SEC Form 20-F - Deutsche Bank Annual Report 2012

Deutsche Bank
Annual Report 2010 on Form 20-F
Item 5: Operating and Financial Review and Prospects 53
Despite this growth, the banking industry continued to be only moderately profitable overall, recording single
digit returns on equity for the most part. Almost all major European and U.S. banks reported net profits, while
the share of unprofitable, smaller banks decreased significantly.
Alongside operating performance, 2010 was shaped primarily by far-reaching regulatory measures planned by
legislators and supervisory authorities. The Basel III reform of capital requirements will probably prove to be the
most significant change in the long term. The final details have been largely agreed so that the new standards
are now set to be implemented in nearly all of the world’s major financial markets. It is still uncertain, though,
whether implementation of the rules will actually be harmonized throughout each country and what concrete
effects the new framework will have on banks’ business.
Together with the forthcoming regulatory changes, the banking environment in 2010 was also greatly impacted
by the European sovereign debt crisis and fears of a weak recovery or even a relapse of some major economies
into recession. While the robust recovery of the global economy over the last few months has brightened the
prospects for banks’ business, the public debt problems encountered especially by several euro-area countries,
and their lack of competitiveness, continued to weigh on market sentiment. These concerns spilled over into
the banking sector at times – causing the funding markets for financial institutions in severely affected countries
to dry up, and attracting criticism of the extensive cross-border activities of particular European banks as well
as generally giving rise to significant financial market volatility.
Deutsche Bank
In this environment, we generated a net income of € 2.3 billion in 2010, compared to € 5.0 billion in 2009, a solid
result considering the impact of several significant factors. These factors include, firstly, certain valuation- and
integration-related charges from the acquisitions of the commercial banking activities from ABN AMRO in the
Netherlands, of Sal. Oppenheim/BHF-BANK and of Postbank, the latter including a charge of € 2.3 billion in the
third quarter 2010. Secondly, during the year we invested in the integration of our CIB businesses, in our IT
platform and in other business growth initiatives. Thirdly, deferred compensation expenses were significantly
higher in 2010 reflecting changes in compensation structures implemented in 2009. Additionally, the aforementioned
acquisitions increased our revenue and expenses run rates, as well as our balance sheet, risk
weighted assets and invested assets. Moreover, a shift in foreign exchange rates, in particular between the
U.S. dollar and the euro, contributed to an increase in our reported euro revenues and expenses, with an overall
positive impact on net income.
Net revenues of € 28.6 billion in 2010 were among the highest ever generated by us and increased by
€ 615 million from € 28.0 billion in 2009. CIB’s net revenues increased from € 18.8 billion in 2009 to € 20.9 billion
in 2010. Overall Sales & Trading net revenues for 2010 were € 12.8 billion, compared with € 12.2 billion in 2009.
This primarily reflects lower mark-downs from legacy positions, lower trading losses in Equity Derivatives as
well as increased client activity across flow products and structured solutions in Credit Trading. This was partly
offset by the normalization of bid-offer spreads and subdued client activity in Money Markets and Rates. Origination
and Advisory revenues increased to € 2.5 billion in 2010 (2009: € 2.2 billion). PCAM’s net revenues were
€ 10.0 billion in 2010, an increase of € 1.8 billion compared to 2009. This development was mainly attributable
to the first-time consolidation of Postbank as well as the acquisition of Sal. Oppenheim/BHF-BANK. In addition,
higher deposits revenues in PBC were driven by improved margins. In AWM, the non-recurrence of impairment
charges recognized in 2009 related to RREEF investments, as well as higher fee income in a more favorable
market environment, also contributed to the increase. In CI, net revenues in the full year 2010 were negative
€ 2.0 billion, versus positive € 1.0 billion in 2009. Revenues in both years were materially impacted by our
investment in Postbank, including the aforementioned charge in the third quarter 2010 and several positive
effects in 2009.