entire - Deutsche Bank Annual Report 2012

Deutsche Bank 01 – Management Report 6
Financial Report 2010 Operating and Financial Review
In operating terms, banks made good progress overall, albeit from a low base. In traditional lending business,
loan loss provisions reduced significantly, though the absolute burden was still high. At the same time, 2010
saw a stabilization in loan volumes, which had contracted the year before, thanks to a slight rise in demand.
This was at least in part attributable to central banks’ continuing expansionary monetary policies.
Capital markets business produced mixed results compared with the very good performance of 2009. The
volume of corporate and sovereign bond issues fell slightly over the high prior year figure, though high-yield
paper issuance volumes rose. Equity issuance stayed robust, with growth especially strong in initial public
offerings. The M&A business gained traction, but remained weak. Overall, investment banking saw a return of
market participants who had cut back their activities during the financial crisis. This led to more intense competition
and narrower margins.
In asset management, banks benefited from rising valuations in most asset classes and from higher inflows. In
transaction business they profited from the economic recovery and a dynamic rebound in world trade, nearly to
pre-crisis levels.
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.