Deutsche_Bank_Annual_Report_2018.pdf - Deutsche Bank Annual...

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Unformatted text preview: Deutsche Bank Annual Report 2018 Deutsche Bank The Group at a glance 2018 Key financial information Post-tax return on average shareholders’ equity Post-tax return on average tangible shareholders’ equity Cost/income ratio¹ Compensation ratio² Noncompensation ratio³ Total net revenues, in € m. Provision for credit losses, in € m. Total noninterest expenses, in € m. Adjusted costs4 Income (loss) before income taxes, in € m. Net income (loss), in € m. Basic earnings per share Diluted earnings per share Share price at period end Share price high Share price low CRR/CRD 4 Leverage Ratio (fully loaded) CRR/CRD 4 Leverage Ratio (phase in) Fully loaded CRR/CRD 4 leverage exposure, in € bn. Common Equity Tier 1 capital ratio (fully loaded) Common Equity Tier 1 capital ratio (phase in) Risk-weighted assets, in € bn. Total assets, in € bn. Shareholders’ equity, in € bn. Book value per basic share outstanding Tangible book value per basic share outstanding Other Information Branches Thereof: in Germany Employees (full-time equivalent) Thereof: in Germany 1 2 3 4 0.4 % 0.5 % 92.7 % 46.7 % 46.0 % 25,316 525 23,461 22,810 1,330 341 € (0.01) € (0.01) € 6.97 € 16.46 € 6.68 2017 (1.2) % (1.4) % 93.4 % 46.3 % 47.0 % 26,447 525 24,695 23,891 1,228 (735) € (0.53) € (0.53) € 15.88 € 17.82 € 13.11 Dec 31, 2018 Dec 31, 2017 4.1 % 4.3 % 1,273 13.6 % 13.6 % 350 1,348 62 € 29.69 € 25.71 3.8 % 4.1 % 1,395 14.0 % 14.8 % 344 1,475 63 € 30.16 € 25.94 2,064 1,409 91,737 41,669 2,425 1,570 97,535 42,526 Total noninterest expenses as a percentage of net interest income before provision for credit losses, plus noninterest income. Compensation and benefits as a percentage of total net interest income before provision for credit losses, plus noninterest income. Noncompensation noninterest expenses, which is defined as total noninterest expenses less compensation and benefits, as a percentage of total net interest income before provision for credit losses, plus noninterest income. The reconciliation of adjusted costs to noninterest expenses is provided in section “Supplementary Information (Unaudited): Non-GAAP Financial Measures: Adjusted costs” of this document. Due to rounding, numbers presented throughout this document may not sum precisely to the totals provided and percentages may not precisely reflect the absolute figures. Content   Deutsche Bank Group III Letter from the Chairman of the Management Board VI Management Board VII Report of the Supervisory Board XVI Supervisory Board XIX Strategy 1   — Management Report 2 Operating and Financial Review 33 Outlook 39 Risks and Opportunities 44 Risk Report 154 Compensation Report 199 Corporate Responsibility 199 Employees 204 Internal Control over Financial Reporting 206 Information pursuant to Section 315a (1) of the German Commercial Code and Explanatory Report 210 Corporate Governance Statement pursuant to Sections 289f and 315d of the German Commercial Code 2   — Consolidated Financial Statements 212 213 214 215 221 223 265 271 326 383 Consolidated Statement of Income Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Notes to the Consolidated Income Statement Notes to the Consolidated Balance Sheet Additional Notes Confirmations 3   — Corporate Governance Statement /  Corporate Governance Report 393 408 408 409 411 Management Board and Supervisory Board Reporting and Transparency Related Party Transactions Auditing and Controlling Compliance with the German Corporate Governance Code 4   — Supplementary Information 416 420 422 Non-GAAP Financial Measures Declaration of Backing Imprint / Publications Deutsche   Bank Group III Letter from the Chairman of the ­Management Board VI Management Board VII Report of the Supervisory Board XVI Supervisory Board XIX Strategy Deutsche Bank Annual Report 2018 Letter from the Chairman of the Management Board Letter from the Chairman of the Management Board Dear Shareholders, We can look back on 2018 as a year that was anything but easy for Deutsche Bank. Despite many challenges, we accomplished a great deal, made excellent progress in many areas and achieved our stated objectives. Deutsche Bank has built very solid foundations – this is the basis for controlled growth. The clearest sign of the turnaround is that for the first time since 2014 we reported a net profit, of 341 million euros. Year-onyear this is an improvement of more than 1 billion euros. We also managed to increase our pre-tax profit to 1.3 billion euros. Returning to profitability was a vital milestone for us. A new spirit of cost discipline played a key role. This enabled us to reduce our adjusted costs by more than 1 billion euros. At 22.8 billion euros for the year, our adjusted costs even beat the target we set ourselves of 23 billion euros, and as a consequence we have tightened our cost target for 2019 by 200 million euros to 21.8 billion euros. The discipline was particularly evident in the fourth quarter, where we have seen an uptick in costs in some previous years. We are determined to continue on this path. We reduced the number of full-time equivalent employees in the Deutsche Bank Group by almost 6,000 to 91,700, comfortably hitting our target of bringing our workforce down to below 93,000 full-time equivalents. We achieved all this without compromising on our controls. We have continued hiring more staff in control functions, in particular strengthening our Anti-Financial Crime unit. We are investing in tightening our ‘Know your Client’ processes and improving our systems for reporting suspicious transactions. In this context we are cooperating closely with our regulators. Of course, cost reductions on this scale had some impact on revenues, which fell 4% in 2018. This development was driven partly by difficult market conditions later in the year, which also affected our international peers, and partly by disciplined implementation of our strategic decision to re-focus our business. At the same time we further strengthened our balance sheet. We have solid capital ratios and significant liquidity reserves, our leverage ratio improved during the year, and levels of both credit and market risk remain low. With a return to profitability, improved internal controls and a strong balance sheet, we have laid firm foundations for the controlled growth which is now our strategic priority. We are not yet where we want to be; but we believe that we are on the right path to provide you, our shareholders, with sustained higher returns. In this regard it is important to highlight that we operate in a challenging market environment and we are considering strategic opportunities as they arise. While there is no certainty transactions expected by market participants will occur, the basis for any decisions must be to improve the growth and return profile of the bank. We intend to analyze our options with the same commercial discipline we brought to our strategic and operational decisions in 2018. Strategic milestones reached 2018 was also a year in which we re-focused our business. After careful analysis we are aligning our Corporate & Investment Bank (CIB) towards businesses which are most important for our clients and where we have, or can attain, a leading position. In other areas we have scaled back our resource commitment - for instance, in segments of the Equities business and US Rates. We reduced our leverage exposure in CIB by more than 130 billion euros in 2018, and this impacted revenues as anticipated. We aim to remain a relevant partner to the world’s global companies, providing them with a comprehensive range of advisory services and access to the capital markets. Our Global Transaction Banking unit is a world leader in a number of areas including Trade Finance and Cash Management. Our Markets business including Fixed Income & Currencies (FIC), where we are the only European institution among the world’s four leading banks, is also highly important to our clients. Corporate Finance is a vital part of our offering, primarily in our home market of Europe, but also through our strong but focused presence in North America and Asia. Deutsche Bank is one of the world’s leading debt capital market houses. III Deutsche Bank Annual Report 2018 Letter from the Chairman of the Management Board In our Private & Commercial Bank, we made fundamental changes last year. We are integrating Deutsche Bank and Postbank in our home market, and in May we merged the relevant legal entities to form the “Bank for Germany”. Now we are in the process of merging the head offices and infrastructure functions of the two banks, including their day-to-day operations. Joining forces should enable us to constantly improve the service to our 20 million-plus clients in Germany, and unlock synergies of some 900 million euros annually which we aim to fully realize by 2022. This also gives us the opportunity to reap the benefits of economies of scale, which are becoming increasingly important in this business – not least for investments in digital platforms. We also made progress outside Germany. We completed the disposal of large parts of our Private & Commercial Clients business in Poland while the divestment in Portugal is well advanced. We successfully integrated Sal. Oppenheim into our Wealth Management business with only modest client attrition. Our Private & Commercial Bank generated a post-tax return on tangible equity of about 5 percent in 2018 despite significant restructuring and a very challenging interest rate environment - and this is before synergies anticipated from the creation of the “Bank for Germany”. That shows the enormous potential of this business. The partial flotation of our asset manager, DWS, in March 2018 was a milestone event. This provides the entrepreneurial independence that we expect will enable DWS to tap future growth opportunities more effectively – among other things by immediately supplying DWS with its own acquisition currency. The new alliances that DWS has forged with insurers Nippon Life and Generali, and with the French asset manager Tikehau Capital, are also very promising. I am very confident that with its new leadership, DWS will once again build on its historic strengths. Solid balance sheet and strong liquidity The successful reorganisation of our business divisions is one of the things we determined we needed in order to grow again. The second is our financial strength: in a number of key dimensions, Deutsche Bank has rarely been as stable as it is today: – Our Common Equity Tier 1 (CET1) ratio of 13.6 percent at year-end comfortably meets our target of above 13 percent – and is higher than almost all of our leading peers. – We have reduced our balance sheet considerably over the years and improved its quality. – Our market risk levels and our credit risk losses have rarely been so low. – Our liquidity reserves are around four times higher than a decade ago and are well above the levels required by our regulators. – We have substantially reduced our legal risks in recent years. Looking ahead: reaping the benefits of work done in 2018 Looking forward, we continue to manage the company towards our near- and medium-term targets, including generating a Return on Tangible Equity of more than 4% in 2019. While financial market conditions in our Sales & Trading businesses have improved significantly in the first quarter of 2019 compared to the turbulent environment we saw in the fourth quarter of 2018, activity levels are relatively muted on a historical comparison. To support the achievement of our financial targets to the fullest extent possible, we will continue to manage all aspects in our direct control, including ongoing expense discipline. We are encouraged that despite the challenging environment we have felt the strong backing of our clients. They rely on Deutsche Bank, and corporate clients in particular want a European alternative to the big US banks. IV Deutsche Bank Annual Report 2018 Letter from the Chairman of the Management Board I am firmly convinced that all our business divisions generate a positive impact for our clients, our staff, our investors and society as a whole. Deutsche Bank plays its part in driving economic growth and ultimately social progress. Banks are the lifeblood of the economy. We acknowledge this weighty responsibility and regard ourselves as a corporate citizen at the heart of society. For more details on how we practice corporate responsibility, please consult our Non-Financial Report which we are also publishing today. We want to promote economic growth and social progress, in Germany and beyond. At home in Europe, connected to the world – that is our ambition. Best regards, Christian Sewing Chief Executive Officer Deutsche Bank AG Frankfurt am Main, March 2019 V Deutsche Bank Annual Report 2018 Deutsche Group DeutscheBank Bank Group Management Board Christian Sewing, * 1970 since January 1, 2015 Chairman of the Management Board (since April 8, 2018) President (until April 8, 2018) Co-Head of Private & Commercial Bank (including Postbank) (until April 8, 2018) Garth Ritchie, * 1968 since January 1, 2016 President (since April 8, 2018) Co-Head of Corporate & Investment Bank (until May 24, 2018) Head of Corporate & Investment Bank (since May 25, 2018) Karl von Rohr, * 1965 since November 1, 2015 President (since April 8, 2018) Chief Administrative Officer Management Board in the ­reporting year: John Cryan Chairman of the Management Board (until April 8, 2018) Marcus Schenck (until May 24, 2018) President (until April 8, 2018) Co-Head of Corporate & Investment Bank (until May 24, 2018) Christian Sewing Chairman of the Management Board (since April 8, 2018) President (until April 8, 2018) Co-Head of Private & Commercial Bank (including Postbank) (until April 8, 2018) Garth Ritchie President (since April 8, 2018) Co-Head of Corporate & Investment Bank (until May 24, 2018) Head of Corporate & Investment Bank (since May 25, 2018) Karl von Rohr President (since April 8, 2018) Kimberly Hammonds (until May 24, 2018) Frank Kuhnke, * 1967 Stuart Lewis since January 1, 2019 Chief Operating Officer Sylvie Matherat Stuart Lewis, * 1965 since June 1, 2012 Chief Risk Officer James von Moltke Nicolas Moreau (until December 31, 2018) Werner Steinmüller Frank Strauß Sylvie Matherat, * 1962 since November 1, 2015 Chief Regulatory Officer James von Moltke, * 1969 since July 1, 2018 Chief Financial Officer Werner Steinmüller, * 1954 since August 1, 2016 Regional CEO for Asia Frank Strauß, * 1970 since September 1, 2018 Co-Head of Private & Commercial Bank (including Postbank) (until April 8, 2018) Head of Private & Commercial Bank (including Postbank) (since April 8, 2018) VI * Employee representatives Deutsche Bank Annual Report 2018 Report of the Supervisory Board Report of the Supervisory Board Dear Shareholders, Your Deutsche Bank still did not deliver the upswing in the reporting year 2018 which you as shareholders expect and which the Management Board, Supervisory Board and all staff members are striving for. Deutsche Bank is a strong institution, one that is rich in tradition and that has already had to cope with many crises and difficult periods in its 149-year history. It has always managed to master the challenges and emerge from these situations with renewed strength. Even if the share price does not seem to reflect this, important groundwork was laid for such an upswing in 2018. In April, we appointed Mr. Sewing as Chairman of the Management Board, a chief executive who is thoroughly familiar with all facets of the bank. As the bank’s former Deputy Chief Risk Officer, Mr. Sewing is equally at home in the international capital markets business as in corporate and retail banking in Germany, which he was responsible for over the last few years. The targets he announced for 2018 after his appointment with regard to costs, headcount, capital and profitability were all achieved. In the costs area, in particular, the bank and its managers have developed a degree of discipline that was missing in the past. The bank’s balance sheet is much more robust than it has been for a long time, and the liquidity position reached a very high level. Profit for 2018 was severely impacted by internal and external effects in the fourth quarter and still cannot be regarded as satisfactory. After many years of remediating legacy issues, the bank’s ability to grow profitably again on the revenue side is being closely monitored and is considered a decisive lever to boost the share price from its current unsatisfactory level. As your Supervisory Board, we are making every effort to support this in an appropriate way. On the following pages VII to XV you will find a detailed report of our activities during the reporting period. I would like to take this opportunity to draw your attention to several personnel changes. On the Management Board, Mr. Kuhnke took over responsibility as Chief Operating Officer after his predecessor, Ms. Hammonds, left the bank at the end of May. Although reaching the appointed cost targets reflects the efforts of many staff members, this is also due not least to a rigorously consistent management style. Following the successful Initial Public Offering of our Asset Management company DWS at the beginning of the year, Mr. Moreau, who was responsible for this area, left the Management Board of Deutsche Bank AG at the end of December 2018. His successor as Chief Executive Officer of DWS, Dr. Wöhrmann, was appointed General Manager (Generalbevollmächtigter) of the bank at the end of October. There were also changes on your bank’s Supervisory Board in 2018. Ms. Dublon, Ms. Irrgang, Ms. Parent, Professor Kagermann, Mr. Rudschäfski and Dr. Teyssen stepped down, having provided years of valuable service through their Supervisory Board work. Their contributions, in particular on the committees, were extensively praised already at the last General Meeting. The General Meeting in May 2018 elected Ms. Clark, Ms. Trogni, Mr. Thain and Professor Winkeljohann as new members of the Supervisory Board. There were also changes on the employee representatives’ side. Newly elected as employee representatives to the Supervisory Board were Mr. Blomeyer-Bartenstein, Mr. Polaschek and Mr. Szukalski. For Mr. Szukalski, it is the second time. Mr. Bsirske, Mr. Duscheck, Mr. Heider, Ms. Klee, Ms. Mark, Ms. Platscher and Mr. Rose were re-elected for another term in office. I gained Mr. Polaschek as the new Deputy Chairman. We are certain we can ensure our cooperation founded on trust in the interests of the bank will continue, even in these challenging times. Against this backdrop, the Supervisory Board established, alongside the existing committees, a Strategy Committee and a Technology, Data and Innovation Committee to focus on tasks that are described in greater detail in the following. The two committees are chaired by Mr. Thain and Ms. Trogni, respectively. Ms. Clark took over as Chairperson of the Risk Committee. In light of the increase in his other professional obligations, Mr. Meddings – after three years of valuable service with a highintensity workload – handed over the chairing of the Audit Committee to Professor Winkeljohann. I would like to take this opportunity to thank all of them for their personal dedication to our bank. VII Deutsche Bank Annual Report 2018 Report of the Supervisory Board Esteemed shareholders, my colleagues and I are naturally well aware that in the final analysis only performance counts, and it is not yet where it should be – at least not when it comes to the share price. However, we live in a world in which process quality and process integrity also have an important role to play. On their own, they are not enough to be successful, but they are the preconditions for sustainable success. With t...
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