice, together with leveraged debt and equity origination services, and a variety of credit products and financial services. In addition, we provide a variety of financial services to the public sector. Corporate Finance also includes coverage functions related to corporate, financial and institutional clients globally.

Within Corporate Banking & Securities, we closed our Credit Proprietary trading business with remaining risk positions being transferred for ongoing management and liquidation by the relevant product trading management within our Sales and Trading businesses. In addition, we also further reduced our Equity Proprietary trading business over the course of 2008 with a particular reduction in both the number and size of our trading strategies during the fourth quarter in the light of the significant market disruptions and illiquidity following the failure of a large U.S. investment bank. We continue to be exposed to the risk of further losses for the remaining positions we hold, and have not managed to fully mitigate our risk. We will continue to conduct some proprietary trading, or trading on our own account, in addition to providing products and services to customers. Most of this trading is undertaken in the normal course of facilitating client business. For example, to facilitate customer flow business, traders will maintain long positions (accumulating securities) and short positions (selling securities we do not yet own) in a range of securities and derivative products, reducing the exposure to hedging transactions where appropriate. While these activities give rise to market and other risk, we do not view this as proprietary trading. However, we also use our capital to exploit market opportunities across all asset classes, and this is what we term proprietary trading.

All our trading activities, including proprietary trading, are covered by our risk management procedures and controls which are described in detail in “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Market Risk – Value-at-Risk Analysis.”

In October 2008, we closed the acquisition of the operating platform of Pago eTransaction GmbH into the Deutsche Card Services GmbH, based in Germany.

In July 2008, we agreed to purchase New HBU II N.V. and IFN Finance B.V., comprising parts of ABN Amro’s commercial banking activities in the Netherlands, from ABN Amro and Fortis Group. The transaction is subject to approval by the Dutch Central Bank. No date for closing has been scheduled.

In January 2008, we acquired HedgeWorks LLC, a hedge fund administrator based in the United States.

In July 2007, we closed the acquisition of the institutional cross-border custody business of Türkiye Garanti Bankasi A.S.

In May 2006, we completed the acquisition of the UK Depository and Clearing Centre business from JPMorgan Chase.

Cash Management caters to the needs of a diverse client base of corporates and financial institutions. With the provision of a comprehensive range of innovative and robust solutions, we handle the complexities of global and regional treasury functions including customer access, payment and collection services, liquidity management, information and account services and electronic bill presentation and payment solutions.

Trust & Securities Services provides a range of trust, payment, administration and related services for selected securities and financial transactions, as well as domestic securities custody in more than 28 markets.

Customers can be differentiated into two main groups: (i) financial institutions, such as banks, mutual funds and retirement funds, broker-dealers, fund managers and insurance companies, and (ii) multinational corporations and large local corporates.

The Private Clients and Asset Management Group Division primarily serves retail and small corporate customers as well as affluent and wealthy clients and provides asset management services to retail and institutional clients. This group division generated 67 % of our net revenues in 2008 and 33 % of our net revenues in both 2007 and 2006 (on the basis of our management reporting systems).

At December 31, 2008, this group division included the following corporate divisions:

The Asset and Wealth Management (AWM) Corporate Division consists of the Asset Management Business Division (AM) and the Private Wealth Management Business Division (PWM). AWM Corporate Division’s operations are located in Europe, Middle East, Africa, the Americas and Asia.

The AWM Corporate Division is among the leading asset managers in the world as measured by total invested assets. The division serves a range of retail, private and institutional clients.

The Private & Business Clients (PBC) Corporate Division serves retail and affluent clients as well as small corporate customers in our key markets of Germany, Italy and Spain, as well as in Belgium, Portugal and Poland. This is complemented by our established market presence in India and China.

Our PWM Business Division, which includes wealth management for high net worth clients and ultra high net worth individuals, their families and selected institutions, is organized into regional teams specialized in their respective regional markets.

Among significant transactions, in December 2008 RREEF Alternative Investments acquired a significant minority interest in Rosen Real Estate Securities LLC (RRES), a long/short real estate investment advisor.

In November 2008, we acquired a 40 % stake in UFG Invest, the Russian investment management company of UFG Asset Management, with an option to become a 100 % owner in the future. The business will be branded Deutsche UFG Capital Management.

In June 2008, AM sold its Italian life insurance company DWS Vita SpA to Zurich Financial Services Group. The transaction includes an exclusive 7-year agreement for the distribution of life insurance products via our financial advisors network in Italy, Finanza & Futuro Banca SpA.

Also in June 2008, AM sold DWS Investments Schweiz AG, consisting of the Swiss fund administration business, to State Street Bank.

On June 30, 2008, AM consolidated Maher Terminal LLC and Maher Terminals of Canada Corp., collectively and hereafter referred to as Maher Terminals, a privately held operator of port terminal facilities in North America acquired in July 2007. RREEF Infrastructure acquired all third party investors’ interests in the North Americas Infrastructure Fund, whose sole investment is Maher Terminals.

PWM increased its footprint in two large emerging markets with the opening of representative offices in St. Petersburg, Russia in April 2008 and Kolkata, India in February 2008.

Effective March 2008, AM completed the acquisition of a 60 % interest in Far Eastern Alliance Asset Management Co. Limited, a Taiwanese investment management firm.

In January 2008, AM increased its stake in Harvest Fund Management by 10.5 % to 30 %. Harvest is the third largest mutual fund manager in China, with a 6.0 % market share (source: Z-Ben Advisors, September 2008).

In July 2007, RREEF Private Equity acquired a significant minority interest in Aldus Equity, an alternative asset management and advisory boutique specializing in customized private equity investing for institutional and high net worth investors.

In July 2007, AM completed the sale of its local Italian mutual fund business and established long term distribution arrangements with our strategic partner, Anima S.G.R.p.A.

In June 2007, AM closed the sale of part of its Australian business to Aberdeen Asset Management. As a result of the repositioning, AM’s Australian operation migrated from being primarily a domestic manufacturing platform to become a distribution platform with specialist investment management capabilities.

In December 2006, PWM completed the acquisition of the UK wealth manager, Tilney Group Limited, strengthening our position in the second-largest wealth management market in Europe. The acquisition was an important element in our strategy to expand the onshore presence in dedicated core markets and to expand into various client segments, including the Independent Financial Advisors sector.

At the end of 2006, PWM entered into the important Chinese onshore market with the opening of an office in Shanghai to serve wealthy clients.

AM focuses primarily on active investing. Its products and services encompass a broad range of investment strategies and asset classes, and cover many industries and geographic regions. AM’s product offering includes mutual funds, structured products, commingled funds and separately managed accounts.

AM’s global retail brand is DWS. The product range of DWS covers all regions and sectors as well as many forms and styles of investment. DWS Investments is one of Europe’s leading retail asset managers and is the largest retail mutual fund management group in Germany (as measured by publicly available invested asset data, including Deutsche Bank fund products). DWS also operates in the U.S. and key markets in Asia-Pacific.

In the Alternative Investments business line, real estate, infrastructure and private equity funds of funds investment management products and services are offered under the RREEF brand. RREEF is one of the world’s largest real estate investment organizations (as reflected by publicly available invested asset data).

The Insurance platform provides clients with customized investment programs designed to address an insurer’s specific needs. It offers investment solutions across multiple asset classes, including traditional fixed income, equities, asset allocation services, and alternative asset classes such as hedge funds and real estate.

Institutional products and services are marketed under the DB Advisors brand. The Institutional business offers its clients access to AM’s full range of products and services, including both traditional and alternative investments. The single-manager/multi-manager hedge fund business operates within DB Advisors.

PWM provides a fully-integrated service offering for its clients based on dynamic strategic asset allocation including individual risk-management according to the clients’ risk/return profile.

PWM offers discretionary portfolio management, in which our portfolio managers have discretion to manage clients’ investments within the clients’ general guidelines. The portfolio managers invest client funds in various investment products, such as stocks, bonds, mutual funds, hedge funds and other alternative investments including derivatives, where appropriate. In addition, we offer wealth advisory services for actively-involved clients with customized investment advice via a unique combination of risk management and portfolio optimization.

PWM also provides brokerage services in which our relationship managers and client advisors provide investment advice to clients but we do not exercise investment discretion. An integrated approach to wealth management is the core of our advisory services. Our investment advice covers stocks, bonds, mutual funds, hedge funds and other alternative investments, including derivatives where appropriate. The relationship managers also advise their clients on the products of third parties in all asset classes. Furthermore, our solutions include wealth preservation strategies and succession planning, philanthropic advisory services, art advisory services, family office solutions and services for financial intermediaries.

PWM continued to expand its offering of alternative investments in 2008, especially with respect to innovative solutions within the private equity and hedge funds asset classes. Going forward, real estate offerings will be broadened. PWM generates foreign exchange products, as well as structured investment products in cooperation with the Global Markets Business Division.

PWM’s loan/deposit products include traditional and specialized deposit products (including current accounts, time deposits and savings accounts) and both standardized and specialized secured and unsecured lending. It also provides payment, account & remaining financial services, processing and disposition of cash and non-cash payments in local currency, international payments, letters of credit, guarantees, and other cash transactions.

AWM generates revenues from other products, including direct real estate investments included in our alternative investments business, rental revenues and gains and losses earned on real estate deal flows and revenues that are not part of our core business, specifically, the gain on sale of businesses.

Products for institutional clients are distributed through the substantial sales and marketing network within AM and through third-party distribution channels. They are also distributed through our other businesses, notably the Corporate and Investment Bank Group Division.

Alternative investment products are distributed through our sales and marketing network within Asset and Wealth Management and through third-party distribution channels, predominantly to high net worth clients, institutions and retail customers worldwide.

Insurance asset management solutions are marketed and distributed by AM’s specialist insurance unit, which provides advisory and portfolio management services for insurers and re-insurers globally.

PWM pursues an integrated business model to cater to the complex needs of high net worth clients and ultra high net worth individuals, their families and selected institutions. The relationship managers work within target customer groups, assisting clients in developing individual investment strategies and creating enduring relationships with our clients.

In our PWM onshore business, wealthy customers are served via our relationship manager network in the respective countries. Where PBC has a presence, our customers also have access to our retail branch network and other general banking products. The offshore business encompasses all of our clients who establish accounts outside their countries of residence. These customers are able to use our offshore services to access financial products that may not be available in their countries of residence.

In addition, the client advisors of the U.S. Private Client Services business focus on traditional brokerage offering and asset allocation, including a wide range of third party products.

A major competitive advantage for PWM is the fact that it is a private bank within Deutsche Bank, with its leading investment banking, corporate banking and asset management activities. In order to make optimal use of the potential offered by cross-divisional cooperation, since 2007 PWM has established Key Client Teams in order to serve clients with very complex assets and highly sophisticated needs. PWM offers these clients the opportunity to make direct additional purchases, coinvest in its private equity activities or obtain direct access to its trading units. Large entrepreneurial families are increasingly expecting wealth management and investment banking operations to work hand in hand. Cooperation with the corporate banking division also helps to identify potential PWM clients at a very early stage.

In 2008, we continued our balanced and profitable growth in selected European and Asian markets, supported by a comprehensive global growth and efficiency program including the opening of new branches, hiring of highly qualified sales staff and a plan to increase efficiency in our middle and back offices.

In the German core market, we were able to expand our already strong position by attracting new customers and business volume. In February 2009, after the acquisitions of Berliner Bank and norisbank in 2006 and 2007, we acquired a stake of 22.9 % in Germany’s largest private retail bank, Deutsche Postbank, and bonds of Postbank’s parent that are mandatorily exchangeable in February 2012 into an additional 27.4 % of Postbank’s shares, for a total consideration of € 3.8 billion. We also hold an exclusive option, exercisable between February 2012 and February 2013, to potentially increase our stake by an additional 12.1 %. We also agreed with Postbank on comprehensive business cooperation regarding investment products, loans and partnerships in the areas of IT and sourcing.

In Italy, we continued to open new branches and increased our client base substantially compared to last year. We also expanded our business in Spain, Belgium and, especially, in Portugal, where our network was further strengthened with the opening of new branches.

We also continued to invest in promising countries and business lines. After entering the Polish consumer finance market in February 2007, we have opened 120 “db-kredyt”-branded loan shops by the end of 2008. PBC’s entry into the consumer finance business is a meaningful addition to our Polish branch business and follows the PBC business model, which is successfully in use in Germany, Italy and Spain.

The development of PBC in Asia has also maintained momentum. PBC further invested in its strategic partnership with Hua Xia Bank in China and increased its shareholding from 9.9 % to 13.7 % by investing € 423 million. This investment was part of Hua Xia Bank’s private placement to its three biggest shareholders and was completed in October 2008. As part of the strategic partnership, we and Hua Xia Bank jointly have developed and distributed credit

cards in China since June 2007. Moreover PBC now has three branches in China. In India, PBC expanded its presence through the addition of three branches, increasing the number of branches to thirteen. Our 10 % stake in Habubank in Vietnam, including a business cooperation arrangement, further demonstrates PBC’s confidence in the growth potential of Asia.

In offering portfolio/fund management and brokerage services, we provide investment advice, brokerage services, discretionary portfolio management and securities custody services to our clients.

We provide loan and deposit services, with the most significant being property financing (including mortgages) and consumer and commercial loans, as well as traditional current accounts, savings accounts and time deposits. The property finance business, which includes mortgages and construction finance, is our most significant lending business. We provide property finance loans primarily for private purposes, such as home financing. Most of our mortgages have an original fixed interest period of five or ten years. Loan and deposit products also include the home loan and savings business in Germany, offered through our subsidiary Deutsche Bank Bauspar AG.

PBC’s payments, account & remaining financial services consist of administration of current accounts in local and foreign currency as well as settlement of domestic and cross-border payments on these accounts. They also include the purchase and sale of payment media and the sale of insurance products, home loan and savings contracts and credit cards. In 2008, we strengthened our focus on gathering deposits, resulting in a significant increase in assets under management. In Italy, PBC issues credit cards under the BankAmericard brand.

Other products include primarily activities related to asset and liability management.

In addition to our branch network and financial agents, we enter into country-specific distribution arrangements. In Germany, for example, we have a cooperation agreement with Deutsche Vermögensberatung AG (referred to as DVAG) whereby we distribute our mutual funds and other banking products through DVAG’s independent distribution network. We also work together with ADAC (Germany’s and Europe’s largest automobile club with more than 15 million members), with whom we have an exclusive sales cooperation agreement in place. In order to complement our product range, we have signed distribution agreements, in which PBC distributes the products of reputable product suppliers. These include an agreement with Zurich Financial Services for insurance products, and a strategic alliance with nine fund companies for the distribution of their investment products.

The Corporate Investments Group Division manages a portfolio containing certain alternative assets and other debt and equity positions. The portfolio includes our industrial holdings, certain private equity and venture capital investments, private equity fund investments, certain corporate real estate investments, our holding in Atradius N.V., certain credit exposures and certain other non-strategic investments. Historically, its mission has been to provide financial, strategic, operational and managerial capital to enhance the values of the portfolio companies in which the group division has invested.

We believe that the group division enhances the bank’s portfolio management and risk management capability.

Corporate Investments holds interests in a number of manufacturing and financial services corporations (our “Industrial Holdings”). The largest of these Industrial Holdings by market value at December 31, 2008 were interests of 2.7 % in Daimler AG and 2.4 % in Linde AG. Currently, over 91 % of our Industrial Holdings are in German corporations.

In 2008, we reduced our investment in Daimler AG from 4.4 % to 2.7 % and our investment in Linde AG from 5.2 % to 2.4 %. We sold our remaining stake in Allianz SE and our investment in Arcor AG & Co. KG.

In November 2008, Corporate Investments participated in a liquidity facility for Hypo Real Estate Group acquiring € 12.0 billion of collateralized notes.

In July 2008, Corporate Investments acquired a 7.6 % stake in Germany1 Acquisition Ltd., a vehicle established for the purpose of acquiring ownership in companies in Germany, Austria and Switzerland.

In February 2007, we signed a contract to acquire a 10 % stake in Dedalus GmbH & Co. KGaA, economically representing a 0.75 % participation in European Aeronautic Defence and Space Company EADS N.V. The transaction closed in March 2007.

In 2007, we reduced our investment in Linde AG from 7.8 % to 5.2 % and our investment in Allianz SE from 2.2 % to 1.7 %.

In 2006, we reduced our investment in Linde AG from 10.0 % to 7.8 %, and we sold our stake in WMF and our remaining stake in DEUTZ AG.

Rather than engaging in proprietary trading, which involves buying and selling securities in the short term, Corporate Investments usually holds our investments in listed securities for several years. The majority of the larger shareholdings in listed companies have been in the portfolio for more than 20 years.

The total market value of these listed holdings was € 1.1 billion as of December 31, 2008. See “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Market Risk – Assessment of Market Risk in Our Nontrading Portfolios” for further information.

Corporate Investments also holds certain private equity type investments that have been transacted both on behalf of clients and for our own account, directly and through private equity funds, including venture capital opportunities and leveraged buy-out funds. In 2008, we continued to reduce our private equity on-balance sheet exposure in CI, with holdings declining by approximately€ 200 million due to various transactions.

In 2007, we sold a portfolio of Latin America direct Private Equity investments and our investment in Odontoprev.

In 2006, we sold the remaining significant assets of the Morgan Grenfell Private Equity funds.

The Corporate Investments’ portfolio also covers certain real estate holdings, many of which we occupy.

In 2007, we sold and leased back the bank-occupied building 60 Wall Street in New York City. In addition, we disposed of our interest in the building at 31 West 52^nd Street in New York City.

In 2007, we reduced our stake in HCL Technologies Limited from 2.4 % to 1.2 % in a partial sale. In 2006, we had reduced our stake in this company from 3.6 % to 2.4 %.

In 2006, we sold our remaining 27.99 % stake in EUROHYPO AG to Commerzbank.

The business combination of Atradius N.V., in which we held a 12.73 % stake at the end of 2007, and Crédito y Caución S.A. was signed in April 2007 and closed in January 2008. The completion of this transaction resulted in a reduction of our stake to 9.1 %.

In May 2006, we closed the sale of 21.16 % of Atradius N.V. to Crédito y Caución and Seguros Catalán Occidente, reducing our stake to 12.73 %.

In December 2006, we sold our 6.75 % stake in Germanischer Lloyd AG to Günter Herz.

The infrastructure group consists of our centralized business support areas and our Corporate Center. These support areas principally comprise control and service functions supporting the CIB and PCAM businesses. The Corporate Center comprises those functions that directly support the Management Board in its management of the Group.

This infrastructure group is organized to reflect the Management Board members’ areas of responsibilities into COO functions (e.g., information technology, global sourcing and human resources), CFO functions (e.g., finance, operations, tax, audit and insurance), CRO functions (e.g., risk management, treasury, legal and compliance), and CEO functions (e.g., corporate development and economics).

The Regional Management function covers regional responsibilities worldwide. Country heads and management committees are established in the regions to enhance client-focused product coordination across businesses and to ensure compliance with regulatory and control requirements, both from a local and Group perspective. In addition, in a global context, the Regional Management function represents regional interests at the Group level and enhances cross-regional coordination.

All expenses and revenues incurred within the Infrastructure and Regional Management areas are fully allocated to the Group Divisions CIB, PCAM and CI.

In Germany, our competitive environment is influenced by a division of the banking sector into three pillars: private sector banks such as Deutsche Bank, public sector banks (state banks, or Landesbanken, and savings banks) and cooperative banks. A number of foreign banks also operate in Germany. The public sector banks and the cooperative banks often collaborate closely with other banks within their respective pillar and thus operate as networks for most products. The different legal form of private sector banks, public sector banks and mutual banks impedes cross-pillar consolidation, and consequently consolidation has taken place within, rather than across, the three pillars described above. Public sector banks are only permitted to be owned by municipalities and other public bodies and are able to rely on unlimited state guarantees in various forms. Following an agreement between the European Commission and the German government, these arrangements have generally been discontinued for Landesbanken after July 18, 2005, subject to transition rules for liabilities existing on that date. For the savings banks which are mainly owned by municipalities and which are mainly engaged in retail business, these arrangements remain in force.

In Europe, consolidation in the banking industry has mainly taken place within individual countries. In September 2007, the European Union amended the rules on the review of bank mergers and acquisitions under bank regulatory

laws, by narrowing the focus of and imposing a strict time frame on such reviews, with the aim to facilitate cross-border business combinations within Europe. These new rules must be transposed into national law by March 21, 2009. In addition, the European Commission is considering further measures to enhance competition among banks within the European Union and to improve the competitiveness of European banks globally. We monitor these discussions closely and analyze carefully any potential business opportunities or challenges that might emerge as a result.

Our performance is largely dependent on the talents and efforts of highly-skilled individuals. Competition for qualified employees in the banking, securities and financial services industries is intense. We also compete for employees with companies outside of the financial services industry. Our continued ability to compete effectively in our businesses depends on our ability to attract new employees as necessary and to retain and motivate our existing employees. Pressure to redesign the banking industry’s compensation models, and to restrain the absolute level of senior executive pay, may have a significant impact on our ability to attract new recruits and retain talented staff.

Our reputation for financial strength and integrity is vital to our ability to attract and maintain customers. To keep our well-established reputation we have to promote and market our brand adequately and may decide to abstain from certain transactions or activities, even where they would be financially profitable. The loss of business that would result from damage to our reputation could affect our results of operations and financial condition.

German financial market through the expropriation (with compensation) of its shareholders or the holders of financial instruments qualifying as own funds (Eigenmittel) of the financial institution if such expropriation is necessary to safeguard the stability of the financial market, and no other less restrictive legally and economically reasonable and equally effective means are available in order to achieve this goal.

The conditions under which banks may take advantage of such measures vary from country to country and in some cases such measures are only available to the parent bank of a group. Generally, participation by a bank is voluntary but in some cases has been politically encouraged. It may become mandatory if certain thresholds, such as predefined capital ratios, are no longer met. The eligibility to benefit from such measures is in some instances tied to certain commitments of the participating bank, such as lending to certain types of borrowers (for example, small and medium sized companies), adjustments to the bank’s business strategy, suspension of dividends and other profit distributions and limitations on the compensation of its executives.

Certain of the above-mentioned government intervention programs involve significant sums of money, but differences exist between the various national programs. They have significant effects both on banks that participate in them and on banks that do not participate. These effects relate, in particular, to access to funding and capital; the degree of strategic autonomy retained by participating financial institutions; executive compensation; and the recruiting and retention of talent. Banks which have not received direct government support, currently including Deutsche Bank, may be in a position to derive competitive advantage from preservation of strategic autonomy, and greater autonomy of lending policy or executive compensation policy. On the other hand, banks which have received direct government support may be in a position to derive competitive advantage from additional access to, or lower cost of, capital and funding. Non-participating banks also may suffer a decline in depositor or investor confidence thus risking a loss of liquidity.

Our private wealth management business faces fierce competition from the private banking and wealth management units of other global and regional financial service companies and from investment banks.

Our main competitors in the asset management business are asset management subsidiaries of major financial services companies and large stand-alone retail and institutional asset managers. Most of our main competitors are headquartered in Europe or the United States, though many operate globally.

Our operations throughout the world are regulated and supervised by the relevant authorities in each of the jurisdictions where we conduct business. Such regulation relates to licensing, capital adequacy, liquidity, risk concentration, conduct of business as well as organizational and reporting requirements. It affects the type and scope of the business we conduct in a country and how we structure specific operations. Currently and in reaction to the crisis in the financial markets, significant changes in the regulatory environment are under preliminary consideration in the jurisdictions in which we operate. While the extent and nature of these changes cannot be predicted now, they may result in an increase in regulatory oversight in ways that may have a material effect on our businesses and the services and products that we will be able to offer.

In the following sections, we present a description of the supervision of our business by the authorities in Germany, our home market, the European Economic Area, and in the U.S., which we view as the most significant for us. Beyond these regions, local country regulations generally have limited impact on our operations that are unconnected with these countries.

We are subject to comprehensive regulation and supervision by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, referred to as BaFin) and the Deutsche Bundesbank (referred to as Bundesbank), the German central bank.

The BaFin is a federal regulatory authority and reports to the German Federal Ministry of Finance. It supervises the operations of German banks to ensure that they are in compliance with the Banking Act and other applicable German laws and regulations. It places particular emphasis on compliance with capital adequacy and liquidity requirements, large exposure limits and restrictions on certain activities imposed by the Banking Act and related regulations.

The Bundesbank supports the BaFin and closely cooperates with it. The cooperation includes the ongoing review and evaluation of reports submitted by us and of our audit reports as well as assessments of the adequacy of our capital base and risk management systems. In this supervisory role the Bundesbank follows the guidelines issued by the BaFin acting in conjunction with the Bundesbank. The Bundesbank is also responsible for the collection and analysis of statistics and reports from German banks.

Nevertheless, these two institutions have distinct functions. While the BaFin has the sole authority to issue administrative orders (Verwaltungsakte) binding on German banks, it is required to consult with the Bundesbank before it issues general regulations (Verordnungen). In addition, the BaFin must obtain the Bundesbank’s consent before it issues any

general regulations or guidelines that would affect the Bundesbank’s operations, such as rules on solvency, liquidity or large exposures of banks.

Generally, supervision by the BaFin and the Bundesbank applies on an unconsolidated basis (company only) and on a consolidated basis (the company and the entities consolidated with it for German regulatory purposes). Parent banks of a consolidated group may waive the application of capital adequacy requirements, large exposure limits and certain organizational requirements on an unconsolidated basis if certain conditions are met. We meet these conditions and have waived application of these rules since January 1, 2007.

We are materially in compliance with the German laws that are applicable to our business.

The Banking Act and the rules and regulations adopted thereunder implement certain recommendations of the Basel Committee on Banking Supervision (which we refer to as the Basel Committee), the secretariat of which is provided by the Bank for International Settlements, as well as certain European Union directives relating to banks. These directives address issues such as accounting standards, regulatory capital, risk-based capital adequacy, consolidated supervision and the monitoring and control of large exposures.

International capital adequacy standards, recommended by the Basel Committee in June 2004 and widely referred to as the Basel II capital framework, align capital requirements closely with the underlying risks. In 2006, the European Union enacted the Capital Requirements Directive, which adopts the Basel II capital framework. Germany transposed the Capital Requirements Directive effective as of January 1, 2007, subject to certain transition periods. Following the application of transitional rules in 2007 and approval by the BaFin of our internal rating models for measuring credit risk and operational risk, we have applied the revised capital framework on the basis of our approved internal models since January 1, 2008. As a result of the increased risk sensitivity of the Basel II framework, capital requirements will be more cyclical and may also increase compared to levels before application of the Basel II framework in times of economic downturn.

The Securities Trading Act also contains rules of conduct. These rules of conduct apply to all businesses that provide securities services. Securities services include, in particular, the purchase and sale of securities or derivatives for

others and the intermediation of transactions in securities or derivatives. The BaFin has broad powers to investigate businesses providing securities services to monitor their compliance with the rules of conduct and the reporting requirements. In addition, the Securities Trading Act requires an independent auditor to perform an annual audit of the securities services provider’s compliance with its obligations under the Securities Trading Act. The Directive on Markets in Financial Instruments of 2004 (commonly referred to as the MiFID) aims to further integrate the securities markets and improve competition within the European Union and the European Economic Area by harmonizing rules of conduct. It was transposed into German law as of November 1, 2007.

Under the Solvency Regulation, at the close of each business day, the sum of the total amount calculated for counterparty risks and the total amount calculated for operational risks of a bank must not exceed its regulatory banking capital, subject to certain modifications described below.

Regulatory banking capital is comprised of Tier 1 and Tier 2 capital. Tier 1 capital mainly consists of paid-in subscribed capital (excluding capital with respect to preferred shares with cumulative dividend rights), capital reserves and other retained earnings and certain hybrid capital instruments. Own shares held by the bank, losses and certain intangible assets are deducted from the amount of Tier 1 capital. Tier 2 capital is limited to the amount of Tier 1 capital and mainly consists of paid-in subscribed capital with respect to preferred shares (Vorzugsaktien) with cumulative dividend rights, profit-participation rights (Genussrechte), subordinated debt with an original term of five years or more (up to 50 % of the amount of Tier 1 capital) and certain unrealized reserves of real estate and securities.

same deduction applies for capital components that meet requirements similar to the foregoing under German insurance law and that a bank has provided to an insurance, reinsurance or insurance holding company, if the bank holds a direct or indirect participation in such other company, or holds (directly or indirectly) 20 % or more of the capital or voting rights of such other company. No such deduction is required if the bank and the relevant company form part of a financial conglomerate (Finanzkonglomerat).

For capital adequacy purposes, regulatory banking capital is subject to certain modifications (“modified available regulatory banking capital”). In particular, the following amounts are deducted in equal portions from the bank’s Tier 1 and Tier 2 capital:

Under the Solvency Regulation, at the close of each business day, a bank’s total net risk-weighted market price risk positions must not exceed the sum of:

Tier 3 capital consists of (i) net profits which would result from closing all trading book positions at the end of a given day minus all foreseeable expenses and distributions and minus losses resulting from the banking book which would likely arise upon a liquidation of the bank, unless such losses must be deducted from the bank’s regulatory banking capital pursuant to an order of the BaFin, (ii) subordinated debt with a minimum term of two years and the right of the bank to suspend payment of interest and principal if such payment were to result in a breach of the own funds requirements applicable to the bank, and (iii) positions not included in the bank’s Tier 2 capital because the amount of Tier 2 capital would otherwise exceed the bank’s Tier 1 capital, or the total amount of long-term subordinated debt would otherwise exceed 50 % of the bank’s Tier 1 capital.

These items generally qualify as Tier 3 capital only up to an amount which, together with the Tier 2 capital not required to cover counterparty risks and operational risks, does not exceed 250 % of the core capital not required to cover risks arising from the banking book and operational risks.

An exposure incurred in the banking book that equals or exceeds 10 % of the bank’s regulatory banking capital constitutes a banking book large exposure. A banking book and trading book exposure taken together that equals or exceeds 10 % of the bank’s own funds constitutes an aggregate book large exposure. No large exposure may exceed 25 % of the bank’s regulatory banking capital or own funds, as applicable. Where the exposure is to affiliates of the bank that are not consolidated for regulatory purposes the limit is 20 %.

In addition, the total of all banking book large exposures must not exceed eight times the bank’s regulatory banking capital and the total of all aggregate book large exposures must not exceed eight times the bank’s own funds.

A bank may exceed these ceilings only with the approval of the BaFin and subject to increased capital requirements for the amount of the large exposure that exceeds the ceiling.

Furthermore, total trading book exposures to a single customer (and customers affiliated with it) must not exceed five times the bank’s own funds that are not required to meet the capital adequacy requirements with respect to the banking book. Total trading book exposures to a single customer (and customers affiliated with it) in excess of the aforementioned limit are not permitted.

Financial groups which offer services and products in various financial sectors (banking and securities business, insurance and reinsurance business) are subject to supplementary supervision as a financial conglomerate (Finanzkonglomerat) once certain thresholds have been exceeded. The supervision on the level of the conglomerate is exercised by the BaFin. It comprises requirements regarding own funds, risk concentration, risk management, transactions within the group and organizational matters. Following the acquisition of Abbey Life Assurance Company Limited, the amount of assets held by us and attributed to the insurance sector exceeds € 6 billion. In November 2007, the BaFin therefore determined that we are a financial conglomerate. The main effect of this determination is that we also must

report to the BaFin and the Bundesbank capital adequacy requirements and risk concentrations also on a conglomerate level. In addition, we are required to report significant conglomerate internal transactions. After determination of the applicable calculation method by the BaFin, the first capital adequacy calculation for the financial conglomerate was performed in 2008.

Since we have waived the application of capital adequacy requirements and large exposure limits on an unconsolidated basis beginning January 1, 2007, our compliance with such requirements is determined solely on a consolidated basis pursuant to consolidated financial statements prepared in accordance with IFRS.

Under German law, we are required to be audited annually by a certified public accountant (Wirtschaftsprüfer). The accountant is appointed at the shareholders’ meeting. However, the supervisory board mandates the accountant and supervises the audit. The BaFin must be informed of and may reject the accountant’s appointment.

The Banking Act requires that a bank’s auditor informs the BaFin of any facts that come to the accountant’s attention which would lead it to refuse to certify or to limit its certification of the bank’s annual financial statements or which would adversely affect the financial position of the bank. The auditor is also required to notify the BaFin in the event of a material breach by management of the articles of association or of any other applicable law.

The auditor is required to prepare a detailed and comprehensive annual audit report (Prüfungsbericht) for submission to the bank’s supervisory board, the BaFin and the Bundesbank.

Banks are also required to have a written plan of organization that sets forth the responsibilities of the employees and operating procedures. The bank’s internal audit department is required to monitor compliance with the plan.

The BaFin may also conduct investigations at a foreign entity that is part of a bank’s group for regulatory purposes. Investigations of foreign entities are limited to the extent that the law of the jurisdiction where the entity is located restricts such investigations.

The BaFin may attend meetings of a bank’s supervisory board and shareholders’ meetings. It also has the authority to require that such meetings be convened.

If a bank is in danger of defaulting on its obligations to creditors, the BaFin may take emergency measures to avert default. These emergency measures may include:

If these measures are inadequate, the BaFin may revoke the bank’s license and, if appropriate, order the closure of the bank.

To avoid the insolvency of a bank, the BaFin may prohibit payments and disposals of assets, close the bank’s customer services, and prohibit the bank from accepting any payments other than payments of debts owed to the bank. Only the BaFin may file an application for the initiation of insolvency proceedings against a bank.

Violations of the Banking Act may result in criminal and administrative penalties.

In response to the current crisis on the financial markets, proposals are discussed to enhance the BaFin’s enforcement powers. One proposal is to empower the BaFin to instruct a bank that is in danger of defaulting on its obligations to increase its capital by issuing common stock to the newly created Financial-Market Stabilization Fund (Sonderfonds Finanzmarktstabilisierung) notwithstanding any shareholder resolutions to the contrary.

The investor compensation institutions collect and administer the contributions of the member banks and settle the compensation claims of investors in accordance with the Deposit Guarantee Act. In the event a bank’s financial condition leaves the bank permanently unable to repay deposits or perform its obligations under securities transactions, and the BaFin has published its determination to that effect, the Deposit Guarantee Act authorizes creditors of the bank to make claims against the bank’s investor compensation institution. Certain entities, such as banks, financial institutions (Finanzinstitute), insurance companies, investment funds, the Federal Republic of Germany, the German federal states, municipalities and medium-sized and large corporations, are not eligible to make such claims.

Investor compensation institutions are liable only for obligations resulting from deposits and securities transactions that are denominated in euro or the currency of a contracting state to the Agreement on the European Economic Area. Investor compensation institutions are not liable for obligations represented by instruments in bearer form or negotiable by endorsement. Investor compensation institutions’ liabilities for failed banks are limited to 90 % of the aggregate value of each creditor’s deposits with the bank and to 90 % of the aggregate value of obligations arising from securities transactions. The maximum liability of an investor compensation institution to any one creditor is limited to € 20,000. In February 2009, the Federal government introduced a bill to amend the Deposit Guarantee Act by raising the limit to € 50,000 from June 30, 2009 onwards and to € 100,000 from December 31, 2010 onwards and to provide for 100 % coverage within these limits. This amendment will transpose a European directive expected to be passed this spring.

Banks are obliged to make annual contributions to the investor compensation institution in which they participate. An investor compensation institution must levy special contributions on the banks participating therein or take up loans, whenever it is necessary to settle compensation claims by such institution in accordance with the Deposit Guarantee

Act. There is no absolute limit on such special contributions. The investor compensation institution may exempt a bank from special contributions in whole or in part if full payments of such contributions are likely to render such bank unable to repay its deposits or perform its obligations under securities transactions. The amount of such contribution will then be added proportionately to the special contributions levied on the other participating banks.

Banks that participate in the Deposit Protection Fund make regular contributions to the fund based on their liabilities to customers, and may be required to make special contributions up to the amount of their regular contributions to the extent requested by the Deposit Protection Fund to enable it to fulfill its purpose. If one or more German banks are in financial difficulties, we may therefore participate in their restructuring even where we have no business relationship or strategic interest, in order to avoid making special contributions to the Deposit Protection Fund in case of an insolvency of such bank or banks, or we may be required to make such special contributions.

DBTCA is a New York state-chartered bank and a member of the Federal Reserve System, and its deposits are insured by the Federal Deposit Insurance Corporation (the FDIC). As such, DBTCA is subject to regulation, supervision and examination by the Federal Reserve System and the New York State Banking Department and to relevant FDIC regulation. Deutsche Bank Trust Company Delaware is a Delaware state-chartered bank which is not a member of the Federal Reserve System. As a state non-member bank the deposits of which are insured by the FDIC, it is subject to regulation, supervision and examination by the FDIC and the Office of the State Bank Commissioner of Delaware. Our New York branch is supervised by the Federal Reserve System and the New York State Banking Department, but its deposits are not insured (or eligible to be insured) by the FDIC. Our federally-chartered nondeposit trust companies are subject to regulation, supervision and examination by the Office of the Comptroller of the Currency. Certain of our subsidiaries are also subject to regulation, supervision and examination by state banking regulators of certain states in which we conduct banking operations, including New Jersey.

We are required to obtain the prior approval of the Federal Reserve Board before directly or indirectly acquiring the ownership or control of more than 5 % of any class of voting shares of U.S. banks, certain other depository institutions, and bank or depository institution holding companies. Under the Bank Holding Company Act and Federal Reserve Board regulations, our U.S. banking operations (including our New York branch and DBTCA) are also restricted from engaging in certain “tying” arrangements involving products and services.

Our two U.S. insured bank subsidiaries are subject to requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be made and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of these subsidiaries.

Under U.S. law, our activities and those of our subsidiaries are generally limited to the business of banking, managing or controlling banks, and other activities that the Federal Reserve Board has determined to be a proper incident to banking or managing or controlling banks. Following the Gramm-Leach Bliley Act of 1999 (the GLB Act), however, qualifying bank holding companies and foreign banks that become financial holding companies may engage in a substantially broader range of nonbanking activities in the United States, including securities, merchant banking, insurance and other financial activities, in many cases, without prior notice to, or approval from, the Federal Reserve Board or any other U.S. banking regulator. We became a financial holding company in March 2000 and, so long as we maintain that designation, we are able to engage in this broader range of activities. As a non-U.S. bank, we are generally authorized under the Bank Holding Company Act and Federal Reserve Board regulations to acquire a non-U.S. company engaged in nonfinancial activities provided that the company’s U.S. operations do not exceed thresholds specified in Federal Reserve Board regulations and certain other conditions are met. In addition, under the merchant banking authority granted by the GLB Act and Federal Reserve Board regulations, we and our nonbank subsidiaries may, as a general matter, invest in companies that engage in activities that are not financial in nature, as long as we limit the duration of the investment to ten (and, in certain cases, fifteen) years, do not routinely manage any such portfolio company and do not engage in any cross-marketing with our U.S. branch or bank subsidiaries.

Our status as a financial holding company, and resulting ability to engage in the broader range of activities permitted under the GLB Act, are dependent on Deutsche Bank AG and our two insured U.S. depository institutions remaining “well capitalized” and “well managed” (as defined by Federal Reserve Board regulations) and upon our insured U.S. depository institutions meeting certain requirements under the Community Reinvestment Act. In order to meet the “well capitalized” test, we and our U.S. depository institutions are required to maintain capital ratios comparable to those of a well-capitalized U.S. bank, including a Tier 1 risk-based capital ratio of at least 6 % and a total risk-based capital ratio of at least 10 %. If we or one of our U.S. depository institutions cease to be well-capitalized or well-managed, or otherwise fail to meet any of the requirements for financial holding company status, then, depending on which requirement we fail to meet, we may be required to discontinue activities and investments authorized under the GLB Act or terminate our U.S. banking operations.

Pursuant to Supervision and Regulation Letter No. 01-01 (SR 01-01), issued in 2001 by the Federal Reserve Board’s Division of Banking Supervision and Regulation, Taunus Corporation, as the top-tier U.S. bank holding company subsidiary of Deutsche Bank AG, is not required to comply with capital adequacy guidelines generally made applicable to U.S. banking organizations by the Federal Reserve Board, as long as Deutsche Bank AG remains a financial holding company that the Federal Reserve Board continues to regard as well capitalized and well managed. Because Taunus Corporation is able to fund its subsidiaries via its parent, it does not maintain stand-alone capital. Therefore, should Deutsche Bank AG cease to be well capitalized or well managed, and should Taunus Corporation thereby (or otherwise because of a change in Federal Reserve Board policy) become subject to U.S. capital guidelines, Deutsche Bank AG would have to restructure its U.S. activities. The extent of such restructuring, and the adverse affects that it would have on the financial condition and operations of Deutsche Bank, cannot be estimated at this time.

The GLB Act and Federal Reserve Board regulations contain other provisions that could affect our operations and the operations of all financial institutions. One of these provisions requires us to disclose our privacy policy to consumers and to offer them the ability to opt out of having their non-public information disclosed to third parties. In addition, individual states are permitted to adopt more extensive privacy protections through legislation or regulation.

The so-called “push-out” provisions of the GLB Act also narrow the exclusion of banks (including U.S. branches of foreign banks, such as our New York branch) from the definitions of “broker” and “dealer” under the Securities Exchange Act of 1934. The rules narrowing the exclusion of banks from the definition of “dealer” became effective on September 30, 2003 and those narrowing the exclusion of banks from the definition of “broker” became effective for us on January 1, 2009. As a result of these rules, certain securities activities conducted by DBTCA and our New York branch have been restructured or transferred to one or more U.S. registered broker-dealer subsidiaries.

In addition, under U.S. federal banking laws, state-chartered banks (such as DBTCA) and state-licensed branches and agencies of foreign banks (such as our New York branch) may not, as a general matter, engage as a principal in any type of activity not permissible for their federally chartered or licensed counterparts, unless (i) in the case of state-chartered banks (such as DBTCA), the FDIC determines that the additional activity would pose no significant risk to the FDIC’s Deposit Insurance Fund and is consistent with sound banking practices, and (ii) in the case of state licensed branches and agencies (such as our New York branch), the Federal Reserve Board determines that the additional activity is consistent with sound banking practices. United States federal banking laws also subject state branches and agencies to the same single-borrower lending limits that apply to federal branches or agencies, which are substantially similar to the lending limits applicable to national banks. These single-borrower lending limits are

based on the worldwide capital of the entire foreign bank (i.e., Deutsche Bank AG in the case of our New York branch).

Under the International Banking Act of 1978, as amended, the Federal Reserve Board may terminate the activities of any U.S. office of a foreign bank if it determines that the foreign bank is not subject to comprehensive supervision on a consolidated basis in its home country (unless the home country is making demonstrable progress toward establishing such supervision), or that there is reasonable cause to believe that such foreign bank or its affiliate has violated the law or engaged in an unsafe or unsound banking practice in the United States and, as a result of such violation or practice, the continued operation of the U.S. office would be inconsistent with the public interest or with the purposes of federal banking laws.

There are various legal restrictions on the extent to which we and our nonbank subsidiaries can borrow or otherwise obtain credit from our U.S. banking subsidiaries or engage in certain other transactions involving those subsidiaries. In general, these transactions must be on terms that would ordinarily be offered to unaffiliated entities and must be secured by designated amounts of specified collateral. In addition, certain transactions, such as certain extensions of credit by a U.S. bank subsidiary to, or purchases of assets by such a subsidiary from, us or our nonbank subsidiaries are subject to volume limitations. These restrictions also apply to certain transactions of our New York Branch with our U.S. broker-dealer and certain of our other affiliates.

The New York State Banking Law also empowers the Superintendent of Banks to establish asset maintenance requirements for branches of foreign banks, expressed as a percentage of each branch’s liabilities. The presently designated percentage is 0 %, although the Superintendent may impose additional asset maintenance requirements upon individual branches on a case-by-case basis. No such requirement has been imposed upon our New York branch.

The New York State Banking Law authorizes the Superintendent of Banks to take possession of the business and property of a New York branch of a foreign bank under circumstances involving violation of law, conduct of business in an unsafe manner, impairment of capital, suspension of payment of obligations, or initiation of liquidation proceedings against the foreign bank at its domicile or elsewhere. In liquidating or dealing with a branch’s business after taking possession of a branch, only the claims of creditors which arose out of transactions with a branch are to be accepted by the Superintendent of Banks for payment out of the business and property of the foreign bank in the State of New York, without prejudice to the rights of the holders of such claims to be satisfied out of other assets of the foreign bank.

After such claims are paid, the Superintendent of Banks will turn over the remaining assets, if any, to the foreign bank or its duly appointed liquidator or receiver.

Under the New York State Banking Law, our New York branch is generally subject to the same limits on lending to a single borrower, expressed as a ratio of capital, that apply to a New York state-chartered bank, except that for our New York branch such limits are based on our worldwide capital.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (referred to as FDICIA) provides for extensive regulation of depository institutions (such as DBTCA and its direct and indirect parent companies), including requiring federal banking regulators to take “prompt corrective action” with respect to FDIC-insured banks that do not meet minimum capital requirements. For this purpose, FDICIA establishes five tiers of institutions: “well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized” and “critically undercapitalized”. As an insured bank’s capital level declines and the bank falls into lower categories (or if it is placed in a lower category by the discretionary action of its supervisor), greater limits are placed on its activities and federal banking regulators are authorized (and, in many cases, required) to take increasingly more stringent supervisory actions, which could ultimately include the appointment of a conservator or receiver for the bank (even if it is solvent). In addition, FDICIA generally prohibits an FDIC-insured bank from making any capital distribution (including payment of a dividend) or payment of a management fee to its holding company if the bank would thereafter be undercapitalized. If an insured bank becomes “undercapitalized”, it is required to submit to federal regulators a capital restoration plan guaranteed by the bank’s holding company. The guarantee is limited to 5 % of the bank’s assets at the time it becomes undercapitalized or, should the undercapitalized bank fail to comply with the plan, the amount of the capital deficiency at the time of failure, whichever is less. If an undercapitalized bank fails to submit an acceptable plan, it is treated as if it were “significantly undercapitalized”. Significantly undercapitalized banks may be subject to a number of restrictions, including requirements to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and restrictions on accepting deposits from correspondent banks. “Critically undercapitalized” depository institutions are subject to appointment of a receiver or conservator. Since the enactment of FDICIA, both of our U.S. insured banks have been categorized as “well capitalized” under Federal Reserve Board regulations.

DBTCA and its sister bank, Deutsche Bank Trust Company Delaware, participate in the FDIC’s Temporary Liquidity Guarantee Program, and particularly, the Transaction Account Guarantee Program thereunder, pursuant to which the FDIC guarantees certain noninterest-bearing transaction accounts. Under the Transaction Account Guarantee Program, eligible noninterest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account until December 1, 2009. Institutions participating in the Transaction Account Guarantee Program are assessed a supplemental premium on balances exceeding the U.S.$ 250,000 per-customer limit for deposit insurance.

It is not possible to predict the potential financial impact on us of any U.S. banking and financial sector-related regulatory changes that may be made as a result of current financial market conditions. Our U.S. competitors have access to funds from the Troubled Asset Repurchase Program (TARP). Because we are a non-U.S. banking organization, we and our U.S. subsidiaries are not eligible to participate in the Capital Purchase Program under TARP.

In addition, our principal U.S. SEC-registered broker dealer subsidiary, Deutsche Bank Securities Inc., is a member of and regulated by the New York Stock Exchange and is regulated by the individual state securities authorities in the states in which it operates. The U.S. government agencies and self-regulatory organizations, as well as state securities authorities in the United States having jurisdiction over our U.S. broker-dealer affiliates, are empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or its directors, officers or employees.

We operate our business along the structure of our three group divisions. Deutsche Bank AG is the direct or indirect holding company for our subsidiaries. The following table sets forth the significant subsidiaries we own, directly or indirectly. We have provided information on Taunus Corporation’s principal subsidiaries, to give an idea of their businesses. We have also included Deutsche Bank Privat- und Geschäftskunden Aktiengesellschaft as well as DB Capital Markets (Deutschland) GmbH and its principal subsidiary.

We own 100 % of the equity and voting interests in these significant subsidiaries.

As of December 31, 2008, we operated in 72 countries out of 1,981 branches around the world, of which 50 % were in Germany. We lease a majority of our offices and branches under long-term agreements.

As of December 31, 2008, we had premises and equipment with a total book value of approximately€ 3.7 billion. Included in this amount were land and buildings with a carrying value of approximately € 911 million. As of December 31, 2007, we had premises and equipment with a total book value of approximately € 2.4 billion. Included in this amount were land and buildings with a carrying value of approximately € 981 million.

We continue to review our property requirements worldwide taking into account cost containment measures as well as growth initiatives in selected businesses.

Please see pages S-1 through S-16 of the supplemental financial information, which pages are incorporated by reference herein, for information required by Industry Guide 3.

We have not received written comments from the Securities and Exchange Commission regarding our periodic reports under the Exchange Act, as of any day 180 days or more before the end of the fiscal year to which this annual report relates, which remain unresolved.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes to them included in Item 18 of this document, on which we have based this discussion and analysis. Our consolidated financial statements for the years ended December 31, 2008, 2007 and 2006 have been audited by KPMG AG Wirtschaftsprüfungsgesellschaft, as described in the “Report of Independent Registered Public Accounting Firm” on page F-3.

We have prepared our consolidated financial statements in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”) and as endorsed by the European Union (“EU”). Until December 31, 2006, we prepared our consolidated financial information in accordance with generally accepted accounting principles in the United States. The effective date of our transition to IFRS was January 1, 2006.

Our significant accounting policies, as described in Note [1] to the consolidated financial statements, are essential to understanding our reported results of operations and financial condition. Certain of these accounting policies require critical accounting estimates that involve complex and subjective judgments and the use of assumptions, some of which may be for matters that are inherently uncertain and susceptible to change. Such critical accounting estimates could change from period to period and have a material impact on our financial condition, changes in financial condition or results of operations. Critical accounting estimates could also involve estimates where management could have reasonably used another estimate in the current accounting period. Actual results may differ from these estimates if conditions or underlying circumstances were to change.

We have identified the following significant accounting policies that involve critical accounting estimates. The impact and any associated risks related to these policies on our business operations is discussed throughout “Item 5: Operating and Financial Review and Prospects” where such policies affect our reported and expected financial results.

Trading assets include debt and equity securities, derivatives held for trading purposes and trading loans. Trading liabilities consist primarily of derivative liabilities and short positions. Financial assets and liabilities which are designated at fair value through profit or loss, under the fair value option, include repurchase and reverse repurchase agreements, certain loans and loan commitments, debt and equity securities and structured note liabilities. Private equity investments in which we do not have a controlling financial interest or significant influence, are also carried at fair value either as trading instruments, designated as at fair value through profit or loss or as available for sale instruments.

Fair value is defined as the price at which an asset or liability could be exchanged in a current transaction between knowledgeable, willing parties, other than in a forced or liquidation sale.

In reaching estimates of fair value management judgment needs to be exercised. The areas requiring significant management judgment are identified, documented and reported to senior management as part of the valuation control framework and the standard monthly reporting cycle. Our specialist model validation and valuation groups focus attention on the areas of subjectivity and judgment.

The level of management judgment required in establishing fair value of financial instruments for which there is a quoted price in an active market is minimal. Similarly there is little subjectivity or judgment required for instruments valued using valuation models that are standard across the industry and where all parameter inputs are quoted in active markets.

The level of subjectivity and degree of management judgment required is more significant for those instruments valued using specialized and sophisticated models and where some or all of the parameter inputs are not observable. Management judgment is required in the selection and application of appropriate parameters, assumptions and modeling techniques. In particular, where data are obtained from infrequent market transactions extrapolation and interpolation techniques must be applied. In addition, where no market data are available parameter inputs are determined by assessing other relevant sources of information such as historical data, fundamental analysis of the economics of the transaction and proxy information from similar transactions and making appropriate adjustments to reflect the terms of the actual instrument being valued and current market conditions. Where different valuation techniques indicate a range of possible fair values for an instrument, management has to establish what point within the range of estimates best represents fair value. Further, some valuation adjustments may require the exercise of management judgment to achieve fair value.

In other markets or for certain instruments, observable prices or inputs are not available, and fair value is determined using valuation techniques appropriate for the particular instrument. For example, instruments subject to valuation techniques include: trading loans and other loans or loan commitments designated at fair value through profit or loss, under the fair value option; new, complex and long-dated OTC derivatives; transactions in immature or limited markets; distressed debt securities and loans; private equity securities and retained interests in securitizations of financial assets. The application of valuation techniques to determine fair value involves estimation and management judgment, the extent of which will vary with the degree of complexity and liquidity in the market. Valuation techniques include industry standard models based on discounted cash flow analysis, which are dependent upon estimated future cash flows and the discount rate used. For more complex products, the valuation models include more complex modeling techniques, parameters and assumptions, such as volatility, correlation, prepayment speeds, default rates and loss severity. Management judgment is required in the selection and application of the appropriate parameters, assumptions and modeling techniques. Because the objective of using a valuation technique is to establish the price at which market participants would currently transact, the valuation techniques incorporate all factors that we believe market participants would consider in setting a transaction price.

Valuation adjustments are an integral part of the fair value process that requires the exercise of judgment. In making appropriate valuation adjustments, we follow methodologies that consider factors such as bid-offer spread valuation adjustments, liquidity, and credit risk (both counterparty credit risk in relation to financial assets and our own credit risk in relation to financial liabilities).

The fair value of our financial liabilities (e.g., OTC derivative liabilities and structured note liabilities designated at fair value through profit or loss) incorporates the change in our own credit risk of the financial liability. For derivative liabilities we consider our own creditworthiness by assessing all counterparties’ potential future exposure to us, taking into account any collateral held, the effect of any master netting agreements, expected loss given default and our own credit risk based on historic default levels. The change in our own credit risk for structured note liabilities is calculated by discounting the contractual cash flows of the instrument using the rate at which similar instruments would be issued at the measurement date. The resulting fair value is an estimate of the price at which the specific liability would be exchanged at the measurement date with another market participant.

If there are significant unobservable inputs used in the valuation technique, the financial instrument is recognized at the transaction price and any trade date profit is deferred. We recognize the deferred amount using systematic methods over the period between trade date and the date when the market is expected to become observable, or over the life of the trade (whichever is shorter). We use such a methodology because it reflects the changing economic and risk profiles of the instruments as the market develops or as the instruments themselves progress to maturity. Any remaining deferred profit is recognized through the income statement when the transaction becomes observable and/or we enter into a transaction that will substantially eliminate the instrument’s risk. In the rare circumstances that a trade date loss arises, it would be recognized at inception of the transaction to the extent that it is probable that a loss has been incurred and a reliable estimate of the loss amount can be made. The decision regarding the subsequent recognition of the deferred amount is made after careful assessment of the then current facts and circumstances supporting observability of parameters and/or risk mitigation.

We have established internal control procedures over the valuation process to provide assurance over the appropriateness of the fair values applied. If fair value is determined by valuation models, the assumptions and techniques

within the models are independently validated by a specialist group. Price and parameter inputs, assumptions and valuation adjustments are subject to verification and review processes. If the price and parameter inputs are observable, they are verified against independent sources.

If prices and parameter inputs or assumptions are not observable, the appropriateness of fair value is subject to additional procedures to assess its reasonableness. Such procedures include performing revaluations using independently generated models, assessing the valuations against appropriate proxy instruments, performing sensitivity analysis and extrapolation techniques, and considering other benchmarks. Assessment is made as to whether the valuation techniques yield fair value estimates that are reflective of the way the market operates by calibrating the results of the valuation models against market transactions. These procedures require the application of management judgment.

Under IFRS, the financial assets and liabilities carried at fair value are required to be disclosed according to the valuation method used to determine their fair value. Specifically, segmentation is required between those valued using quoted market prices in an active market, valuation techniques based on observable parameters and valuation techniques using significant unobservable parameters. This disclosure is provided in Note [11] to the consolidated financial statements. Our financial assets held at fair value for which we determine fair value using valuation techniques where observable prices or inputs were not available were € 88.7 billion at December 31, 2008, compared to € 87.8 billion at December 31, 2007. Our financial liabilities held at fair value for which we determine fair value using valuation techniques where observable prices or inputs were not available were € 34.4 billion at December 31, 2008 and € 23.1 billion at December 31, 2007. Management judgment is required in determining the category to which certain instruments should be allocated. This specifically arises when the valuation is determined by a number of parameters, some of which are observable and others are not. Further, the classification of an instrument can change over time to reflect changes in market liquidity and therefore price transparency.

Other valuation controls include review and analysis of daily profit and loss, validation of valuation through close out profit and loss and Value-at-Risk back-testing. For further discussion on our Value-at-Risk Analysis, see “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Market Risk – Value-at-Risk Analysis.”

In the third quarter 2008, we identified assets, eligible under the amendments, for which we had a clear change of intent to hold for the foreseeable future. These assets were reclassified with effect from July 1, 2008 at fair value as of that date. In the fourth quarter 2008, we made additional reclassifications, at fair value at the date of reclassification. Where the decision to reclassify was made by November 1, 2008, the reclassifications were made with effect from

October 1, 2008, at fair value on that date. Reclassifications made after November 1, 2008 were made on a prospective basis at fair value on the date of reclassification. All reclassifications were to loans. In these instances, management believed the intrinsic values of the assets exceeded their estimated fair values, which have been significantly adversely impacted by the reduced liquidity in the financial markets, and returns on these assets would be optimized by holding them for the foreseeable future. Where this clear change of intent existed and was supported by an ability to hold and fund the underlying positions, we concluded that the reclassifications aligned more closely the accounting with the business intent.

Significant management judgment and assumptions are required to identify assets eligible under the amendments for which intrinsic value exceeds estimated fair value. Significant management judgment and assumptions are also required to estimate the fair value of the assets identified (as described in “Fair Value Estimates”) at the date of reclassification, which becomes the amortized cost base under the loan classification. The task facing management in both these matters was particularly challenging in the highly volatile and uncertain economic and financial market conditions that characterized the third and fourth quarters of 2008. The change of intent to hold for the foreseeable future is another matter requiring significant management judgment. The change in intent is not simply determined because of an absence of attractive prices nor is foreseeable future defined as the period until the return of attractive prices. We have established a minimum guideline for what constitutes a change of intent to hold for the foreseeable future. At the time of reclassification, there must be:

Qualifying financial assets proposed for reclassification which meet the minimum guideline are considered based on the facts and circumstances of each asset under consideration. A positive management determination is required after taking into account the ability and plausibility to execute the strategy to hold.

At the time of reclassification and subsequently, the reclassified assets, which are now accounted for as loans, are tested for impairment as described under “Impairment of Financial Assets”.

To the extent that assets categorized as loans are repaid, restructured or eventually sold and the amount received is less than the carrying value at that time, then a loss would be recognized.

The volume of our financial assets that are subject to testing for impairment has increased due to the reclassification of financial assets in the second half of 2008. In assessing assets for impairment, significant management judgment is required, particularly in circumstances of great economic and financial uncertainty, such as those of the current financial crisis, when developments and changes to expected cash flows can occur both with greater rapidity and less predictability.

To determine whether a loss event has occurred on an individual basis, all significant counterparty relationships are reviewed periodically. This evaluation considers current information and events related to the counterparty, such as the counterparty experiencing significant financial difficulty or a breach of contract, such as default or delinquency in interest or principal payments.

If there is evidence of impairment leading to an impairment loss for an individual counterparty relationship, then the amount of the loss is determined as the difference between the carrying amount of the loan(s), including accrued interest, and the present value of expected future cash flows discounted at the loans’ original effective interest rate or the effective interest rate established upon reclassification to loans, including cash flows that may result from foreclosure less costs for obtaining and selling the collateral. The carrying amount of the loans is reduced by the use of an allowance account and the amount of the loss is recognized in the income statement as a component of the provision for credit losses.

The collective assessment of impairment is principally to establish an allowance amount relating to loans that are either individually significant but for which there is no objective evidence of impairment, or are not individually significant but for which there is, on a portfolio basis, a loss amount that is probable of having occurred and is reasonably estimable. The loss amount for collectively assessed loans has three components. The first component is an amount for transfer and currency convertibility risks for loan exposures with counterparties domiciled in countries where there are serious doubts about the ability of the counterparty to comply with the repayment terms due to the economic or political situation prevailing in that country. This amount is calculated using ratings for country risk and transfer risk which are established and regularly reviewed for each country in which we do business. The second component is an allowance amount representing the incurred losses on the portfolio of smaller-balance homogeneous loans, which are loans to individuals and small business customers of the private banking and retail business. The loans are grouped according to similar credit risk characteristics and the allowance for each group is determined using statistical models based on historical experience. The third component represents an estimate of incurred losses inherent in the group of loans that have not yet been individually identified or measured as part of the smaller-balance homogenized loans. Loans that were found not to be impaired when evaluated on an individual basis are included in the scope of this component of the allowance.

The process to determine the provision for off-balance sheet positions is similar to the methodology used for loans and includes an allowance for an individually assessed loss component and a collectively assessed loss component. Any loss amounts are recognized as an allowance in the balance sheet within other liabilities and charged to the income statement as a component of the provision for credit losses.

We believe that the accounting estimate related to the impairment of loans and provision for off-balance sheet positions is a critical accounting estimate for our Corporate Banking & Securities and Private & Business Clients Corporate Divisions because the underlying assumptions used for both the individually and collectively assessed impairment can change from period to period. Such changes may materially affect our results of operations.

Our provision for credit losses totaled € 1,076 million, € 612 million and € 298 million for the years ended December 31, 2008, 2007 and 2006, respectively.

For further discussion on our provision for credit losses, see “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Credit Risk – Credit Loss Experience and Allowance for Loan Losses” and Notes [15] and [16] to the consolidated financial statements.

Goodwill and other intangible assets are tested for impairment on an annual basis, or more frequently if events or changes in circumstances, such as an adverse change in business climate, indicate that these assets may be impaired. The determination of the recoverable amount in the impairment assessment requires estimates based on quoted market prices, prices of comparable businesses, present value or other valuation techniques, or a combination thereof, necessitating management to make subjective judgments and assumptions. Because these estimates and assumptions could result in significant differences to the amounts reported if underlying circumstances were to change, we consider this estimate to be critical. As of December 31, 2008 and 2007, goodwill had a carrying amount of€ 7.5 billion and € 7.2 billion, respectively, and other intangible assets had a carrying amount of € 2.3 billion and € 2.2 billion, respectively. Evaluation of impairment of these assets is a significant estimate for multiple divisions.

In 2008, goodwill and other intangible asset impairments of € 586 million were recorded of which € 580 million related to investments in Asset and Wealth Management. In 2007, goodwill and other intangible asset impairments were € 133 million of which € 77 million were recognized in Asset and Wealth Management and € 54 million in Corporate Investments. In 2006, goodwill and other intangible asset impairments of € 31 million were recorded in Corporate Investments. For further discussion on goodwill and other intangible assets, see Note [21] to the consolidated financial statements.

We believe that the accounting estimate related to the deferred tax assets is a critical accounting estimate because the underlying assumptions can change from period to period. For example, tax law changes or variances in future projected operating performance could result in a change of the deferred tax asset. If we were not able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax assets would be charged to income tax expense or directly to equity in the period such determination was made. If we were to recognize previously unrecognized deferred tax assets in the future, an adjustment to our deferred tax asset would be credited to income tax expense or directly to equity in the period such determination was made.

For further information on our deferred taxes see Note [33] to the consolidated financial statements.

The use of estimates is important in determining provisions for potential losses that may arise from litigation, regulatory proceedings and uncertain income tax positions. We estimate and provide for potential losses that may arise out of litigation, regulatory proceedings and uncertain income tax positions to the extent that such losses are probable and can be estimated, in accordance with IAS 37, “Provisions, Contingent Liabilities and Contingent Assets” and IAS 12, “Income Taxes”. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different.

Contingencies in respect of legal matters are subject to many uncertainties and the outcome of individual matters is not predictable with assurance. Significant judgment is required in assessing probability and making estimates in respect of contingencies, and our final liability may ultimately be materially different. Our total liability in respect of litigation, arbitration and regulatory proceedings is determined on a case-by-case basis and represents an estimate of probable losses after considering, among other factors, the progress of each case, our experience and the experience of others in similar cases, and the opinions and views of legal counsel. Predicting the outcome of our litigation matters is inherently difficult, particularly in cases in which claimants seek substantial or indeterminate damages. See “Item 8: Financial Information – Legal Proceedings” and Note [25] to our consolidated financial statements for information on our judicial, regulatory and arbitration proceedings.

See Note [1] to the consolidated financial statements for a discussion on our recently adopted and new accounting pronouncements.

You should read the following discussion and analysis in conjunction with our consolidated financial statements.

We recorded a loss before income taxes of € 5.7 billion for 2008, compared with income before income taxes of € 8.7 billion for 2007. Net revenues of € 13.5 billion in 2008 were € 17.3 billion, or 56 %, below net revenues in 2007. Our pre-tax return on average active equity was negative 18 % in 2008 versus positive 29 % in 2007. Our pre-tax return on average shareholders’ equity was negative 16 % in 2008 and positive 24 % in 2007. Our net loss was € 3.9 billion in 2008, compared with net income of€ 6.5 billion in 2007. Diluted earnings per share were negative € 7.61 in 2008 and positive€ 13.05 in 2007.

CIB’s net revenues declined 84 %, from € 19.1 billion in 2007 to € 3.1 billion in 2008. Overall Sales & Trading net revenues for 2008 were negative € 506 million compared with positive € 13.0 billion in 2007. This reflects the impact of unprecedented market turmoil, especially late in the year, on some of our trading businesses, particularly Credit Trading (including proprietary trading activities), Equity Derivatives and Equity Proprietary Trading. Strong client business flows and favorable positioning generated record revenues in the Foreign Exchange and Money Market businesses, which partially offset our weak results in other trading areas. The dislocations in the financial markets also impacted revenues in our Origination and Advisory businesses, which decreased by € 2.5 billion to € 212 million in 2008, from € 2.7 billion in 2007, due to significant mark-downs of € 1.7 billion, net of recoveries, against leveraged finance loans and loan commitments, and as volumes of business combinations and capital market transactions fell. PCAM’s net revenues were€ 9.0 billion, a decrease of € 1.1 billion, largely driven by the negative effect of market conditions on our performance and asset-based fees in the portfolio fund management business and on our brokerage business, as well as certain specific significant items, including mark-downs on seed capital and other investments.

Our noninterest expenses were € 18.2 billion in 2008 and € 21.4 billion in 2007, a decline of € 3.2 billion, or 15 %. Compensation and benefits, driven by significantly lower performance-related compensation in line with the lower operating results, was the most important factor in the overall decrease.

In 2008, the provision for credit losses of € 1.1 billion was € 464 million, or 76 %, higher than in 2007. The increase was due largely to provisions on loans reclassified according to amendments to IAS 39 and higher provisions in PBC attributable to the deteriorating credit environment and business growth.

in 2008 included significant gains on sales of our industrial holdings portfolio. We do not expect material gains from such assets going forward.

The increase in provision for credit losses in 2008 compared to 2007 resulted from deteriorating credit conditions, provisions related to loans reclassified in accordance with amendments to IAS 39 and from growth in volumes. The overall worsening of the economic outlook will likely continue to negatively impact the level of provision for credit losses.

The decrease in compensation and benefits in 2008 compared to 2007 reflected significantly lower performance-related compensation. The development of performance-related compensation will continue to depend significantly on the operating performance of our businesses. Severance charges increased in 2008, mainly resulting from repositioning and efficiency programs. Such measures, which aim to reduce complexity in our operations, standardize processes across businesses and expand the offshoring of functions, are expected to continue in 2009.

The increase in general and administrative expenses in 2008 compared to 2007 was due mainly to litigation-related charges, higher expenses related to consolidated investments and other specific factors. Excluding these factors, general and administrative expenses decreased in 2008 following reductions in business volumes and cost saving initiatives, which are expected to contribute to a further decline of general and administrative expenses going forward.

The actual effective tax rate was 32.1 % in 2008. Numerous factors can distort the effective tax rate, especially in periods with low income. In 2008, such factors included continued losses in certain entities that resulted in unrecognized deferred tax assets and share based payments which are determined by our share price.