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Deutsche Bank Aktiengesellschaft · 20-F · For 12/31/07

Filed On 3/26/08, 2:58pm ET   ·   Accession Number 950123-8-3369   ·   SEC File 1-15242

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  As Of                Filer                Filing    For/On/As Docs:Size              Issuer               Agent

 3/26/08  Deutsche Bank Aktiengesellschaft  20-F       12/31/07   10:5.7M                                   RR Donnelley/FA

Annual Report of a Foreign Private Issuer   —   Form 20-F
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report of a Foreign Private Issuer           HTML   3.96M 
 2: EX-1.1      Ex-1.1: English Translation of Articles of          HTML     63K 
                          Incorporation                                          
 3: EX-7.1      Ex-7.1: Statement Re Computation of Ratio of        HTML     13K 
                          Earnings to Fixed Charges                              
 4: EX-8.1      Ex-8.1: Subsidiaries                                HTML    206K 
 5: EX-12.1     Ex-12.1: Certifications                             HTML     13K 
 6: EX-12.2     Ex-12.2: Certifications                             HTML     13K 
 7: EX-13.1     Ex-13.1: Certification                              HTML      8K 
 8: EX-13.2     Ex-13.2: Certification                              HTML      8K 
 9: EX-14.1     Ex-14.1: Legal Opinion                              HTML     17K 
10: EX-15.1     Ex-15.1: Consent of Kpmg                            HTML      8K 


20-F   —   Annual Report of a Foreign Private Issuer
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Table of Contents
"Part I
"Item 1: Identity of Directors, Senior Management and Advisers
"Item 2: Offer Statistics and Expected Timetable
"Item 3: Key Information
"Selected Financial Data
"Dividends
"Exchange Rate and Currency Information
"Long-Term Credit Ratings
"Capitalization and Indebtedness
"Reasons for the Offer and Use of Proceeds
"Risk Factors
"Item 4: Information on the Company
"History and Development of the Company
"Business Overview
"Our Group Divisions
"Corporate and Investment Bank Group Division
"Private Clients and Asset Management Group Division
"Corporate Investments Group Division
"Infrastructure and Regional Management
"Competitive Environment
"Regulation and Supervision
"Organizational Structure
"Property, Plant and Equipment
"Item 4A: Unresolved Staff Comments
"Item 5: Operating and Financial Review and Prospects
"Overview
"Significant Accounting Policies and Critical Accounting Estimates
"Recently Adopted Accounting Pronouncements and New Accounting Pronouncements
"Operating Results
"Results of Operations by Segment
"Group Divisions
"Liquidity and Capital Resources
"Post-Employment Benefit Plans
"Off-balance Sheet Arrangements with Unconsolidated Entities
"Tabular Disclosure of Contractual Obligations
"Research and Development, Patents and Licenses
"Item 6: Directors, Senior Management and Employees
"Directors and Senior Management
"Board Practices of the Management Board
"Group Executive Committee
"Compensation
"Employees
"Share Ownership
"Item 7: Major Shareholders and Related Party Transactions
"Major Shareholders
"Related Party Transactions
"Interests of Experts and Counsel
"Item 8: Financial Information
"Consolidated Statements and Other Financial Information
"Significant Changes
"Item 9: The Offer and Listing
"Offer and Listing Details
"Plan of Distribution
"Markets
"Selling Shareholders
"Dilution
"Expenses of the Issue
"Item 10: Additional Information
"Share capital
"Memorandum and Articles of Association
"Material Contracts
"Exchange Controls
"Taxation
"Dividends and Paying Agents
"Statement by Experts
"Documents on Display
"Subsidiary Information
"Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk
"Risk and Capital Management
"Categories of Risk
"Risk Management Tools
"Credit Risk
"Market Risk
"Liquidity Risk
"Operational Risk
"Overall Risk Position
"Item 12: Description of Securities other than Equity Securities
"Part Ii
"Item 13: Defaults, Dividend Arrearages and Delinquencies
"Item 14: Material Modifications to the Rights of Security Holders and Use of Proceeds
"Item 15: Controls and Procedures
"Disclosure Controls and Procedures
"Management's Annual Report on Internal Control Over Financial Reporting
"Change in Internal Control Over Financial Reporting
"Item 16A: Audit Committee Financial Expert
"Item 16B: Code of Ethics
"Item 16C: Principal Accountant Fees and Services
"Item 16D: Exemptions from the Listing Standards for Audit Committees
"Item 16E: Purchases of Equity Securities by the Issuer and Affiliated Purchasers
"Issuer Purchases of Equity Securities in 2007
"Part Iii
"Item 17: Financial Statements
"Item 19: Exhibits
"Signatures
"Supplemental Financial Information

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  20-F  

Table of Contents

As filed with the Securities and Exchange Commission on March 26, 2008
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 20-F
         
o
  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES    
 
  EXCHANGE ACT OF 1934    
 
  or    
x
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE    
 
  ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007    
 
  or    
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES    
 
  EXCHANGE ACT OF 1934    
 
  or    
o
  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES    
 
  EXCHANGE ACT OF 1934    
Date of event requiring this shell company report.....................................
Commission file number 1-15242
Deutsche Bank Aktiengesellschaft
(Exact name of Registrant as specified in its charter)
Deutsche Bank Corporation
(Translation of Registrant’s name into English)
Federal Republic of Germany
(Jurisdiction of incorporation or organization)
Theodor-Heuss-Allee 70, 60486 Frankfurt am Main, Germany
(Address of Registrant’s principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act
See following page
Securities registered or to be registered pursuant to Section 12(g) of the Act.
NONE
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
NONE
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
         
Ordinary Shares, no par value
    501,065,281  
(as of December 31, 2007)
     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
     
Yesx
  Noo
     If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
     
Yes o
  No x
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
     
Yes x   No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non- accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
         
Large accelerated filer x   Accelerated filer o   Non-accelerated filer o
     Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
         
U.S. GAAP o   International Financial Reporting Standards x   Other o
     Indicate by check mark which financial statement item the registrant has elected to follow
     
Item 17 o
  Item 18 x
If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
     
Yes o   No x
 
 


 



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Table of Contents

Securities registered or to be registered pursuant to Section 12(b) of the Act (as of February 29, 2008).
 
 
     
Title of each class   Name of each exchange
    on which registered
 
   
Ordinary Shares, no par value
  New York Stock Exchange
 
   
6.375 % Noncumulative Trust Preferred Securities of Deutsche Bank Capital Funding Trust VIII
   
6.375 % Noncumulative Company Preferred Securities of Deutsche Bank Capital Funding LLC VIII*
   
Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*
  New York Stock Exchange
 
   
6.55 % Trust Preferred Securities of Deutsche Bank Contingent Capital Trust II
   
6.55 % Company Preferred Securities of Deutsche Bank Contingent Capital LLC II*
   
Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*
  New York Stock Exchange
 
   
6.625 % Noncumulative Trust Preferred Securities of Deutsche Bank Capital Funding Trust IX
   
6.625 % Noncumulative Company Preferred Securities of Deutsche Bank Capital Funding LLC IX*
   
Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*
  New York Stock Exchange
 
   
ELEMENTS(SM) Linked to the Morningstar® Wide Moat Focus(SM) Total Return Index due October 24, 2022
  NYSE Arca
 
   
ELEMENTS(SM) “Dogs of the Dow” Linked to the Dow Jones High Yield Select 10 Total Return Index due November 14, 2022
  NYSE Arca
 
   
7.350 % Noncumulative Trust Preferred Securities of Deutsche Bank Capital Funding Trust X
   
7.350 % Noncumulative Company Preferred Securities of Deutsche Bank Capital Funding LLC X*
   
Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*
  New York Stock Exchange
 
   
7.60 % Trust Preferred Securities of Deutsche Bank Contingent Capital Trust III
   
7.60 % Company Preferred Securities of Deutsche Bank Contingent Capital LLC III*
   
Subordinated Guarantees of Deutsche Bank AG in connection with Capital Securities*
  New York Stock Exchange
 
   
ELEMENTS(SM) Linked to the Euro/U.S. Dollar Exchange Rate due February 23, 2023
  NYSE Arca
 
   
ELEMENTS(SM) Linked to the Australian Dollar/U.S. Dollar Exchange Rate due February 23, 2023
  NYSE Arca
 
   
ELEMENTS(SM) Linked to the U.S. Dollar/Swiss Franc Exchange Rate due February 23, 2023
  NYSE Arca
 
   
ELEMENTS(SM) Linked to the U.S. Dollar/British Pound Exchange Rate due February 23, 2023
  NYSE Arca
 
   
ELEMENTS(SM) Linked to the U.S. Dollar/Canadian Dollar Exchange Rate due February 23, 2023
  NYSE Arca
 
   
DB Gold Double Long Exchange Traded Notes due February 28, 2038
  NYSE Arca
 
   
DB Gold Double Short Exchange Traded Notes due February 28, 2038
  NYSE Arca
 
   
DB Gold Short Exchange Traded Notes due February 28, 2038
  NYSE Arca
 
 
*  
For listing purpose only, not for trading.
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20-F // TABLE OF CONTENTS

         
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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.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
We make certain forward-looking statements in this document with respect to our financial condition and results of operations. In this document, forward-looking statements include, among others, statements relating to:
—   
our implementation of our strategic initiatives and management agenda;
 
—   
the development of aspects of our results of operations;
 
—   
our targets for income before income tax expense (“IBIT”) attributable to Deutsche Bank shareholders (target definition), pre-tax return on average active equity (target definition) across the business cycle and diluted earnings per share growth;
 
—   
our expectations of the impact of risks that affect our business, including the risks of losses on our trading activities and credit exposures; and
 
—   
other statements relating to our future business development and economic performance.
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” 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.
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20-F // TABLE OF CONTENTS
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:
—   
changes in general economic and business conditions;
 
—   
changes and volatility in currency exchange rates, interest rates and asset prices;
 
—   
changes in governmental policy and regulation, and political and social conditions;
 
—   
changes in our competitive environment;
 
—   
the success of our acquisitions, divestitures, mergers and strategic alliances;
 
—   
our success in implementing our management agenda and realizing the benefits anticipated therefrom; and
 
—   
other factors, including those we refer to in “Item 3: Key Information – Risk Factors” and elsewhere in this document and others to which we do not refer.
USE OF NON-GAAP FINANCIAL MEASURES
This document contains non-GAAP financial measures. Non-GAAP financial measures are measures of our historical or future performance, financial position or cash flows that contain adjustments that exclude or include amounts that are included or excluded, as the case may be, from the most directly comparable measure calculated and presented in accordance with IFRS in our financial statements. Examples of our non-GAAP financial measures, and the most directly comparable IFRS financial measures, are as follows:
 
 
     
Non-GAAP Financial Measure   Most Directly Comparable IFRS Financial Measure
 
   
IBIT attributable to Deutsche Bank shareholders (target definition)
  Income before income tax expense
 
   
Average active equity
  Average shareholders’ equity
 
   
Pre-tax return on average active equity
  Pre-tax return on average shareholders’ equity
 
   
Pre-tax return on average active equity (target definition)
  Pre-tax return on average shareholders’ equity
 
   
Net income attributable to Deutsche Bank shareholders (basis for target definition EPS)
  Net income attributable to Deutsche Bank shareholders
 
   
Diluted earnings per share (target definition)
  Diluted earnings per share
 
 
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-19 and S-20 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 they are not indicative of the future performance of our core businesses.
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In “Item 4: Information on the Company–Business Overview”, we present our targets for pre-tax return on average active equity (target definition) and diluted earnings per share across the business cycle and our vision for IBIT attributable to Deutsche Bank shareholders that we aim to achieve in 2008. When used with respect to future periods, these targets are forward-looking statements as well as non-GAAP financial measures. 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 targets 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.
USE OF INTERNET ADDRESSES
This document contains inactive textual addresses of Internet websites operated by us and third parties. Reference to such websites is made for informational purposes only, and information found at such websites is not incorporated by reference into this document.
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PART I

Item 1: Identity of Directors, Senior Management
and Advisers
Not required because this document is filed as an annual report.
 

Item 2: Offer Statistics and Expected Timetable
Not required because this document is filed as an annual report.
 

Item 3: Key Information

SELECTED FINANCIAL DATA
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.”
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20-F // ITEM 3: KEY INFORMATION
INCOME STATEMENT DATA
 
 
                         
in m. and U.S.$ m.                  
(except per share data)   20071     2007     2006  
Net interest income
  $ 12,922       8,849       7,008  
 
           
Provision for credit losses
  $ 894       612       298  
 
           
Net interest income after provision for credit losses
  $ 12,028       8,237       6,710  
 
           
Commissions and fee income
  $ 17,946       12,289       11,195  
 
           
Net gains (losses) on financial assets/liabilities at fair value through profit or loss
  $ 10,478       7,175       8,892  
 
           
Other noninterest income
  $ 3,551       2,432       1,399  
 
           
Total net revenues
  $ 44,003       30,133       28,196  
 
           
Compensation and benefits
  $ 19,162       13,122       12,498  
 
           
General and administrative expenses
  $ 11,615       7,954       7,069  
 
           
Policyholder benefits and claims
  $ 282       193       67  
 
           
Impairment of intangible assets
  $ 187       128       31  
 
           
Restructuring activities
  $ (19 )     (13 )     192  
 
           
Total noninterest expenses
  $ 31,227       21,384       19,857  
 
           
Income before income tax expense
  $ 12,776       8,749       8,339  
 
           
Income tax expense
  $ 3,270       2,239       2,260  
 
           
Net income
  $ 9,507       6,510       6,079  
 
           
Net income attributable to minority interest
  $ 53       36       9  
 
           
Net income attributable to Deutsche Bank shareholders
  $ 9,454       6,474       6,070  
 
           
 
                       
Basic earnings per share2
  $ 19.93       13.65       12.96  
 
           
Diluted earnings per share3
  $ 19.06       13.05       11.48  
 
           
Dividends paid per share4
  $ 5.84       4.00       2.50  
 
 
1  
Amounts in this column are unaudited. We have translated the amounts solely for your convenience at a rate of U.S. $1.4603 per  , the noon buying rate on December 31, 2007.
 
2  
We calculate basic earnings per share for each period by dividing our net income by the weighted-average number of common shares outstanding.
 
3  
We calculate diluted earnings per share for each period by dividing our net income by the weighted-average number of common shares outstanding after assumed conversions.
 
4  
Dividends we declared and paid in the year.
BALANCE SHEET DATA
 
 
                         
in m. and U.S.$ m.   20071     2007     2006  
Total assets
  $ 2,950,316       2,020,349       1,584,493  
 
           
Loans
  $ 290,442       198,892       178,524  
 
           
Deposits
  $ 668,739       457,946       411,916  
 
           
Long-term debt
  $ 185,024       126,703       111,363  
 
           
Common shares
  $ 1,983       1,358       1,343  
 
           
Total shareholders’ equity
  $ 54,095       37,044       32,758  
 
           
Tier 1 risk-based capital (BIS)
  $ 41,356       28,320       23,539  
 
           
Total risk-based capital (BIS)
  $ 55,563       38,049       34,309  
 
 
1  
Amounts in this column are unaudited. We have translated the amounts solely for your convenience at a rate of U.S. $1.4603 per  , the noon buying rate on December 31, 2007.
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CERTAIN KEY RATIOS AND FIGURES

 
 
                 
    2007     2006  
Share price at period end
    89.40       101.34  
 
       
Share price high
    118.51       103.29  
 
       
Share price low
    81.33       80.74  
 
       
Book value per share issued1
    69.84       62.42  
 
       
Book value per basic share outstanding2
    77.54       69.48  
 
       
Return on average shareholders’ equity (post-tax)3
    18 %       20 %  
 
       
Pre-tax return on average shareholders’ equity4
    24 %       28 %  
 
       
Pre-tax return on average active equity5
    29 %       33 %  
 
       
Cost/income ratio6
    70 %       70 %  
 
       
Compensation ratio7
    43 %       44 %  
 
       
Non-compensation ratio8
    27 %       26 %  
 
       
Employees9:
               
In Germany
    27,779       26,401  
Outside Germany
    50,512       42,448  
 
       
Branches:
               
In Germany
    989       934  
Outside Germany
    900       783  

 
 
1  
Shareholders’ equity divided by the number of shares issued (both at period end).
 
2  
Shareholders’ equity divided by the number of basic shares outstanding (both at period end).
 
3  
Net income as a percentage of average shareholders’ equity.
 
4  
Income before income tax expense attributable to our shareholders as a percentage of average shareholders’ equity.
 
5  
Income before income tax expense attributable to our shareholders as a percentage of average active equity.
 
6  
Total noninterest expenses as a percentage of net interest income before provision for credit losses, plus noninterest income.
 
7  
Compensation and benefits as a percentage of total net interest income before provision for credit losses, plus noninterest income.
 
8  
Non-compensation 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.
 
9  
Number of full-time equivalent employees as of the end of each period.

DIVIDENDS
The following table shows in euro and in U.S. dollars the dividend per share for the years ended December 31, 2007 and 2006. We declare our dividends at our Annual General Meeting following each year. Our dividends are based on the nonconsolidated 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.
Dividends per share in the table below are presented before German withholding tax. Dividends that we pay have been subject to German withholding tax at an aggregate rate of 21.1 % (consisting of a 20 % withholding tax and an effective 1.1 % surcharge).
Residents of countries that have entered into an income tax convention with Germany may be eligible to receive a refund from the German tax authorities of a portion of the amount withheld. U.S. residents have been entitled to receive a refund equal to 6.1 % of those dividends.
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.
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20-F // ITEM 3: KEY INFORMATION
In 2007, a change in the German withholding tax law was enacted. Effective January 1, 2009, a withholding tax at an aggregate rate of 26.375 % (consisting of a 25 % withholding tax and an effective 1.375 % surcharge) will apply to dividends. For individual German tax residents, the withholding tax (including an additional church tax charge if applicable) represents, generally, the full and final tax applicable to the dividends. Dividend recipients who are tax residents of countries that have entered into a convention for avoiding double taxation with Germany may be entitled to a reduction of the German withholding tax and receive a credit in accordance with their local tax law.
See “Item 10: Additional Information – Taxation” for more information on the tax treatment of our dividends.
 
 
                                 
    Dividends     Dividends     Payout ratio2
    per share1     per share       Basic EPS     Diluted EPS  
 
           
2007 (proposed)
  $ 6.57        4.50       33 %       34 %  
 
               
2006
  $ 5.28        4.00       31 %       35 %  
 
 
1  
For your convenience, we present dividends in U.S. dollars for each year by translating the euro amounts at the noon buying rate described below under “Exchange Rate and Currency Information” on the last business day of that year.
 
2  
We define our payout ratio as the dividends we paid per share in respect of each year as a percentage of our basic and diluted earnings per share for that year.

EXCHANGE RATE AND CURRENCY INFORMATION
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. $1.4603 per euro, the noon buying rate for euros on December 31, 2007. 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, 2007 or any other date.
The noon buying rate for euros on December 31, 2007 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.
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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.

 
 
                                 
in U.S.$ per   Period-end     Average1     High     Low  
2008:
                               
March (through March 20)
    1.5417             1.5784       1.5195  
February
    1.5187             1.5187       1.4495  
January
    1.4841             1.4877       1.4574  
 
               
2007:
                               
December
    1.4603             1.4759       1.4344  
November
    1.4688             1.4862       1.4435  
October
    1.4468             1.4468       1.4092  
September
    1.4219             1.4219       1.3606  
 
               
2007
    1.4603       1.3797       1.4862       1.2904  
 
               
2006
    1.3197       1.2661       1.3327       1.1860  
 
               
2005
    1.1842       1.2400       1.3476       1.1667  
 
               
2004
    1.3538       1.2478       1.3625       1.1802  
 
               
2003
    1.2597       1.1411       1.2597       1.0361  

 
 
1  
We calculated the average rates for each year using the average of the noon buying rates on the last business day of each month during the year. We did not calculate average exchange rates within months.
On March 20, 2008, the noon buying rate was U.S.$ 1.5417 per euro.
 

LONG-TERM CREDIT RATINGS
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.

 
 
                 
    Dec 31, 2007     Dec 31, 2006  
Moody’s Investors Service, New York1
    Aa 1   Aa3  
 
       
Standard & Poor’s, New York2
  AA     AA–  
 
       
Fitch Ratings, New York3
    AA   AA–  

 
 
1  
Moody’s defines the Aa1 rating as denoting bonds that are judged to be high quality by all standards. Moody’s rates Aa bonds lower than the best bonds (which it rates Aaa) because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat greater than Aaa securities. The numerical modifier 1 indicates that Moody’s ranks the obligation in the upper end of the Aa category.
 
2  
Standard and Poor’s defines its AA rating as denoting an obligor that has a very strong capacity to meet its financial commitments. The AA rating is the second-highest category of Standard and Poor’s ratings. Standard and Poor’s notes that an AA rated obligor differs from the highest rated obligors only in small degree.
 
3  
Fitch Ratings defines its AA rating as very high credit quality. Fitch Ratings uses the AA rating to denote a very low expectation of credit risk. According to Fitch Ratings, AA– ratings indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. Category AA is Fitch Ratings second-highest rating category; the minus indicates a ranking in the lower end of the AA category.
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 the circumstances so warrant. You should not view these long-term credit ratings as recommendations to buy, hold or sell our securities.
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CAPITALIZATION AND INDEBTEDNESS
The following table sets forth our consolidated capitalization in accordance with IFRS as of December 31, 2007:
 
 
         
    in m.  
Debt1,2:
       
 
   
Long-term debt
    126,703  
 
   
Trust preferred securities
    6,345  
 
   
Long-term debt at fair value through profit or loss
    52,327  
 
   
Total debt
    185,375  
 
   
     
 
   
Shareholders’ equity:
       
 
   
Common shares (no par value)
    1,358  
 
   
Additional paid-in-capital
    15,808  
 
   
Retained earnings
    25,116  
 
   
Common shares in treasury, at cost
    (2,819 )
 
   
Equity classified as obligation to purchase common shares
    (3,552 )
 
   
Net gains (losses) not recognized in the income statement, net of tax
       
 
   
Unrealized net gains on financial assets available for sale, net of applicable tax and other
    3,635  
 
   
Unrealized net gains (losses) on derivatives hedging variability of cash flows, net of tax
    (52 )
 
   
Foreign currency translation, net of tax
    (2,450 )
 
   
Total shareholders’ equity
    37,044  
 
   
Minority interest
    1,422  
 
   
Total equity
    38,466  
 
   
Total capitalization
    223,841  
 
 
1  
No third party has guaranteed any of our debt.
 
2  
 7,257 million (4% ) of our debt was secured as of December 31, 2007.
 

REASONS FOR THE OFFER AND USE OF PROCEEDS
Not required because this document is filed as an annual report.
 

RISK FACTORS
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.
MARKET DECLINES AND VOLATILITY CAN MATERIALLY ADVERSELY AFFECT OUR REVENUES AND PROFITS.
In recent years we have increased our exposure to the financial markets as we have emphasized growth in our investment banking activities, including trading activities. Accordingly, we believe that we are more at risk from adverse developments in the financial markets than we were when we derived a larger percentage of our revenues from traditional lending activities. Market declines can cause our revenues to decline, and, if we are unable to reduce our expenses at the same pace, can cause our profitability to erode. Volatility can sometimes also adversely affect us.
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An overall market downturn can adversely affect our business and financial performance. Market downturns can occur not only as a result of purely economic factors, but also as a result of war, acts of terrorism, natural disasters or other similar events.
Since the second half of 2007, financial markets have experienced exceptionally difficult conditions, which have been reflected in considerably lower volumes of business activity in the areas most directly affected and concerns about 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 may require us to write down the carrying values of some of our portfolios of assets, including leveraged loans and loan commitments. Compensating for these negative effects on our profitability through performance in our other businesses may not be feasible, particularly if assumptions for continuing, albeit slower, economic growth in 2008 are not correct and less favorable economic conditions prevail. See “Item 5: Operating and Financial Review and Prospects – Results of Operations by Segment – Corporate Banking & Securities Corporate Division” for information on the impact of the current market environment on a number of our key businesses.
WE MAY INCUR SIGNIFICANT LOSSES FROM OUR TRADING AND INVESTMENT ACTIVITIES DUE TO MARKET FLUCTUATIONS.
We enter into and maintain large trading and investment positions in the fixed income, equity and currency markets, primarily through our Corporate Banking & Securities Corporate Division. We describe these activities in “Item 4: Information on the Company – Our Group Divisions – Corporate and Investment Bank Group Division.” We also have made significant investments in individual companies, primarily through our Corporate Investments and Corporate Investment Bank Group Divisions, which we describe in “Item 4: Information on the Company – Our Group Divisions”. We also maintain smaller trading and investment positions in other assets. Many of these trading positions include derivative financial instruments.
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 are dependent on market prices. 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 – characterized by rapid changes in price direction – the assessments we have made may prove to lead to lower revenues or profits, or losses, on the related transactions and positions.
In addition, we sometimes commit capital and take market risk to facilitate certain capital markets transactions; doing so can result in losses as well as income volatility.
See “Item 5: Operating and Financial Review and Prospects – Results of Operations by Segment – Corporate Banking & Securities Corporate Division” for information on the impact of the current market environment on a number of our key businesses.
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PROTRACTED MARKET DECLINES CAN REDUCE LIQUIDITY IN THE MARKETS, MAKING IT HARDER TO SELL ASSETS AND POSSIBLY LEADING TO MATERIAL LOSSES.
In some of our businesses, protracted market movements, particularly asset price declines, can reduce the level of activity in the market or reduce market liquidity. These developments can lead to material losses if we cannot close out deteriorating positions in a timely way. This may especially be the case for assets we hold for which there are not very liquid markets to begin with. Assets that are not traded on stock exchanges or other public trading markets, such as derivatives contracts between banks, may have values that we calculate using models other than publicly-quoted prices. Monitoring the deterioration of prices of assets like these is difficult and could lead to losses we did not anticipate.
The exceptionally difficult market conditions since the second half of 2007 have resulted in greatly diminished liquidity in certain markets in which we do business, including the leveraged finance and structured credit markets. Continuing difficult market conditions may require us to write down the carrying values of some of our portfolios of assets. See “Item 5: Operating and Financial Review and Prospects – Results of Operations by Segment – Group Divisions – Corporate and Investment Bank Group Division – Corporate Banking and Securities Corporate Division” for information on the impact of the current market environment on a number of our key businesses.
EVEN WHERE LOSSES ARE FOR OUR CLIENTS’ ACCOUNTS, THEY MAY FAIL TO REPAY US, LEADING TO MATERIAL LOSSES FOR US, AND OUR REPUTATION CAN BE HARMED.
While our clients would be responsible for losses we incur in taking positions for their accounts, we may be exposed to additional credit risk as a result of their need to cover the losses. Our business may also suffer if our clients lose money and we lose the confidence of clients in our products and services.
OUR INVESTMENT BANKING REVENUES MAY DECLINE IN ADVERSE MARKET OR ECONOMIC CONDITIONS.
Our investment banking revenues, in the form of financial advisory and underwriting fees, directly relate to the number and size of the transactions in which we participate and are susceptible to adverse effects from sustained market downturns. These fees and other income are generally linked to the value of the underlying assets and therefore decline as asset values decline. In particular, our revenues and profitability could sustain material adverse effects from a significant reduction in the number or size of debt and equity offerings and merger and acquisition transactions.
WE MAY GENERATE LOWER REVENUES FROM BROKERAGE AND OTHER COMMISSION- AND FEE-BASED BUSINESSES.
Market downturns are likely to lead to declines in the volume of transactions that we execute for our clients and, therefore, to declines in our noninterest income. In addition, because the fees that we charge for managing our clients’ portfolios are in many cases based on the value or performance of those portfolios, a market downturn that reduces the value of our clients’ portfolios or increases the amount of withdrawals would reduce the revenues we receive from our asset management and private banking businesses.
Even in the absence of a market downturn, below-market performance by our investment funds may result in increased withdrawals and reduced inflows, which would reduce the revenue we receive from our asset management business.
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WE MAY INCUR LOSSES AS A RESULT OF CHANGES IN THE FAIR VALUE OF OUR FINANCIAL INSTRUMENTS
A substantial proportion of the assets and liabilities on our balance sheet comprise financial instruments that we carry at fair value, with changes in fair value recognized in the income statement. See “Item 5: Operating and Financial Review and Prospects – Significant Accounting Policies and Critical Accounting Estimates – Fair Value Estimates – Methods of Determining Fair Value” for information on fair value accounting. 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. 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 could be significant.
Observable prices or inputs are not available for many financial instruments. Fair value is determined in these cases using valuation techniques 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 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 further write-downs. Market volatility increases the risk that the value of financial instruments carried at fair value will change in the future.
Furthermore, 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. Although such declines may be independent of the fair values of the underlying hedged assets, they may nonetheless result in the need for further write-downs in future periods.
Our results for the fiscal year 2007 included losses relating primarily to the write down in the fair values of our 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 exposure to these markets and products and, therefore, could be required further to write down their carrying values and incur further losses. Any of these write-downs could have a material adverse effect on our results of operation and financial condition. See “Item 5: Operating and Financial Review and Prospects – Results of Operations by Segment – Group Divisions – Corporate and Investment Bank Group Division – Corporate Banking and Securities Corporate Division” for information on the impact of the current market environment on a number of our key businesses.
OUR RISK MANAGEMENT POLICIES, PROCEDURES AND METHODS MAY LEAVE US EXPOSED TO UNIDENTIFIED OR UNANTICIPATED RISKS, WHICH COULD LEAD TO MATERIAL LOSSES.
We have devoted significant resources to developing our risk management policies, procedures and assessment methods and intend to continue to do so in the future. Nonetheless, our risk management techniques and strategies may not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk, including risks that we fail to identify or anticipate. Some of our quantitative tools and metrics for managing risk are based upon our use of observed historical market behavior. We apply statistical and other tools to these observations to arrive at quantifications of our risk exposures. These tools and metrics may fail to predict future risk expo-
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sures. In addition, our quantitative modeling does not take all risks into account. As a result, risk exposures could, for example, arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses thus could be significantly greater than the historical measures indicate.
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 2007, we observed 12 outliers, 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 unusual market conditions, such as those observed in the last two quarters of 2007.
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. 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.
OUR NONTRADITIONAL CREDIT BUSINESSES MATERIALLY ADD TO OUR TRADITIONAL BANKING CREDIT RISKS.
Like other banks and providers of financial services, we are exposed to the risk that third parties that owe us money, securities or other assets will not perform their obligations. Many of the businesses we engage in beyond the traditional banking businesses of deposit-taking and lending also expose us to credit risk.
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. We describe our credit risk and the methods we use to monitor it in “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Risk and Capital Management – Credit Risk.”
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The exceptionally difficult market conditions since the second half of 2007 which we have noted above have 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 2008. See “Item 5: Operating and Financial Review and Prospects – Results of Operations by Segment – Corporate Banking & Securities Corporate Division” for information on the impact of the current market environment on a number of our key businesses.
WE HAVE A CONTINUOUS DEMAND FOR LIQUIDITY TO FUND OUR BUSINESS ACTIVITIES. WE MAY SUFFER DURING PERIODS OF MARKET-WIDE OR FIRM-SPECIFIC LIQUIDITY CONSTRAINTS AND ARE EXPOSED TO THE RISK THAT LIQUIDITY IS NOT MADE AVAILABLE TO US EVEN IF OUR UNDERLYING BUSINESS REMAINS STRONG.
We are exposed to liquidity risk, which is the risk arising from our potential inability to meet all payment obligations when they become due or only being able to meet them at excessive costs.
Our liquidity may become impaired due to a reluctance of our counterparties or the market to finance our operations due to actual or perceived weaknesses in our businesses. Such impairments can also arise from circumstances unrelated to our businesses and outside our control, such as, but not limited to, disruptions in the financial markets, negative developments concerning other financial institutions perceived to be comparable to us or negative views about the financial services industry in general, or disruptions in the markets for any specific class of assets. Negative perceptions concerning our business and prospects could develop as a result of large losses, changes of our credit ratings, a general decline in the level of business activity in the financial services sector, regulatory action, serious employee misconduct or illegal activity, as well as many other reasons.
We have implemented a group-wide liquidity risk management framework, which we describe in “Item 11 — Quantitative and Qualitative Disclosures about Credit, Market and Other Risk — Liquidity Risk”, for the purposes of managing and reducing the impact of the above-mentioned events on our liquidity risk position.
Although we have not so far experienced any constraint in our access to liquidity, market sentiment can change quickly. Any significant constraint on our ability to borrow funds can swiftly have a material adverse effect on our business and financial condition.
OPERATIONAL RISKS MAY DISRUPT OUR BUSINESSES.
We face operational risk arising from errors made in the execution, confirmation or settlement of transactions or from transactions not being properly recorded, evaluated or accounted for. Derivative contracts are not always confirmed with the counterparties on a timely basis; while the transaction remains unconfirmed, we are subject to heightened credit and operational risk and in the event of a default may find it more difficult to enforce the contract.
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 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.
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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.
THE SIZE OF OUR CLEARING OPERATIONS EXPOSES US TO A HEIGHTENED RISK OF MATERIAL LOSSES SHOULD THESE OPERATIONS FAIL TO FUNCTION PROPERLY.
We have very large clearing and settlement businesses. While many other banks and financial institutions operate large clearing businesses, we believe that the sheer scope of ours heightens the risk that we, our customers or other third parties could lose substantial sums if our systems fail to operate properly for even short periods. This will be the case even where the reason for the interruption is external to us. In such a case, we might suffer harm to our reputation even if no material amounts of money are lost. This could cause customers to take their business elsewhere, which could materially harm our revenues and our profits.
IF WE ARE UNABLE TO IMPLEMENT OUR MANAGEMENT AGENDA, WE MAY BE UNABLE TO SUSTAIN OUR RETURN ON AVERAGE ACTIVE EQUITY OR PERCENTAGE GROWTH IN OUR EARNINGS PER SHARE OR ACHIEVE OUR VISION FOR IBIT ATTRIBUTABLE TO OUR SHAREHOLDERS (TARGET DEFINITION), AND OUR SHARE PRICE MAY BE MATERIALLY AND ADVERSELY AFFECTED.
In 2002, we initiated a multi-year and multi-phased management agenda designed to help us reduce costs, lower our risk profile, increase efficiency and raise our profitability. As part of Phase 3 of our management agenda, which was launched in October 2006, we have stated our targets to deliver double-digit percentage growth in earnings per share and a sustainable pre-tax return on equity of 25 % across the business cycle. Moreover, we have provided a vision under which we aim to deliver IBIT attributable to Deutsche Bank shareholders (using our target definition) of  8.4 billion in 2008.
We may be unable to sustain our return on average active equity or achieve our percentage earnings per share growth objective or our vision for IBIT attributable to Deutsche Bank shareholders (target definition), and our share price may be materially and adversely affected, should we fail to implement our management agenda or growth initiatives or should such initiatives that are implemented fail to produce the anticipated benefits. A number of internal and external factors could prevent the implementation of these initiatives or the realization of their anticipated benefits, including changes in the markets in which we are active, global, regional and national economic conditions and increased competition for business and employees. In particular, the exceptionally difficult market conditions since the second half of 2007 which we have noted above would likely adversely affect our ability to achieve our objective for IBIT attributable to Deutsche Bank shareholders (target definition) in 2008.
We describe our management agenda and its anticipated benefits, as well as factors that could affect the success of this agenda, in ‘‘Item 4: Information on the Company – Business Overview – Our Business Strategy’’ and ‘‘Item 5: Operating and Financial Review and Prospects – Operating Results – Executive Summary’’ and “ – Results of Operations by Segment – Corporate Banking & Securities Corporate Division”.
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WE MAY HAVE DIFFICULTY IN IDENTIFYING AND EXECUTING ACQUISITIONS, AND BOTH MAKING ACQUISITIONS AND AVOIDING THEM COULD MATERIALLY HARM OUR RESULTS OF OPERATIONS AND OUR SHARE PRICE.
We consider business combinations from time to time. Even though we review the companies we plan to acquire, it is generally not feasible for these reviews to be complete in all respects. As a result, we may assume unanticipated liabilities, or an acquisition may not perform as well as expected. Were we to announce or complete a significant business combination transaction, our share price could decline significantly if investors viewed the transaction as too costly or unlikely to improve our competitive position. In addition, we might have difficulty integrating any entity with which we combine our operations. Failure to complete announced business combinations or failure to integrate acquired businesses successfully into ours could materially adversely affect our profitability. It could also affect investors’ perception of our business prospects and management, and thus cause our share price to fall. It could also lead to departures of key employees, or lead to increased costs and reduced profitability if we felt compelled to offer them financial incentives to remain.
If we avoid entering into additional business combination transactions or fail to identify attractive companies to acquire, market participants may, especially in the current climate of consolidation, perceive us negatively. We may also be unable to expand our businesses, especially into new business areas, as quickly or successfully as our competitors if we do so through organic growth alone. These perceptions and limitations could cost us business and harm our reputation.
WE MAY HAVE DIFFICULTIES SELLING NONCORE ASSETS AT FAVORABLE PRICES, OR AT ALL.
As part of our efforts to focus on our core businesses, we may seek to sell certain noncore assets. Unfavorable business or market conditions may make it difficult for us to sell such assets at favorable prices, or may preclude such a sale altogether.
EVENTS AT COMPANIES IN WHICH WE HAVE INVESTED MAY MAKE IT HARDER TO SELL OUR HOLDINGS AND RESULT IN MATERIAL LOSSES IRRESPECTIVE OF MARKET DEVELOPMENTS.
We have made significant investments in individual companies, primarily through our Corporate Investments and Corporate Investment Bank Group Divisions. Where we have done so, the effect of losses and risks at those companies may restrict our ability to sell our shareholdings and may reduce the value of our holdings considerably, including the value thereof reflected in our financial statements, or require us to take charges to our earnings, even where general market conditions are favorable. Our larger, less liquid interests are particularly vulnerable given the size of these exposures.
INTENSE COMPETITION, IN OUR HOME MARKET OF GERMANY AS WELL AS IN INTERNATIONAL MARKETS, COULD MATERIALLY HURT OUR REVENUES AND PROFITABILITY.
Competition is intense in all of our primary business areas in Germany and the other countries in which we conduct large portions of our business, including other European countries and the United States. If we are unable to respond to the competitive environment in Germany or in our other major markets with attractive product and service offerings that are profitable for us, we may lose market share in important areas of our business or incur losses on some or all of our activities. In addition, downturns in the German economy could add to the competitive pressure, through, for example, increased price pressure and lower business volumes for us and our competitors.
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In recent years there has been substantial consolidation and convergence among companies in the financial services industry, particularly in Europe. 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 take advantage of some of our most significant challenges and opportunities, we will have to compete successfully with financial institutions that are larger and better capitalized than us and that may have a stronger position in local markets.
As mentioned above, we sometimes commit capital and take market risk to facilitate certain capital markets transactions. We have experienced, and expect to continue to experience, competitive pressure to retain market share by committing capital to businesses or transactions on terms that offer returns that may not be commensurate with their risks. In particular, corporate clients sometimes seek such commitments (such as credit commitments) from financial services firms in connection with investments banking and other assignments. We have also experienced intense price competition in some of our businesses in recent years.
WE OPERATE IN AN INCREASINGLY REGULATED AND LITIGIOUS ENVIRONMENT, POTENTIALLY EXPOSING US TO LIABILITY AND OTHER COSTS, THE AMOUNTS OF WHICH MAY BE DIFFICULT TO ESTIMATE.
The financial services industry has historically been and continues to be among the most highly regulated industries. Our operations throughout the world are regulated and supervised by the central banks and regulatory authorities in the jurisdictions in which we operate. Regulation and supervision includes requirements regarding our structure, capitalization and function, as well as requirements relating to the conduct of our business. In recent years, regulation and supervision in a number of areas has increased, and regulators, counterparties and others have sought to subject financial services providers to increasing responsibilities and liabilities. As a result, we may be subject to an increasing incidence or amount of liability or regulatory sanctions and may be required to make greater expenditures and devote additional resources to address potential liability.
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 United States. 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 judicial, 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 therefore. See “Item 5: Operational and Financial Review and Prospects – Significant Accounting Policies and Critical Accounting Estimates – Legal and Regulatory Contingencies and Tax Risks”.
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TRANSACTIONS WITH COUNTERPARTIES IN COUNTRIES DESIGNATED BY THE U.S. STATE DEPARTMENT AS STATE SPONSORS OF TERRORISM MAY LEAD SOME POTENTIAL CUSTOMERS AND INVESTORS IN THE U.S. AND OTHER COUNTRIES TO AVOID DOING BUSINESS WITH US OR INVESTING IN OUR SECURITIES.
We engage or have engaged in a limited amount of business with counterparties, including government owned or controlled counterparties, in certain countries which the U.S. State Department has designated as state sponsors of terrorism, including Iran. We also had a representative office in Tehran, Iran, which we discontinued at December 31, 2007. U.S. law generally prohibits U.S. persons from doing business with such countries. We are a German bank and our activities with respect to such countries have not involved any U.S. person in either a managerial or operational role and have been subject to policies and procedures designed to ensure compliance with United Nations, European Union and German embargoes. In 2007, our Management Board decided that we will not engage in new business with counterparties in countries such as Iran, Syria and North Korea and to exit existing business, if any, to the extent legally possible. Similar decisions have already been taken in previous years with regard to other countries like Sudan.
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, 2007 and our revenues from all such activities representing less than 0.1 % of our total revenues for the year ended December 31, 2007.
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.
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20-F // ITEM 4: INFORMATION ON THE COMPANY

Item 4: Information on the Company

HISTORY AND DEVELOPMENT OF THE COMPANY
The legal and commercial name of our company is Deutsche Bank Aktiengesellschaft. The original Deutsche Bank was founded in Berlin in 1870 as a joint stock company principally dedicated to financing foreign trade. To support this business, after its founding, Deutsche Bank expanded by opening branches in Bremen, Yokohama, Shanghai, Hamburg and London. This international growth was supported by Deutsche Bank’s establishment of the German Overseas Bank (Deutsche Ueberseeische Bank) in 1886 and by Deutsche Bank’s taking a stake in the newly created German Asian Bank (Deutsch-Asiatische Bank) in 1889. To complement its international activities, Deutsche Bank developed a strong domestic presence in Germany by accepting cash deposits and developing relationships with large corporations. Beginning in the 1880s, Deutsche Bank began underwriting securities of these large corporations, with particular emphasis on the electrical engineering and steel industries. In the 1890s, Deutsche Bank expanded its domestic presence by opening new branches and acquiring smaller regional banks.
In 1929, following a long period of retrenchment after World War I, Deutsche Bank merged with the second largest bank in Germany, Disconto-Gesellschaft. The merged company operated under the name Deutsche Bank und Disconto-Gesellschaft until 1937, at which time it reverted to the Deutsche Bank name.
In 1952, Deutsche Bank disincorporated and split into three separate institutions (Norddeutsche Bank Aktiengesellschaft, Rheinisch-Westfälische Bank Aktiengesellschaft, and Süddeutsche Bank Aktiengesellschaft) pursuant to a 1952 law limiting the scope of credit institutions. These three institutions later reunified. Deutsche Bank Aktiengesellschaft, as it is known today, is a stock corporation organized under the laws of Germany.
The merger of the three institutions and our corporate name were entered into the Commercial Register of the District Court in Frankfurt am Main on May 2, 1957. We operate under the German Stock Corporation Act (Aktiengesetz). 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, 2007:
—   
The acquisition of Berliner Bank for  646 million was signed in June 2006 and closed in January 2007. In addition, we agreed with the seller (LandesBank Berlin) on cooperation in a wide range of areas, particularly in back-office functions.
 
—   
The acquisition of MortgageIT Holdings, Inc. was signed in July 2006 and closed in January 2007. This acquisition was executed by means of a public tender offer to its shareholders, in which we acquired its outstanding share capital for U.S.$14.75 in cash per share, or $430 million in aggregate.
 
—   
The acquisition of a 10 % stake in Dedalus GmbH & Co. KGaA economically representing a 0.75 % participation in European Aeronautic Defence and Space Company EADS N.V. was signed in February 2007 and closed in March 2007.
 
—   
The acquisition of a 10 % stake in Hanoi Building Commercial Joint Stock Bank (“Habubank”) was signed in February 2007 and closed in September 2007.
 
—   
The sale of our traditional asset management manufacturing business in Australia to Aberdeen Asset Management plc was signed in March 2007 and closed in June 2007.
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—   
The acquisition of the institutional cross-border custody business of Türkiye Garanti Bankasi A.S. was signed and closed in July 2007.
 
—   
The acquisition of Abbey Life Assurance Company Limited from Lloyds TSB Group plc was signed in July 2007 and closed in October 2007.
 
—   
The reduction of our holding in Allianz S.E. from 2.2 % to 1.7 % took place via sell-down in the public markets in August and September 2007.
 
—   
The reduction of our holding in Linde AG from 7.8 % to 5.2 % took place via sell-down in the public markets in September and December 2007.
Since January 1, 2007, there have been no public takeover offers by third parties with respect to our shares.
 

BUSINESS OVERVIEW
OUR ORGANIZATION
Headquartered in Frankfurt am Main, Germany, we are the largest bank in Germany, and one of the largest financial institutions in Europe and the world, as measured by total assets of  2,020 billion as of December 31, 2007. As of that date, we employed 78,291 people on a full-time equivalent basis and operated in 76 countries out of 1,889 facilities worldwide, of which 52 % were in Germany. We offer a wide variety of investment, financial and related products and services to private individuals, corporate entities and institutional clients around the world.
We are organized into three group divisions, two of which are further sub-divided into corporate divisions. As of December 31, 2007, our group divisions were:
—   
The Corporate and Investment Bank (CIB), comprising two corporate divisions:
  —   
Corporate Banking & Securities (CB&S)
 
  —   
Global Transaction Banking (GTB)
—   
Private Clients and Asset Management (PCAM), comprising two corporate divisions:
  —   
Asset and Wealth Management (AWM)
 
  —   
Private & Business Clients (PBC)
—   
Corporate Investments (CI)
These divisions are supported by infrastructure functions and our Corporate Center. In addition, we created a regional management function that covers regional responsibilities worldwide.
We have operations or dealings with existing or potential customers in almost every country in the world. These operations and dealings include:
—   
subsidiaries and branches in many countries;
 
—   
representative offices in many other countries; and
 
—   
one or more representatives assigned to serve customers in almost every other country.
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20-F // ITEM 4: INFORMATION ON THE COMPANY
The following table shows our net revenues by geographical region, based on our management reporting systems.
 
 
                 
in m.   2007     2006  
Germany:
               
CIB
    2,921       2,265  
PCAM
    5,514       4,922  
 
       
Total Germany
    8,434       7,187  
 
       
Europe, Middle East and Africa:
               
CIB
    7,721       6,836  
PCAM
    2,816       2,661  
 
       
Total Europe, Middle East and Africa1
    10,537       9,497  
 
       
Americas (primarily U.S.):
               
CIB
    4,628       6,810  
PCAM
    1,331       1,350  
 
       
Total Americas
    5,959       8,160  
 
       
Asia-Pacific:
               
CIB
    3,823       2,891  
PCAM
    468       381  
 
       
Total Asia-Pacific
    4,291       3,273  
 
       
Corporate Investments
    1,517       574  
 
       
Consolidation & Adjustments
    7       (197 )
 
       
Consolidated net revenues2
    30,745       28,494  
 
 
1  
The United Kingdom accounted for more than sixty percent of these revenues in 2007 and 2006, respectively.
 
2  
Consolidated total net revenues comprise interest and similar income, interest expense and total noninterest income (including commissions and fee income). Revenues are attributed to countries based on the location in which our booking office is located. The location of a transaction on our books is sometimes different from the location of the headquarters or other offices of a customer and different from the location of our personnel who entered into or facilitated the transaction. Where we record a transaction involving our staff and customers and other third parties in different locations frequently depends on other considerations, such as the nature of the transaction, regulatory considerations and transaction processing considerations.
MANAGEMENT STRUCTURE
We operate the three group divisions and the infrastructure functions under the umbrella of a “virtual holding company”. We use this term to mean that, while we subject the group divisions and infrastructure areas to the overall supervision of our Management Board, which is supported by the Corporate Center, we do not have a separate legal entity holding these three group divisions but we nevertheless allocate substantial managerial autonomy to them. To support this structure, key governance bodies function as follows:
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, 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.
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OUR BUSINESS STRATEGY
We have a clearly defined business strategy, which encompasses all dimensions of our practice: our corporate identity; our mission and values; our brand; and our management agenda, which comprises a program of transformation and profitable growth initiatives which the Bank has implemented since 2002.
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 powerful and growing positions in North America, Asia, and key emerging markets. Our focus is on growth by 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. We made significant gains in profitability as measured by growth in net income and pre-tax return on average active equity; we command leading positions in our chosen core businesses; we have substantially reduced our credit risk and alternative asset risk; and we have 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.
In 2006, we launched “Phase 3” of our management agenda, covering the period 2006-2008. Our overall objective is to leverage our global platform for accelerated growth. We have 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). Furthermore, we aim to exploit synergies, for both revenue generation and cost-efficiency, by fostering teamwork and collaboration between our mutually supporting businesses. We continue to aim for a sustainable pre-tax return on average active equity, using our target definition, of 25 % across the business cycle, together with double-digit percentage growth in diluted earnings per share. Moreover, we have provided a vision under which we aim to deliver IBIT attributable to Deutsche Bank shareholders (using our target definition) of  8.4 billion in 2008. (Our targets are forward-looking statements as well as non-GAAP financial measures. Please refer to “Cautionary Statement Regarding Forward-Looking Statements” and “Use of Non-GAAP Financial Measures” on pages (iv) and (v) for certain considerations relating to such targets. Such targets are summarized on pages S-19 and S-20.)
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20-F // ITEM 4: INFORMATION ON THE COMPANY
Since the second half of 2007, financial markets have experienced exceptionally difficult conditions, which have been reflected in considerably lower volumes of business activity in the areas most directly affected and concerns about 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 may require us to write down the carrying values of some of our portfolios of assets, including leveraged loans and loan commitments. Compensating for these negative effects on our profitability through performance in our other businesses may not be feasible, particularly if assumptions for continuing, albeit slower, economic growth in 2008 are not correct and less favorable economic conditions prevail. These circumstances would likely adversely affect our ability to achieve our objective for IBIT attributable to Deutsche Bank shareholders (target definition) in 2008.
GROWTH STRATEGIES IN OUR CIB BUSINESSES:
In CORPORATE BANKING & SECURITIES, we aim to build further on our position as one of the world’s leading investment banks (based on publicly available revenue information). In sales and trading, we have established a position as one of the world’s leading houses (based on publicly available revenue information). We command strong positions in both “market access” products such as foreign exchange, where we were again ranked no. 1 in the world in Euromoney magazine’s 2007 annual poll, and in complex “intellectual capital” business areas such as derivatives, where a 2007 poll in Risk Magazine identified us as the world’s largest derivatives trader for the third consecutive year. The strength and breadth of our platform was reflected in the IFR (International Financing Review) Awards for 2007, where we were named Bond House of the Year, Derivatives House of the Year, Interest Rate Derivatives House of the Year, Equity Derivatives House of the Year and Securitisation House of the Year. Risk Magazine also named us as Foreign Exchange and Interest Rate Derivatives House of the Year. We aim to develop further our platform through several targeted initiatives. Having integrated our debt and equity platforms in 2005, we seek to achieve further synergies across these two areas. We seek to continue to expand our capabilities in high-value, “intellectual capital” businesses, and in strategically important areas such as commodities, while continuing to strengthen our platform in the U.S. market. We aim to develop further our global equities platform, which was named IFR European Equity House of the Year in 2007, with focused investments in cash equities, derivatives and prime services. We plan to continue building our presence in emerging markets, including in Asia, Central and Eastern Europe and Latin America. We were named ‘Bank of the Year 2007’ by IFR Asia.
In Corporate Finance, we have also built a powerful European franchise, and our principal strategic objective is to build a sustainable top-5 position globally, as measured by fee pool. We aim to achieve this goal by building on our leading position in Europe, where we ranked no. 1 by share of fee pool across advisory, origination debt and origination equity revenues in 2007 (Source: Dealogic); by growing market share, profitably, in the United States market; by strengthening the relationships with our most important clients through a leaner, more focused client coverage model; by continuing to build our presence in important emerging growth markets; and by continuing to unlock further synergies between our corporate finance business and our sales and trading businesses, and between CIB and PCAM.
As mentioned above, exceptionally difficult market conditions since the second half of 2007 have adversely affected certain areas in which we do business, including the leveraged finance and structured credit markets, and appear likely to continue to do so in 2008. See “Item 5: Operating and Financial Review and Prospects – Results of Operations by Segment – Corporate Banking & Securities Corporate Division” for information on the impact of the current market environment on a number of our key businesses.
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In GLOBAL TRANSACTION BANKING, we have achieved significant growth in pre-tax profitability between 2004 and 2007, and our cost-income ratio in 2006 and 2007 compared favorably with leading global competitors with comparable business models (based on publicly available financial data). Our aim is to achieve further profitable growth by means of several initiatives. In Europe, we aim to grow revenues by expanding on our current position in Germany, by building out our European domestic custody platform and by increasing our business with European mid-cap clients. We further aim to take advantage of opportunities created by the launch of the Single European Payment Area (SEPA) in January 2008. In the Asia-Pacific region, our growth strategy focuses on large local corporate clients and on fast-growing markets such as China, India and Korea. We also aim to grow in Central and Eastern Europe, and the Middle East, and to support our growth with selective incremental acquisitions where appropriate. Increased cooperation with Corporate Banking & Securities, and with Private Clients and Asset Management, is central to our strategy.
GROWTH STRATEGIES IN OUR PCAM BUSINESSES:
In ASSET AND WEALTH MANAGEMENT, we operate in all major regions of the world, with invested assets of  749 billion as of the end of 2007. During 2007, we attracted net new money inflows of  40 billion. Our aim is to develop further, and grow profitably in, both our Asset Management business and our Private Wealth Management business. In Asset Management, our growth strategy includes specific plans for each of our four global business lines: retail, alternative investments, institutional and insurance. In retail asset management, we aim to consolidate and expand our leadership position in Germany and Europe, where our DWS franchise commands a top-2 position (as measured by publicly available invested asset data). We also aim to continue developing DWS Scudder in North America, and to further expand the DWS franchise across the Asia-Pacific and Latin America regions. In alternative asset management, we aim to leverage our Real Estate Asset Management platform under the RREEF brand, and take advantage of growth opportunities in the infrastructure, hedge fund, fund of hedge funds, and private equity fund of funds areas. In insurance asset management, we aim to capitalize on our position as a world-leading manager of non-affiliated insurance assets (as reflected by publicly available invested asset data), and to take advantage of the nascent trend of outsourcing in this sector. In institutional asset management, we aim to capture the opportunity offered by the growth of key client segments, which include pension funds, sovereign wealth funds and other types of institutions. In particular, we are focused on strengthening distribution and building world-class consultant relationships. In Private Wealth Management, we aim to reap the benefits of both organic growth and acquisitions made in recent years. In the United Kingdom, our position was enlarged by Tilney Group Limited, one of the leading independent private wealth managers in the United Kingdom, which was acquired in 2006. We also aim to expand our Discretionary Portfolio Management proposition, supported by a globally consistent Wealth Advisory Process, as a fully-integrated offering to wealthy individuals and families around the world, and to grow further in alternative investments and lending services.
In PRIVATE & BUSINESS CLIENTS, 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 and Eastern Europe and the Asia-Pacific region. Our business model is based on the two core competencies of advisory banking and consumer banking. Our commitment to growth in our home market, Germany, was underlined by two acquisitions announced in 2006: Berliner Bank, which significantly extends both our branch network and our market share in Germany’s capital city, and norisbank, which expands our presence in consumer banking. During 2007, our position in Germany benefited from the integration of Berliner Bank, while norisbank was re-launched in September 2007. We aim to expand further on exist-
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20-F // ITEM 4: INFORMATION ON THE COMPANY
ing co-operations with ADAC, Germany’s and Europe’s largest automobile club, and with DVAG, Europe’s largest network of mobile sales agents. Outside Germany, we aim to grow in “core” European markets with a focus on Italy, Spain, Portugal and Belgium. In Central and Eastern Europe, our organic expansion in Poland continued during 2007, with growth in revenues and business volume, reflecting the expansion of our network in both advisory banking and consumer banking. In Asia-Pacific, our primary focus is on India and China. In India, our organic expansion has continued during 2007. We now operate out of 10 branches, employing over 1,000 people (on a full-time equivalent basis). We achieved substantial growth in revenues, new client numbers and business volume during 2007. In China, we continue to develop our cooperation agreement with Hua Xia bank, in which we have a 9.9 % stake, and which includes cooperation in credit cards. We also opened branches in Beijing and Shanghai in March 2007. Our commitment to the Asia-Pacific region was further underlined by the acquisition in September 2007 of a 10 % stake in Habubank, in Vietnam.
CAPITAL MANAGEMENT STRATEGY. Focused management of capital has been a clearly-stated part of all phases of our management agenda. In the current phase, our capital management strategy aims to support profitable growth by balancing business growth with returns to shareholders. In respect of business growth, we deploy core capital to support both an increase in risk-weighted assets, which grew by  53 billion to  328 billion during 2007, and focused and selective acquisitions. We also returned capital to shareholders via both continued share buybacks and sustained dividend growth. Management has recommended a dividend for 2007 of  4.50 per share, up by 12.5 % compared to  4.00 per share in 2006. While seeking to meet these objectives, we also aim to maintain a BIS Tier 1 capital ratio of between 8 % and 9 %. This aim was successfully met during 2007. Further underlining our commitment to integrated management of capital and risk, a Capital and Risk Committee, chaired by the Group Chief Risk Officer, was formed in 2006.
 

OUR GROUP DIVISIONS
Group division is a term we use to describe the three highest-level divisions of our firm, which are the Corporate and Investment Bank Group Division (CIB), the Private Clients and Asset Management Group Division (PCAM) and the Corporate Investments Group Division (CI). The CIB and PCAM Group Divisions are each divided into two principal corporate divisions. The CI Group Division does not use the intermediate corporate division designation.
 

CORPORATE AND INVESTMENT BANK GROUP DIVISION
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 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, measured by financial performance, market share,
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reputation and customer franchise, while making optimal usage of, and achieving optimal return on, our economic 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, 2007, this group division included two corporate divisions, comprising the following business divisions:
—   
Corporate Banking & Securities Corporate Division
  —   
Global Markets
 
  —   
Corporate Finance
—   
Global Transaction Banking Corporate Division
  —   
Trade Finance and Cash Management Corporates
 
  —   
Trust & Securities Services and Cash Management Financial Institutions
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. 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.
CORPORATE BANKING & SECURITIES CORPORATE DIVISION
CORPORATE DIVISION OVERVIEW
Corporate Banking & Securities is made up of the business divisions Global Markets and Corporate Finance. These businesses offer financial products worldwide ranging from the underwriting of stocks and bonds to the tailoring of structured solutions for complex financial requirements.
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.
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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.
PRODUCTS AND SERVICES
The Global Markets Business Division is responsible for origination, sales, financing, structuring and trading activities across a wide range of fixed income, equity, equity-linked, convertible bond, foreign exchange and commodities products. The division aims to deliver creative solutions to the capital-raising, investing, hedging and other financing needs of customers.
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 conduct proprietary trading, or trading on our own account, in addition to providing products and services to customers. Most trading activity 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 this exposure by 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, and this is what we term proprietary trading.
We undertake designated proprietary trading across all asset classes. Some of this proprietary trading activity takes the form of arbitrage. For example, in index arbitrage we identify differences between the prices of exchange-traded derivatives (such as futures contracts on an equity index) and the underlying prices on the stock exchange of the individual stocks in the index. In convertible arbitrage, we identify volatility-related pricing differences between the market for convertible debt instruments and the cash and derivatives markets. In credit and equity arbitrage, we use statistics-driven trading strategies based on short-term market movements and indicators to manage our trading book so that the market value of our long positions remains roughly equal to the market value of our short positions. We also undertake risk-arbitrage, which is generally related to mergers and acquisitions, involving, for example, transactions such as buying a target company’s shares at the same time as selling the bidding company’s shares.
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 – Risk Management – Market Risk – Value-at-Risk Analysis.”
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DISTRIBUTION CHANNELS AND MARKETING
In the Corporate Banking & Securities Corporate Division, the focus of our corporate and institutional coverage bankers and sales teams is on our client relationships. We have structured our client coverage model so as to provide varying levels of standardized or dedicated services to our customers depending on their needs and level of complexity.
GLOBAL TRANSACTION BANKING CORPORATE DIVISION
CORPORATE DIVISION OVERVIEW
Global Transaction Banking is primarily engaged in the gathering, transfer, safeguarding and control of assets for its clients throughout the world. It provides processing, fiduciary and trust services to corporations, financial institutions and governments and their agencies and comprises the following business divisions:
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Trade Finance and Cash Management Corporates
 
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Trust & Securities Services and Cash Management Financial Institutions
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. The client transition is expected to be completed in April 2008.
In May 2006, we completed the acquisition of the UK Depository and Clearing Centre business from JPMorgan Chase.
PRODUCTS AND SERVICES
Trade Finance provides comprehensive solutions along the client’s trade value chain by combining international trade risk mitigation products and services with custom-made solutions for structured trade and export finance as well as, in a continuously growing number of regions, cross-selling of interest and currency risk products.
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.
DISTRIBUTION CHANNELS AND MARKETING
The Global Transaction Banking Corporate Division develops and markets its own products and services in Europe, Asia and the Americas. The marketing is carried out in conjunction with the coverage functions both in this division and in the Corporate Banking & Securities Corporate Division.
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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.
 

PRIVATE CLIENTS AND ASSET MANAGEMENT GROUP DIVISION
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 33 % of our net revenues in both 2007 and 2006 (on the basis of our management reporting systems).
At December 31, 2007, this group division included the following corporate divisions:
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Asset and Wealth Management (AWM)
 
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Private & Business Clients (PBC)
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 based on 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.
ASSET AND WEALTH MANAGEMENT CORPORATE DIVISION
CORPORATE DIVISION OVERVIEW
Our AM Business Division is organized into four global business lines:
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Retail offers a range of products, including mutual funds and structured products, across many asset classes
 
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Alternative Investments manages real estate and infrastructure investments, hedge funds and funds of hedge funds, and private equity funds of funds
 
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Insurance provides specialist advisory and portfolio management services to insurers and re-insurers globally
 
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Institutional provides investment solutions across both traditional and alternative strategies to all other (non-insurance) institutional clients, such as pension funds, endowments and corporates
Our PWM Business Division, which includes wealth management for high net worth clients, their families and selected institutions, is organized into regional teams specialized in their respective regional markets.
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Among significant transactions, 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 RREEF Infrastructure acquired Maher Terminals LLC, a privately-held operator of port terminal facilities in North America. The company was deconsolidated effective October 2007 after a partial sale into a new infrastructure fund.
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 has migrated from being primarily a domestic manufacturing platform to become a distribution platform with specialist investment management capabilities.
In August 2007, AM signed an agreement with shareholders of Harvest Fund Management to increase its stake by 10.5 % to 30 %. Harvest is the fifth largest mutual fund manager in China, with a 5.5 % market share (source: Z-Ben Advisors, September 2007).
In 2007, PWM established a Global Key Client function to more systematically organize and augment the cooperation with CIB in all its regions and to generate additional fee income and net new assets.
In December 2006, PWM closed the acquisition of the UK wealth manager Tilney Group Limited, strengthening our position in the second-largest wealth management market in Europe. The acquisition is 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.
The opening of a Deutsche Bank branch in Riyadh, Saudi Arabia, in April 2006 allows PWM to offer a full range of wealth management services in the largest market in the Middle East.
PRODUCTS AND SERVICES
AWM’s portfolio/fund management products include active fund management, passive/quantitative fund management, alternative investments and discretionary portfolio management.
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.
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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). In the U.S., the business operates as DWS Scudder. DWS also operates in key markets in Asia-Pacific.
In the Alternative Investments business line, real estate, infrastructure, hedge funds of funds, 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 single-manager/multi-manager hedge fund business operates as DB Advisors Capital Management. As an asset class, hedge funds are designed to provide attractive risk-adjusted returns in most market environments and offer portfolio diversification benefits to investors.
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 Deutsche Asset Management brand. The Institutional business offers its clients access to AM’s full range of products and services, including both traditional and alternative investments.
PWM provides a fully-integrated service offering for its clients based on individual 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.
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 sits at 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 as well as family office solutions and services for financial intermediaries.
PWM has continued to further expand its offering of alternative investments in 2007, especially with respect to innovative solutions within the private equity and hedge funds asset classes. 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 pro-
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vides 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.
DISTRIBUTION CHANNELS AND MARKETING
AM markets our retail products in Germany and other Continental European countries generally through our established internal distribution channels in PWM and PBC. We also distribute our funds through other banks, insurance companies and independent investment advisors. We market our retail funds outside Europe via our own Asset and Wealth Management distribution channels and through third-party distributors. DWS Scudder distributes its retail products to U.S. investors primarily through financial representatives at major national and regional wirehouses, independent and bank-based broker dealers, and independent financial advisors and registered investment advisors.
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, their families and selected institutions. Based on individual strategic asset allocation including individual risk management we offer discretionary portfolio management, structured advisory process including alternative investments, family office solutions, wealth preservation strategies and succession planning, philanthropic advisory services as well as art advisory services and services for financial intermediaries. 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.
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PRIVATE & BUSINESS CLIENTS CORPORATE DIVISION
CORPORATE DIVISION OVERVIEW
The Private & Business Clients Corporate Division operates under a single business model across Europe and selected Asian markets with a focused, sales-driven management structure predominantly under the Deutsche Bank brand. PBC serves retail and affluent clients as well as small and medium size corporate customers.
In 2007, we continued our balanced and profitable growth in selected European and Asian markets.
In the German core market, we were able to expand our already strong position by attracting new customers and business volume. The acquisition of Berliner Bank, which was completed in January 2007, played a major role in achieving this result, as did the acquisition of norisbank, whose selected range of favorably-priced, straightforward products was relaunched in September 2007.
In Italy, we opened eight new branches in 2007 and raised our client business volume substantially compared to last year. We also expanded our business in Spain, Belgium and specifically in Portugal, where our network was further strengthened with the addition of 22 new branches.
We also continued to invest in promising countries and business lines. In February 2007, we entered the Polish consumer finance market and by the end of 2007, we opened 66 “db-kredyt”-branded loan shops. PBC’s entry into the consumer finance business is a meaningful addition to our Polish branch business and follows the PBC business model, which has been used in Germany, Italy and Spain.
The development of PBC in Asia has also kept momentum. We expanded our presence through the addition of two branches in India (number of branches increased to 10) and the opening of the first three branches in China. In June 2007, we launched our cooperation with Hua Xia Bank to exclusively develop and distribute credit cards. Since May 2006, we have held a 9.9 % equity stake in Hua Xia Bank.
In September 2007, we closed the acquisition of a 10 % stake in Habubank in Vietnam. This strategic partnership confirms PBC’s balanced growth in selected Asian markets and represents a basis for further expansion in Vietnam.
PRODUCTS AND SERVICES
PBC offers a similar range of banking products and services throughout Europe and Asia, with some variations among countries that are driven by local market, regulatory and customer requirements.
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. In 2007, we further strengthened our consumer banking business with the launch in Germany of competitively priced standard products through the norisbank franchise
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and the entry in the Polish consumer finance market. 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 comprise 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 Italy, PBC issues credit cards under the BankAmericard brand.
Other products include primarily activities related to asset and liability management.
DISTRIBUTION CHANNELS AND MARKETING
To achieve a strong brand position internationally, we market our services consistently throughout the European and Asian countries in which PBC is active. In order to make banking products and services more attractive to clients, we are seeking to optimize the accessibility and availability of our services. To accomplish this, we look to self-service functions and technological advances to supplement our branch network with an array of access channels to its products and services. These channels consist of the following in-person and remote distribution points:
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Investment and Finance Centers. Investment and Finance Centers offer the entire range of products and advice. In 2007, several of our Investment and Finance Centers were refurbished according to the innovative concepts of how we see branch banking in the future, which were initially realized and tested in our flagship “Branch of the future – Q 110” in Berlin.
 
—   
Financial Agents. In most countries, we market our retail banking products and services through self-employed financial agents. In 2007, we continued to invest in our mobile sales force network in Germany, Italy, Spain, Poland and India by hiring additional sales representatives.
 
—   
Call Centers. Call centers provide clients with remote services supported by automated systems. Remote services include access to account information, securities brokerage and other basic banking transactions.
 
—   
Internet. On our website, we offer clients brokerage services, account information and product information on proprietary and third-party investment products. These offerings are complemented with services that provide information, analysis tools and content to support the client in making independent investment decisions.
 
—   
Self-service Terminals. These terminals support our branch network and allow clients to withdraw and transfer funds, receive custody account statements and make appointments with our financial advisors.
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.
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CORPORATE INVESTMENTS GROUP DIVISION
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. The group division is in the course of reducing its equity and other exposure significantly.
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, 2007 were interests of 4.4 % in Daimler AG and 1.7 % in Allianz SE. Currently, over 97 % of our Industrial Holdings are in German corporations.
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 holdings was  5.1 billion at December 31, 2007. See “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Risk Management – Market Risk – 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, in private equity directly and through private equity funds, including venture capital opportunities and leveraged buy-out funds. In 2007, 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.
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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 52nd 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 12.7 % 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.
 

INFRASTRUCTURE AND REGIONAL MANAGEMENT
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). In addition, a transaction management group is organizationally aligned with and provides trading support to the Global Markets business division in CIB.
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.
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COMPETITIVE ENVIRONMENT
COMPETITORS, MARKETS AND COMPETITIVE FACTORS
The financial services industry, and all of our businesses, are intensely competitive, and we expect them to remain so. Our main competitors are other commercial banks, savings banks, other public sector banks, brokers and dealers, investment banking firms, insurance companies, investment advisors, mutual funds and hedge funds. We compete with some of our competitors globally and with some others on a regional, product or niche basis. We compete on the basis of a number of factors, including transaction execution, our products and services, innovation, reputation and price.
In Germany, our wholesale and retail business is influenced by a significant fragmentation of the banking sector into three pillars: private sector banks like us, public sector banks (Landesbanken and savings banks), and cooperative banks. In particular for the wholesale business, foreign banks also have become important competitors. The public sector banks and the cooperative banks cooperate closely with other banks within their respective pillar and thus operate as networks for most products. Consolidation in the German banking sector has therefore predominantly taken place within the three pillars. In addition, the different legal form of private sector banks, public sector banks and mutual banks impedes cross-pillar consolidation. By virtue of their legal form, 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 the form of a business continuation obligation (Anstaltslast) and a statutory ultimate guarantee obligation (Gewährträgerhaftung) by the public body or bodies that created them (mainly the German Länder and municipalities). Following an agreement of the European Commission and the German government, these mechanisms have generally been discontinued for state owned 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 mechanisms continue. In the meantime, a discussion has evolved as to whether the traditional boundaries between the private sector banks, the public sector banks and the cooperative banks should be abandoned in whole or in part in order to improve the competitiveness of German banks within Europe and globally. Following the crisis in the financial markets that began in mid-2007, the discussion has also focused on further consolidation within Germany, in particular among the public sector banks.
In Europe, wholesale and, especially, retail banking is characterized by regional fragmentation. 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 implemented 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 in this context.
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.
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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.
We have generally experienced intensifying price competition in recent years. We are observing this pressure on pricing of loans, trading commissions, management fees, transaction spreads and many other areas. We believe that we may experience pricing pressure in these and other areas in the future as some of our competitors seek to obtain market share by reducing prices.
CONSOLIDATION AND GLOBALIZATION
In recent years there has been substantial consolidation and convergence among companies in the financial services industry. In particular, a number of large commercial banks, insurance companies and other broad-based financial services firms have merged with other financial institutions. Many of these firms have the ability to offer a wide range of products, from loans, deposit-taking and insurance to brokerage, asset management and investment banking services, which may enhance their competitive position. They also have the ability to support investment banking and securities products with commercial banking, insurance and other financial services revenues in an effort to gain market share, which could result in pricing pressure in our businesses.
As indicated by continued strong levels of industry-wide mergers and acquisitions, especially in the banking, securities and financial services industries, the trend toward consolidation and convergence is expected to continue. This trend has significantly increased the capital base and geographic reach of our competitors and has hastened the globalization of the securities and other financial services markets. As a result, we have committed capital to support our international operations and to execute large global transactions for our clients.
COMPETITION IN OUR BUSINESSES
CORPORATE AND INVESTMENT BANK GROUP DIVISION
Our investment banking operation competes in domestic and international markets in Europe, Americas and Asia Pacific. Competitors include numerous investment banking firms, investment advisors, brokers and dealers in securities and commodities, securities brokerage firms and certain commercial banks. Within Germany and other European countries, our competitors also include German private universal banks, public state banks and foreign banks.
PRIVATE CLIENTS AND ASSET MANAGEMENT GROUP DIVISION
In the retail banking business we face intense competition from savings banks and cooperative banks, other universal banks, insurance companies, home loan and savings companies and other financial intermediaries. In Germany, savings and cooperative banks are our biggest group of competitors. These banks generally operate regionally. In other European countries, private universal banks and savings banks are our main competitors. The large Asian markets (India and China), where we recently opened a limited number of retail branches, are dominated by local public and private sector banks. However, with deregulation, international financial institutions are likely to increase their investments in these markets and thereby intensify competition.
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Our private wealth management business faces intensifying competition from the private banking and wealth management units of other global 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 standalone retail and institutional asset managers. Most of our main competitors are headquartered in Europe or the United States, though many operate globally.
 

REGULATION AND SUPERVISION
Our operations throughout the world are regulated and supervised by the central banks and regulatory authorities in each of the jurisdictions where we conduct operations. As we have operations in almost every country in the world, ranging from subsidiaries and branches in many countries down to representative offices in other countries, or employee representatives assigned to serve customers in yet others, we are regulated and supervised in virtually every country. Local authorities impose certain organizational, reserve and reporting requirements and controls (such as capital adequacy, depositor protection, activity limitations and other types of prudential supervision) on our banking and non-banking operations. Also, a number of countries in which we operate impose additional limitations on (or which affect) foreign or foreign-owned or controlled banks and financial services institutions, including:
—   
restrictions on the opening of local offices, branches or subsidiaries and the types of banking and nonbanking activities that may be conducted by those local offices, branches or subsidiaries;
 
—   
restrictions on the acquisition of local banks or requirements of specified percentages of local ownership or specified numbers of local management personnel; and
 
—   
restrictions on investment and other financial flows into and out of the country.
Changes in the regulatory and supervisory regimes of the countries where we operate will determine, to some degree, our ability to expand into new markets, the services and products that we will be able to offer in those markets and how we structure specific operations.
The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, referred to as BaFin) is our principal supervisor on an unconsolidated (Deutsche Bank AG only) and on a consolidated basis (Deutsche Bank AG and the entities consolidated with it for German regulatory purposes). In addition, many of our operations outside Germany are regulated by local authorities. Within countries that are member states of the European Union or other contracting states of the Agreement on the European Economic Area (Iceland, Liechtenstein and Norway), our branches generally operate under the so-called “European Passport.” Under the European Passport, our branches are subject to regulation and supervision primarily by the BaFin. The authorities of the host country are responsible for the regulation and supervision of the liquidity requirements and the financial markets of the host country. In the United States, our New York branch, as well as our principal U.S. subsidiary bank (Deutsche Bank Trust Company Americas (DBTCA), formerly Bankers Trust Company), are principally supervised by the New York State Banking Department and the Board of Governors of the Federal Reserve System.
In the following sections, we present a description of the supervision of our business by the authorities in Germany and the United States, which we view as the most significant for us, and more generally with respect to the other juris-
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dictions in which we operate. Beyond these countries, and the European Economic Area member states where the European Passport applies, local country regulations generally have limited impact on our operations that are unconnected with these countries.
REGULATION AND SUPERVISION IN GERMANY
We are authorized to conduct general banking business and to provide financial services under, and subject to the requirements set forth in, the German Banking Act (Kreditwesengesetz).
We are subject to comprehensive regulation and supervision by the BaFin and the Deutsche Bundesbank (referred to as Bundesbank, the German central bank). The European Central Bank regulates us in regard to minimum reserves on deposits and issued securities. We are materially in compliance with the German laws that are applicable to our business.
THE GERMAN BANKING ACT
The German Banking Act contains the principal rules for German banks, including the requirements for a banking license, and regulates the business activities of German banks. The Banking Act defines a “banking institution” (Kreditinstitut) as an enterprise that engages in one or more of the activities defined in the Act as “banking business.” The Banking Act also applies to “financial services institutions” (Finanzdienstleistungsinstitute), which are enterprises that engage in one or more of the activities defined in the Banking Act as “financial services”. Banking institutions and financial services institutions are subject to the licensing requirements and other provisions of the Banking Act.
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 (which we refer to as the BIS), 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, the monitoring and control of large exposures and the creation of a single European Union-wide banking market with no internal barriers to banking and financial services. The Agreement on the European Economic Area extends this single market to Iceland, Liechtenstein and Norway.
In June 2004, the Basel Committee adopted revised recommendations for international capital adequacy standards, widely referred to as the Basel II capital framework, which align capital requirements more closely with the underlying risks and introduce a capital charge for operational risk (comprising, among other things, risks related to certain external factors, as well as to technical errors and errors of employees). 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. We generally expect a decrease of our capital requirements under the new capital framework from 2008 onwards. As a result of the increased risk sensitivity of the Basel II framework, however, capital requirements may also increase compared to current levels in times of economic downturn. This could increase our financing costs.
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THE GERMAN SECURITIES TRADING ACT
Under the German Securities Trading Act (Wertpapierhandelsgesetz), the BaFin regulates and supervises securities trading in Germany. The Securities Trading Act prohibits, among other things, insider trading with respect to securities admitted to trading or included in the over-the-counter market at a German exchange or the exchange in another country that is a member state of the European Union or another contracting state of the Agreement on the European Economic Area.
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.
REGULATION BY THE BAFIN
The BaFin is a federal regulatory authority and reports to the German Federal Ministry of Finance. The BaFin issues regulations and guidelines that implement German banking laws and other laws affecting German banks.
The BaFin supervises the operations of German banks on an unconsolidated and a consolidated basis 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.
In accordance with the Capital Requirements Directive, 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 requirements and have waived application of these rules since January 1, 2007.
REGULATION BY THE BUNDESBANK
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 examinations to assess 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.
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CAPITAL ADEQUACY REQUIREMENTS
German capital adequacy rules are based on the principle of risk assessment and are set forth in the Banking Act and in the Regulation on Solvency of Institutions, Groups of Institutions and Groups of Financial Conglomerates (Solvabilitätsverordnung or “Solvency Regulation”), which reflect the capital adequacy rules of the Basel II capital framework. Generally, German banks are required to cover counterparty risks (Adressenausfallrisiken) and operational risks (operationelle Risken) with Tier 1 capital (Kernkapital or “core capital”) and Tier 2 capital (Ergänzungskapital or “supplementary capital”) (together, haftendes Eigenkapital or “regulatory banking capital”) and market price risks (Marktpreisrisiken) with Tier 3 capital (Drittrangmittel) and (to the extent not required to cover counterparty and operational risk) regulatory banking capital. The calculation of regulatory banking capital and Tier 3 capital (together, “Own Funds”) is set forth further below.
COUNTERPARTY RISK, OPERATIONAL RISK AND MODIFIED REGULATORY BANKING CAPITAL
Counterparty risk is measured pursuant to the standard credit risk approach and operational risk is measured pursuant to the base indicator approach or the standard approach, as applicable, each as set forth in the Solvency Regulation. Banks may instead use an internal ratings model based approach (IRBA) to measure counterparty risk and an advanced measurement approach (AMA) based on internal models to measure operational risk, if the BaFin approves the respective internal models. The BaFin approved our most significant rating systems for IRBA in December 2007 covering 87.9 % of our credit exposure. We expect that further rating systems will be approved for IRBA in 2008. The BaFin also approved our internal model for measuring operational risk as an AMA.
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 (Tier 1 and Tier 2 capital) as modified to give effect to the Basel II capital framework (“modified regulatory banking capital”) as set forth below.
Regulatory banking capital is defined in the Banking Act as consisting principally of the following items:
Tier 1 capital:
—   
Paid-in Subscribed Capital (excluding capital with respect to preferred shares with cumulative dividend rights).
 
—   
Capital Reserves.
 
—   
Earnings (Revenues) Reserves.
 
—   
Fund for General Banking Risks. A bank may record this fund on the liability side of its balance sheet to reflect special risks inherent in the banking business. A bank must use its reasonable commercial judgment in making this determination.
 
—   
Silent Partnership Interests (stille Beteiligungen). Silent partnership interests are hybrid participations in the business of a bank. Such interests are subject to certain conditions, including a minimum term of five years (or ten years for purposes of BIS capital rules), noncumulative dividends, participation in the bank’s losses and subordination to the rights of all creditors in the event of insolvency or liquidation of the bank.
Own shares held by the bank, losses and certain intangible assets are subtracted from the Tier 1 capital calculation.
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Tier 2 capital (limited to the amount of Tier 1 capital):
—   
Paid-in Subscribed Capital with respect to preferred shares (Vorzugsaktien) with cumulative dividend rights.
 
—   
Profit-participation Rights (Genussrechte). These rights are subject to certain conditions, including a minimum term of five years, participation in the bank’s losses and subordination to the rights of all non-subordinated creditors in the event of insolvency or liquidation of the bank.
 
—   
Longer-term Subordinated Debt (Limited to 50 % of the amount of Tier 1 capital). This debt is subject to certain criteria, including a minimum term of five years and subordination to the rights of all non-subordinated creditors in the event of insolvency or liquidation of the bank.
 
—   
Reserves Pursuant to Section 6b of the German Income Tax Law (Einkommensteuergesetz) to the extent they have been created from the proceeds of the sale of real property, property rights equivalent to real property or buildings. A bank may include 45 % of these reserves in its Tier 2 capital.
 
—   
Reserves for General Banking Risks. A bank may record certain receivables on its balance sheet at a lower value than would be permitted for industrial and other non-banking entities. Such receivables include loans and securities that are neither investment securities nor part of the trading portfolio. The bank may record these receivables at a lower value if the use of a lower value is advisable, in its reasonable commercial judgment, to safeguard against the special risks inherent in the banking business. Reserves for general banking risks may not exceed 4 % of the book value of the receivables and securities recorded.
 
—   
Certain Unrealized Reserves. These may include up to 45 % of the difference between the book value and the lending value (Beleihungswert) of land and buildings, and up to 45 % of the difference between the book value of unrealized reserves (including provisioning reserves) and the sum of the market value of securities listed on a stock exchange and the published redemption price of shares issued by certain securities or real estate funds. A bank may include these reserves in Tier 2 capital only if its Tier 1 capital amounts to at least 4.4 % of its risk-weighted assets. Reserves may be included in Tier 2 capital only up to a maximum amount of 1.4 % of risk-weighted assets.
 
—   
Banks which are allowed to measure counterparty risk based upon IRBAs like us may, subject to certain limitations, include in its Tier 2 capital the amount by which the value adjustments and provisions for exposures to central governments, institutions and corporates and retail exposures exceed the expected loss for such exposures as measured under the bank’s IRBA model.
 
—   
If the bank is using an IRBA (as we are), it may add to the amount of Tier 2 capital the excess valuation correction amount (Wertberichtigungsüberschuss) for certain IRBA positions, limited to 0.6 % of its aggregated risk-weighted IRBA positions.
Deductions from Tier 1 and Tier 2 Capital:
Capital components that meet the above criteria and that a bank has provided to another bank, financial services institution or financial enterprise which is not consolidated with the bank for regulatory purposes are subtracted in equal portions from the bank’s Tier 1 and Tier 2 capital, respectively, if the bank holds more than 10 % of the capital of such other bank, financial services institution or financial enterprise, or to the extent the aggregate book value of such investments which are of 10 % or less of the capital of such other bank, financial services institution or financial enterprise exceeds 10 % of the bank’s regulatory banking capital. The 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 com-
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pany, 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 modified by deducting from each of Tier 1 and Tier 2 capital 50 % of the following amounts (“modified regulatory banking capital”):
—   
If the bank is using an IRBA, the amount by which the expected loss for exposures to central governments, institutions and corporates and retail exposures as measured under the bank’s IRBA model exceeds the amount of value adjustments and provisions for such exposures.
 
—   
The expected losses for certain equity exposures.
 
—   
Securitization positions to which the Solvency Regulation assigns a risk-classification multiplier of 1,250 % and which have not been taken into account when calculating the risk-weighted position for securitizations.
 
—   
The value of securities delivered to a counterparty plus any replacement cost to the extent the required payment by the counterparty has not been made within five business days after delivery and the transaction has been allocated to the bank’s trading book.
Market Price Risk and Tier 3 Capital:
Market price risk positions of a bank are foreign exchange positions, commodities positions, trading book positions relating to interest rate risk and share price risk, other market risk positions which create a financial asset for one party and financial liability for the other party, and options positions. Market price positions are measured pursuant to standard methods for each category as set forth in the Solvency Regulation. Banks may instead use an internal risk model, if the BaFin approves the respective model. We use an internal model to measure market price risk.
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:
—   
the bank’s modified regulatory banking capital reduced by the amounts used to cover capital requirements for counterparty risk and operational risk; and
 
—   
the bank’s Tier 3 capital.
Tier 3 capital consists of the following items:
—   
Net Profits. Net profits are defined as the proportionate profit of a bank 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.
 
—   
Short-term Subordinated Debt. This debt must meet certain criteria, including a minimum term of two years, subordination to the rights of all non-subordinated creditors in the event of insolvency or liquidation of the bank and suspension of the payment of interest and principal if such payment would result in a breach of the Own Funds requirements applicable to the bank.
 
—   
The amount of Tier 2 capital not included in the amount of regulatory banking capital because such amount would
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cause the amount of Tier 2 capital to exceed the bank’s Tier 1 capital, plus the amount of long-term subordinated debt not included in the bank’s Tier 2 capital because the total amount of long-term subordinated debt would otherwise exceed 50 % of the bank’s Tier 1 capital.
These positions qualify as Tier 3 capital only up to an amount which, together with the supplementary capital not required to cover risks arising from the banking book (as described below), does not exceed 250 % of the core capital not required to cover risks arising from the banking book. For banks that use an IRBA and are trading book institutions (as we are), the amount of Tier 3 capital is further limited to the amount that, together with the bank’s Tier 2 capital (including certain items that only IRBA institutions may include therein) not required to cover banking book risks, does not exceed 250 % of the bank’s Tier 1 capital (including certain IRBA-specific items) not required to cover banking book risks.
The Banking Act defines the banking book as all positions and transactions that are not part of the trading book. The trading book is defined as consisting primarily of the following:
—   
financial instruments that a bank holds in its portfolio for resale or that a bank acquires to exploit existing or expected spreads between the purchase and sale price or price and interest rate movements within a short period of time;
 
—   
financial instruments and commodities held by the bank for the purpose of hedging market price risks arising from the trading book and related refinancing transactions;
 
—   
repurchase, lending and similar transactions related to trading book positions;
 
—   
transactions subject to the designation of the counterparty (Aufgabegeschäfte); and
 
—   
payment claims in the form of fees, commissions, interest, dividends and margins directly linked to trading book positions.
Banks must set internal criteria according to which they allocate positions and transactions to the trading book and notify such criteria to the BaFin and the Bundesbank.
CONSOLIDATED REGULATION AND SUPERVISION
The Banking Act’s provisions on consolidated supervision require that each group of institutions (Institutsgruppe) taken as a whole meets the Own Funds requirements. Under the Banking Act, a group of institutions consists of a bank or financial services institution, as the parent company, and all other banks, financial services institutions, financial enterprises and bank service enterprises in which the parent company holds more than 50 % of the capital or voting rights or on which the parent company can otherwise exert a controlling influence. Special rules apply to joint venture arrangements that result in the joint management of another bank, financial services institution, financial enterprise or bank service enterprise by a bank and one or more third parties.
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
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therefore determined that we are a financial conglomerate. The main effect of this determination is that we also have to 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 will be performed in 2008.
CAPITAL REQUIREMENTS UNDER THE BASEL CAPITAL ACCORD
We have agreed with the BaFin to calculate and report our consolidated capital adequacy ratios in direct application of the recommendations made by the Basel Committee in 1988 (which we call the Basel Capital Accord) in addition to the calculation and reporting requirements in accordance with the Banking Act as described above until the end of the transition period of 2007. In some respects (for example, for the treatment of goodwill and commercial real estate loans), the calculation of these ratios was different from the calculation under the Banking Act. From January 1, 2008 onwards we will report capital adequacy ratios only in application of the Basel II capital framework as adopted by European Union and German law.
LIQUIDITY REQUIREMENTS
The Banking Act requires German banks and certain financial services institutions to invest their funds so as to maintain adequate liquidity at all times. The Liquidity Regulation (Liquiditätsverordnung) issued by the BaFin with effect from January 1, 2007, is based on a comparison of the remaining terms of certain assets and liabilities. It requires maintenance of a ratio (Liquiditätskennzahl or “liquidity ratio”) of liquid assets to liquidity reductions expected during the month following the date on which the ratio is determined of at least one. The Liquidity Regulation also allows banks and financial services institutions subject to it to use their own methodology and procedures to measure and manage liquidity risk if the BaFin has approved such methodology and procedures. The liquidity ratio and estimated liquidity ratios for the next eleven months must be reported to the BaFin on a monthly basis. The liquidity requirements do not apply on a consolidated basis.
LIMITATIONS ON LARGE EXPOSURES
The Banking Act and the Large Exposure Regulation (Grosskredit- und millionenkreditverordnung) limit a bank’s concentration of credit risks on an unconsolidated and a consolidated basis through restrictions on large exposures (Grosskredite). We are subject to the large exposure applicable to banks and groups of institutions with more than minor trading book positions (trading book institutions).
These rules contain separate restrictions for large exposures related to the banking book (banking book large exposures) and aggregate large exposures (aggregate book large exposures) of a bank or group of institutions.
Banking book large exposures are exposures incurred in the banking book and related to a single client (and clients affiliated with it) that equal or exceed 10 % of a bank’s or group’s regulatory banking capital. Individual banking book large exposures must not exceed 25 % of the bank’s or group’s regulatory banking capital (20 % in the case of exposures to affiliates of the bank that are not consolidated for regulatory purposes).
Aggregate book large exposures are created when the sum of banking book exposures and the exposures incurred in the trading book related to a client, and clients affiliated with it, (trading book large exposures) equals or exceeds 10 %
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of the bank’s or group’s Own Funds. The 25 % limit (20 % in the case of unconsolidated affiliates), calculated by reference to a bank’s or group’s Own Funds, also applies to aggregate book large exposures. Exposures incurred in the trading book include:
—   
the net amount of long and short positions in financial instruments involving interest rate risk (interest net positions);
 
—   
the net amount of long and short positions in financial instruments involving equity price risk (equity net positions); and
 
—   
the counterparty risk arising from other positions in the trading book.
In addition to the above limits, the total of all banking book large exposures must not exceed eight times the bank’s or group’s regulatory banking capital, and the total of all aggregate book large exposures must not exceed in the aggregate eight times the bank’s or group’s Own Funds.
A bank or group of institutions 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 client (and clients affiliated with it) must not exceed five times the bank’s or group’s Own Funds, to the extent such Own Funds are not required to meet the capital adequacy requirements with respect to the banking book. Total trading book exposures to a single client (and clients affiliated with it) in excess of the aforementioned limit are not permitted.
FINANCIAL STATEMENTS AND AUDITS
As required by the German Commercial Code (Handelsgesetzbuch), we prepare our non-consolidated financial statements in accordance with German GAAP. German GAAP for banks primarily reflect the Commercial Code and the Regulation on Accounting by Credit Institutions and Financial Services Institutions (Verordnung über die Rechnungslegung der Kreditinstitute und Finanzdienstleistungsinstitute) which in turn implement EU Directives on accounting. The Regulation on Accounting by Credit Institutions and Financial Services Institutions requires a uniform format for the presentation of financial statements for all banks. As permitted by the German Commercial Code, we prepared our consolidated financial statements until December 31, 2006 in accordance with U.S. GAAP. Pursuant to Regulation (EC) 1606/2002, beginning with fiscal year 2007 we prepare our consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS.
To the extent that the requirements of the Banking Act must be complied with on a stand-alone basis, such compliance is generally determined pursuant to financial statements prepared in accordance with German GAAP. Beginning with the fiscal year 2007, our compliance with capital adequacy and large exposure requirements on a consolidated basis is determined pursuant to 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.
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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.
REPORTING REQUIREMENTS
The BaFin and the Bundesbank require German banks to file comprehensive information in order to monitor compliance with the Banking Act and other applicable legal requirements and to obtain information on the financial condition of banks.
INTERNAL AUDIT
The Banking Act requires each German bank to have an effective and independent internal audit function. Internal audits are risk-based, conducted regularly and designed to provide independent reasonable assurance regarding the adequacy of the systems of internal controls of the activities and processes of the bank.
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.
ENFORCEMENT OF BANKING REGULATIONS; INVESTIGATIVE POWERS
INVESTIGATIONS AND OFFICIAL AUDITS
The BaFin conducts audits of banks on a random basis, as well as for cause. The BaFin is also responsible for auditing internal risk models used by a bank for regulatory purposes. It may require a bank to furnish information and documents in order to ensure that the bank is complying with the Banking Act and its regulations. The BaFin may conduct investigations without having to state a reason for its investigation.
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.
ENFORCEMENT POWERS
The BaFin has a wide range of enforcement powers in the event it discovers any irregularities. It may remove the bank’s managers from office, transfer their responsibilities in whole or in part to a special commissioner or prohibit them from exercising their current managerial capacities. If a bank’s Own Funds are inadequate or if a bank does not meet the liquidity requirements and the bank fails to remedy the deficiency within a certain period, then the BaFin may prohibit or restrict the bank from distributing profits or extending credit. This prohibition also applies to the parent bank of a group of institutions in the event that the Own Funds of the group are inadequate on a consolidated basis. If a
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bank fails to meet the liquidity requirements, the BaFin may also prohibit the bank from making further investments in illiquid assets. The BaFin may also order a bank to adopt measures to contain risks if such risks result from particular types of transactions or systems used by the bank.
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:
—   
issuing instructions relating to the management of the bank;
 
—   
prohibiting the acceptance of deposits and the extension of credit;
 
—   
ordering that certain measures to reduce risks are taken;
 
—   
prohibiting or restricting the bank’s managers from carrying on their functions; and
 
—   
appointing supervisors.
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.
DEPOSIT PROTECTION IN GERMANY
THE DEPOSIT GUARANTEE ACT
The Law on Deposit Insurance and Investor Compensation (Einlagensicherungs- und Anlegerentschädigungsgesetz, the Deposit Guarantee Act) provides for a mandatory deposit insurance system in Germany. It requires that each German bank participate in one of the licensed government-controlled investor compensation institutions (Entschädigungseinrichtungen). The investor compensation institutions are supervised by the BaFin. Entschädigungseinrichtung deutscher Banken GmbH acts as the investor compensation institution for private sector banks such as us.
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
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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.
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.
VOLUNTARY DEPOSIT PROTECTION SYSTEM
Liabilities to creditors that are not covered under the Deposit Guarantee Act may be covered by one of the various protection funds set up by the banking industry on a voluntary basis. We take part in the Deposit Protection Fund of the Association of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken e.V.). The Deposit Protection Fund covers liabilities to customers up to an amount equal to 30 % of the bank’s core capital and supplementary capital (to the extent that supplementary capital does not exceed 25 % of core capital). Liabilities to other banks and other specified institutions, obligations of banks represented by instruments in bearer form and covered bonds in registered form (Namenspfandbriefe) are not covered. To the extent the Deposit Protection Fund makes payments to customers of a bank, it will be subrogated to their claims against the bank.
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.
REGULATION AND SUPERVISION IN THE UNITED STATES
Our operations are subject to extensive federal and state banking and securities regulation and supervision in the United States. We engage in U.S. banking activities directly through our New York branch. We also control U.S. banking subsidiaries, including DBTCA, and U.S. broker-dealers, such as Deutsche Bank Securities Inc., U.S. nondepositary trust companies and nonbanking subsidiaries.
REGULATORY AUTHORITIES
Deutsche Bank AG is a bank holding company under the U.S. Bank Holding Company Act of 1956, as amended (the Bank Holding Company Act), by virtue of, among other things, our ownership of DBTCA. As a result, we and our U.S. operations are subject to regulation, supervision and examination by the Federal Reserve Board as our U.S. “umbrella supervisor”.
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
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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 an FDIC-insured Delaware state-chartered bank, but is not a member of the Federal Reserve System. As a state non-member bank, 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.
RESTRICTIONS ON ACTIVITIES
As described below, federal and state banking laws and regulations restrict our ability to engage, directly or indirectly through subsidiaries, in activities in the United States.
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.
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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” 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.
The U.S. is party to the Basel Capital Accord, and the U.S. bank regulatory authorities have adopted risk-based capital requirements for U.S. banks and bank holding companies that are generally consistent with the Accord. In addition, the U.S. regulatory authorities have adopted “leverage” capital requirements that generally require U.S. banks and bank holding companies to maintain a minimum amount of capital in relation to their balance sheet assets (measured on a non-risk-weighted basis). As described previously, the Basel Committee has developed a revised capital framework – i.e., Basel II. While the EU intends to apply Basel II to all banks and investment firms, the U.S. bank regulatory agencies have proposed taking a different approach, mandating that only the largest internationally active banks be required to comply with Basel II. (Other banks may, in certain cases, have the option to “opt into” Basel II or remain subject to the original Accord.) Our two U.S. depository institution subsidiaries would currently appear to fall within the group of mandated Basel II banks for purposes of the U.S. regulation. The regulation does not disturb the current policy of the Federal Reserve Board not to apply U.S. capital guidelines to our U.S. subsidiaries that are also registered as bank holding companies by virtue of their direct and indirect ownership of the two U.S. depository institution subsidiaries.
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 of the Securities and Exchange Commission narrowing the exclusion of banks from the definition of “dealer” became effective on September 30, 2003. In September 2007, the Securities and Exchange Commission and the Federal Reserve Board issued a joint rulemaking that implements the GLB requirement to narrow the exclusion of banks from the definition of “broker”. The rule becomes effective for DBTCA on January 1, 2009. As a result of these rules, certain securities activities conducted by DBTCA and our New York branch have been or will be 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
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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.
OUR NEW YORK BRANCH
Our New York branch is licensed by the New York Superintendent of Banks to conduct a commercial banking business. Under the New York State Banking Law and regulations, our New York branch is required to maintain eligible high-quality assets with banks in the State of New York, as security for the protection of depositors and certain other creditors. In the case of foreign banking corporations that have been designated as “well-rated” by the New York State Superintendent of Banks, as our New York branch has been, the amount of assets required to be pledged is determined on the basis of sliding scale, whereby the amount required to be pledged as a percentage of third-party liabilities decreases from 1 % to 0.25 % as such liabilities increase from U.S. $1 billion or less to more than U.S. $10 billion (up to a maximum of U.S. $100 million of assets pledged). Should our New York Branch cease to be “well-rated” by the New York State Superintendent of Banks we may need to maintain substantial additional amounts of eligible assets with banks in the State of New York.
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
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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.
DEUTSCHE BANK TRUST COMPANY AMERICAS
DBTCA, like other FDIC-insured banks, is required to pay assessments to the FDIC for deposit insurance under the FDIC’s Deposit Insurance Fund (calculated using a risk-based assessment system adopted by the FDIC pursuant to regulations that became effective January 1, 2007). These assessments can vary between 5 to 7 basis points for well managed and well capitalized banks, and are based on the examination rating accorded a bank by its primary federal regulator (the Federal Reserve Board in the case of DBTCA) and the bank’s long-term debt ratings established by nationally recognized statistical rating organizations.
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.
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OTHER
In the United States, our U.S.-registered broker-dealers are regulated by the Securities and Exchange Commission. Broker-dealers are subject to regulations that cover all aspects of the securities business, including:
—   
sales methods;
 
—   
trade practices among broker-dealers;
 
—   
use and safekeeping of customers’ funds and securities;
 
—   
capital structure;
 
—   
recordkeeping;
 
—   
the financing of customers’ purchases; and
 
—   
the conduct of directors, officers and employees.
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.
REGULATION AND SUPERVISION IN OTHER JURISDICTIONS
Our operations elsewhere in the world are subject to regulation and control by local supervisory authorities, including local central banks and monetary authorities, which supplement the home country supervision exercised by the BaFin.
For our branches within the European Economic Area, our primary regulator remains the BaFin pursuant to the “European Passport” we summarize above. Where we operate a branch outside the European Economic Area we do so under two licenses: our German banking license and a license from the host country. We may conduct businesses in the host country only to the extent that our German banking license and the host country’s license both permit them. When we operate a subsidiary outside Germany, the subsidiary holds whichever license is required by local law.
 

ORGANIZATIONAL STRUCTURE
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 used the three-part test for significance set out in Section 1-02 (w) of Regulation S-X under the U.S. Securities Exchange Act of 1934. We do not have any other subsidiaries we believe are material based on other, less quantifiable, factors. We have provided information on Taunus Corporation’s principal subsidiaries, to give you 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, which were just below the quantifiable factors.
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We own 100 % of the equity and voting interests in these significant subsidiaries.

 
 
         
Subsidiary   Place of Incorporation  
 
   
Taunus Corporation1
  Delaware, United States  
Deutsche Bank Trust Company Americas2
  New York, United States  
Deutsche Bank Securities Inc.3
  Delaware, United States  
 
   
Deutsche Bank Privat- und Geschäftskunden Aktiengesellschaft4
  Frankfurt am Main, Germany  
 
   
DB Capital Markets (Deutschland) GmbH5
  Frankfurt am Main, Germany  
DWS Investment GmbH6
  Frankfurt am Main, Germany  

 
 
1  
This company is a holding company for most of our subsidiaries in the United States.
 
2  
This company is a subsidiary of Taunus Corporation. Deutsche Bank Trust Company Americas is a New York State-chartered bank which originates loans and other forms of credit, accepts deposits, arranges financings and provides numerous other commercial banking and financial services.
 
3  
This company is a subsidiary of Taunus Corporation. Deutsche Bank Securities Inc. is a U.S. SEC-registered broker dealer and a member of, and regulated by, the New York Stock Exchange. It is also regulated by the individual state securities authorities in the states in which it operates.
 
4  
The company serves private individuals, affluent clients and small business clients with banking products.
 
5  
This company is a German limited liability company and operates as a holding company for a number of European subsidiaries, mainly institutional and mutual fund management companies located in Germany, Luxembourg, France, Austria, Switzerland, Italy, Poland and Russia.
 
6  
This company, in which DB Capital Markets (Deutschland) GmbH indirectly owns 100% of the equity and voting interests, is a limited liability company that operates as a mutual fund manager.
 

PROPERTY, PLANT AND EQUIPMENT
As of December 31, 2007, we operated in 76 countries out of 1,889 facilities around the world, of which 52 % were in Germany. We lease a majority of our offices and branches under long-term agreements.
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. As of December 31, 2006, we had premises and equipment with a total book value of approximately  3.2 billion. Included in this amount were land and buildings with a carrying value of approximately  1.9 billion. The decline in the carrying value of land and buildings was primarily the result of the sale and leaseback of our premises at 60 Wall Street in New York City.
We continue to review our property requirements worldwide taking into account cost containment measures as well as growth initiatives in selected businesses.
INFORMATION REQUIRED BY INDUSTRY GUIDE 3
Please see pages S-1 through S-18 of the supplemental financial information, which pages are incorporated by reference herein, for information required by Industry Guide 3.
 

Item 4A: Unresolved Staff Comments
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.
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Item 5: Operating and Financial Review and Prospects
 

OVERVIEW
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, 2007 and 2006 have been audited by KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft 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 the Group prepared its consolidated financial statements in accordance with U.S. GAAP. The Group followed the provisions of IFRS 1, ‘First Time Adoption of IFRS’ in preparing its opening IFRS balance sheet at the date of transition, January 1, 2006. A description of the differences between the Group’s U.S. GAAP and IFRS policies and the impacts of transition to IFRS are contained in Note [45] to the consolidated financial statements.
 

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
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 review the selection of these policies and the application of these critical accounting estimates with our Audit Committee. 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.
FAIR VALUE ESTIMATES
Certain of our financial instruments are carried at fair value with changes in fair value recognized in the consolidated statement of income. This includes trading assets and liabilities and financial assets and liabilities designated at fair value through profit or loss. In addition, financial assets which are classified as available for sale are carried at fair value with the changes in fair value reported in a component of shareholders’ equity. Derivatives held for non-trading purposes are carried at fair value with changes in value recognized through the consolidated income statement, ex-
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cept where they are in cash flow hedge accounting relationships when changes in fair value of the effective portion of the hedge are reflected directly in a component of shareholders’ equity.
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.
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.
Since the fair value determined might differ from actual net realizable values, the fair value estimates are considered critical accounting estimates for our Corporate Banking & Securities Corporate Division, which trades certain illiquid securities and over-the-counter derivatives, some of which are long-dated or are complex structures. Fair value estimates are also critical for our Corporate Investments Group Division, which holds investments that are not actively traded.
METHODS OF DETERMINING FAIR VALUE
A substantial percentage of our financial assets and liabilities carried at fair value are based on, or derived from, observable prices or inputs. The availability of observable prices or inputs varies by product and market, and may change over time. For example, observable prices or inputs are usually available for: liquid securities; exchange traded derivatives; over the counter (OTC) derivatives transacted in liquid trading markets such as interest rate swaps, foreign exchange forward and option contracts in G7 currencies; and equity swap and option contracts on listed securities or indices. Where observable prices or inputs are available, they are utilized in the determination of fair value and as such fair value can be determined without significant judgment. This includes instruments for which the fair value is derived from a valuation model that is standard across the industry and the inputs are directly observable. This is the case for many generic swap and option contracts.
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; 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 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 recovery rates. 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
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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 close-out costs, 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 the credit risk of the financial liability. The change in our own credit risk 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.
Where 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 substantially eliminates the instrument’s risk. The decision regarding the subsequent recognition of the deferred amount is made after careful assessment of the 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. Where 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. Where the price and parameter inputs are observable, they are verified against independent sources.
Where 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 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 behavior. These procedures require the application of management judgment.
Under IFRS 7, 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 [12] to the consolidated financial statements. Management judgment is required in determining the category to which certain instruments should be allocated. This specifically arises where the valuation is determined by a number of parameters, some of which are
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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.”
ALLOWANCE FOR CREDIT LOSSES
We maintain an allowance for credit losses that represents our estimate of losses incurred in our loan portfolio and off-balance sheet loan commitments. The allowance for credit losses consists of an allowance for loan losses and an allowance for off-balance sheet positions. Determining the allowance for credit losses requires significant management judgments and assumptions.
The components of the allowance for loan losses are an individually assessed loss component and a collectively assessed loss component. The individually assessed loss component relates to loans which are individually significant and for which there is objective evidence of impairment that can be reliably measured. The collectively assessed loss component relates to the amount for losses incurred on loans that are assessed collectively. Loans assessed collectively are those that are not individually significant and individually significant loans for which there was no objective evidence of impairment when they were assessed individually. The collectively assessed loss component consists of the country risk allowance, the smaller-balance standardized homogeneous loan loss allowance and the allowance for estimated incurred losses inherent in the group of loans not yet individually identified.
We believe that the accounting estimate related to the allowance for loan losses is a critical accounting estimate for our Corporate Banking & Securities and Private & Business Clients Corporate Division because the underlying assumptions used for both the individually and collectively assessed loss components of the allowance can change from period to period. Such changes may materially affect our results of operations.
The individually assessed loss component is the allowance for losses on loans for which management believes that we will be unable to collect all of the principal and interest due under the loan agreement. This component comprises the largest portion of our allowance for loan losses and requires consideration of various underlying factors which include, but are not limited to, the financial strength of our customers, the present value of expected future cash flows, including cash flows that may result from foreclosure less costs for obtaining and selling the collateral, or the market price of the loan. We regularly re-evaluate all loan exposures that have already been specifically provided for, as well as all loan exposures that appear on our watchlist. Our assumptions are either validated or revised accordingly based on our re-evaluation.
Some of the underlying factors used in determining the collectively assessed loss component are historical loss experience and political, economic and other relevant factors. We determine our country risk allowance based on historical loss experience and current market data affecting a country’s financial condition. Our smaller-balance standardized homogeneous portfolio allowance is established based on analyses of historical loss experience for each product type according to criteria such as past due status and collateral recovery values. The allowance for estimated incurred
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losses inherent in the group of loans not yet individually identified reflects the imprecisions and uncertainties in estimating our loan loss allowances.
Significant changes in any of these factors could materially affect our provision for loan losses. For example, if our current assumptions about expected future cash flows used in determining the individually assessed loss component differ from actual results, we may need to make additional provisions for loan losses. In addition, the forecasted financial strength of any given customer may change due to various circumstances, such as future changes in the global economy or new information becoming available as to financial strength that may not have existed at the date of our estimates. This new information may require us to adjust our current estimates and make additional provisions for loan losses.
Our provision for loan losses totaled  651 million and  352 million for the years ended December 31, 2007 and 2006, respectively.
The process to determine the allowance 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.
For further discussion on our allowance for credit losses, see “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Risk and Capital Management – Credit Loss Experience and Allowance for Loan Losses” and Notes [15] and [16] to the consolidated financial statements.
IMPAIRMENT OF OTHER ASSETS
Certain assets, including equity method investments, financial assets classified as available for sale, goodwill and other intangible assets and other assets are subject to impairment review. We record impairment charges when we believe there is objective evidence of impairment, or its cost may not be recoverable.
Based on our impairment reviews related to these assets, we recorded total impairment charges of  443 million in 2007 and  114 million in 2006. Future impairment charges may be required if triggering events occur, such as adverse market conditions, suggesting deterioration in an asset’s recoverability or fair value. Assessment of what constitutes an impairment is a matter of significant judgment.
Equity method investments and financial assets classified as available for sale are evaluated for impairment on a quarterly basis, or more frequently if events or changes in circumstances indicate that these assets are impaired. In the case of equity investments classified as available for sale, objective evidence of impairment would include a significant or prolonged decline in fair value of the investment below cost. It could also include specific conditions in an industry or geographical area or specific information regarding the financial condition of the company, such as a downgrade in credit rating. In the case of debt securities classified as available for sale, impairment is assessed based on the same criteria as for loans. If information becomes available after we make our evaluation, we may be required to recognize an impairment in the future. Because the estimate for impairment could change from period to period based upon future events that may or may not occur, we consider this to be a critical accounting estimate. Our impairment reviews for equity method investments and financial assets available for sale resulted in impairment charges of  286 million in 2007 and  27 million in 2006. For additional information on financial assets classified as available
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for sale, see Note [7] to the consolidated financial statements and for equity method investments, see Note [14] 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 fair value determination used 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, 2007 and 2006, goodwill had a carrying amount of  7.2 billion and  7.3 billion, respectively, and other intangible assets had a carrying amount of  2.2 billion and  1.3 billion, respectively. Evaluation of impairment of these assets is a significant estimate for multiple divisions.
In 2007, a goodwill impairment loss totaling  54 million was recognized in Corporate Investments after an impairment review in the first quarter of 2007. In 2006, a goodwill impairment loss of  31 million was recorded in Corporate Investments relating to a private equity investment in Brazil, which was not integrated into the cash-generating unit. The impairment loss was triggered by changes in local law that restricted certain business activities. For further discussion on goodwill and other intangible assets, see Note [21] to the consolidated financial statements.
UNRECOGNIZED DEFERRED TAX ASSETS
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, unused tax losses and unused tax credits. Deferred tax assets are recognized only to the extent that it is probable that sufficient taxable profit will be available against which those unused tax losses, unused tax credits or deductible temporary differences can be utilized. This assessment requires significant management judgments and assumptions. In determining unrecognized deferred tax assets, we use historical tax capacity and profitability information and, if relevant, forecasted operating results, based upon approved business plans, including a review of the eligible carry-forward periods, available tax planning opportunities and other relevant considerations. Each quarter, we re-evaluate our estimate related to unrecognized deferred tax assets, including our assumptions about future profitability. At December 31, 2007 and December 31, 2006 the value of unrecognized deferred tax assets was  872 million and  874 million, respectively.
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/equity in the period such determination was made.
For further information on our deferred taxes see Note [33] to the consolidated financial statements.
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20-F // ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
LEGAL AND REGULATORY CONTINGENCIES AND TAX RISKS
We conduct our business in many different legal, regulatory and tax environments, and, accordingly, legal claims, regulatory proceedings and income tax provisions for uncertain tax positions may arise.
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.
      

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS AND NEW ACCOUNTING PRONOUNCEMENTS
See Note [1] to the consolidated financial statements for a discussion on our recently adopted and new accounting pronouncements.
 

OPERATING RESULTS
You should read the following discussion and analysis in conjunction with our consolidated financial statements.
EXECUTIVE SUMMARY
Overall, the global economy developed positively in 2007, posting above-average growth of 4.9 %. While the growth rate in emerging markets was sustained at nearly 8 %, there was a slowdown in the industrial nations and especially the U.S. Real GDP in the U.S. grew by an average of just 2.2 % in 2007 compared with 2.9 % in 2006. By contrast, the euro zone nearly managed to maintain its growth momentum at 2.7 %. In Germany, growth slowed to 2.5 % from 2.9 % in 2006, but remained strong despite the 3 percentage point VAT increase at the beginning of 2007.
In the banking sector, the year 2007 featured two distinctively different halves. The first six months of 2007 saw the continuation of a benign environment and robust capital markets, and all of our businesses delivered strong results. Our income before income tax expense reached a record level for the first six months. In the second half of the year, however, the subprime crisis caused widespread concern, as well as increased volatility and a loss of investor confi-
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dence in the financial markets. Unexpectedly high losses reported by many market participants, and a growing uncertainty about whether further losses were forthcoming, caused the interbank, securitization, and syndicate markets to dry up. Results in our capital-markets related businesses were negatively impacted by the market conditions in the second half of 2007. These results were limited somewhat by the strength of our risk management and were in part offset by those in most other areas of CIB, as well as in PCAM and CI, highlighting the benefits of our diversified global business portfolio. Despite the particular challenges of 2007, we reported one of the best financial years in our history and increased our earnings versus 2006, while also strengthening our competitive position.
In 2007, income before income tax expense was  8.7 billion, a 5 % increase over 2006, and revenues were  30.7 billion, up 8 %. We reported a pre-tax return on average active equity of 29 % in 2007 and 33 % in 2006, with the decline due largely to an increase in average active equity to  29.8 billion in 2007 versus  25.5 billion in 2006 (pre-tax return on average shareholders’ equity was 24 % and 28 %, for 2007 and 2006, respectively). In 2007, net income was  6.5 billion, up 7 % versus 2006. Diluted earnings per share increased by 14 % to  13.05.
Total CIB net revenues advanced by 2 % to  19.1 billion, with increases in transaction services and advisory offsetting a decline in Origination (debt), mainly related to leveraged finance activities. Overall results from Sales & Trading businesses in CIB were flat year-on-year. Increases in our customer-oriented businesses, such as foreign exchange, money markets, rates and equities trading, offset lower results on credit trading, which were due largely to the stressed credit markets in the second half of 2007. PCAM’s net revenues increased by  814 million, largely driven by acquisition-related business and organic growth. Net revenues in CI were  943 million above those of 2006 due mainly to gains on sales from our industrial holdings portfolio.
Our total noninterest expenses were  21.4 billion in 2007 compared to  19.9 billion in 2006. Compensation and benefits expenses were up 5 % due mainly to a 9,442 increase in headcount and the accelerated recognition of share-based compensation expense following a new definition of early retirement eligibility for the awards granted under the DB Equity Plan in 2007. General and administrative expenses for the year increased by 13 % due largely to the impact of acquired businesses.
In 2007, the provision for credit losses was  612 million compared to  298 million in 2006. The increase was due largely to acquisition-related and organic growth in PBC and a provision related to a single counterparty relationship in CIB.
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20-F // ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
FINANCIAL RESULTS
The following table presents our condensed consolidated statement of income for 2007 and 2006.
 
 
                                 
                    2007 increase (decrease)  
                    from 2006  
in m. (except percentages)   2007     2006     in     in %  
Net interest income
    8,849       7,008       1,841       26  
 
               
Provision for credit losses
    612       298       314       105  
 
               
Net interest income after provision for credit losses
    8,237       6,710       1,527       23  
 
               
Commissions and fee income
    12,289       11,195       1,094       10  
 
               
Net gains (losses) on financial assets/liabilities at fair value through profit or loss
    7,175       8,892       (1,717 )     (19 )
 
               
Net gains (losses) on financial assets available for sale
    793       591       202       34  
 
               
Net income (loss) from equity method investments
    353       419       (66 )     (16 )
 
               
Other income
    1,286       389       897       N/M  
 
               
Total noninterest income
    21,896       21,486       410       2  
 
               
Total net revenues
    30,133       28,196       1,937       7  
 
               
Compensation and benefits
    13,122       12,498       624       5  
 
               
General and administrative expenses
    7,954       7,069       885       13  
 
               
Policyholder benefits and claims
    193       67       126       188  
 
               
Impairment of intangible assets
    128       31       97       N/M  
 
               
Restructuring activities
    (13 )     192       (205 )     N/M  
 
               
Total noninterest expenses
    21,384       19,857       1,527       8  
 
               
Income before income tax expense
    8,749       8,339       410       5  
 
               
Income tax expense
    2,239       2,260       (21 )     (1 )
 
               
Net income
    6,510       6,079       431       7  
 
               
Net income attributable to minority interest
    36       9       27       N/M  
 
               
Net income attributable to Deutsche Bank shareholders
    6,474       6,070       404       7  
 
 
N/M – Not meaningful
NET INTEREST INCOME
The following table sets forth data related to our net interest income.
 
 
                                 
                    2007 increase (decrease)  
                    from 2006  
in m. (except percentages)   2007     2006     in     in %  
Total interest and similar income
    67,706       58,275       9,431       16  
 
               
Total interest expenses
    58,857       51,267       7,590       15  
 
               
Net interest income
    8,849       7,008       1,841       26  
 
               
Average interest-earning assets1
    1,226,191       1,071,617       154,574       14  
 
               
Average interest-bearing liabilities1
    1,150,051       1,005,133       144,918       14  
 
               
Gross interest yield2
    5.52 %       5.44 %     0.08 ppt       1  
 
               
Gross interest rate paid3
    5.12 %       5.10 %     0.02 ppt        
 
               
Net interest spread4
    0.40 %       0.34 %     0.06 ppt       18  
 
               
Net interest margin5
    0.72 %       0.65 %     0.07 ppt       11  
 
 
ppt – Percentage points
 
1  
Average balances for each year are calculated in general based upon month-end balances.
 
2  
Gross interest yield is the average interest rate earned on our average interest-earning assets.
 
3  
Gross interest rate paid is the average interest rate paid on our average interest-bearing liabilities.
 
4  
Net interest spread is the difference between the average interest rate earned on average interest-earning assets and the average interest rate paid on average interest-bearing liabilities.
 
5  
Net interest margin is net interest income expressed as a percentage of average interest-earning assets.
Net interest income in 2007 was  8.8 billion, an increase of  1.8 billion, or 26 %, from 2006. Average interest-bearing volumes of assets and liabilities increased by  154.6 billion and  144.9 billion, respectively, the overall net interest spread widened by 6 basis points and our net interest margin rose by 7 basis points. Much of the increase in net inter-
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est income was related to Sales & Trading (debt) activity and was largely offset by decreased net gains (losses) on financial assets/liabilities at fair value through profit or loss from related activity. Interest income from loans increased year-on-year along with higher rates and volumes of our average loans outstanding, partly resulting from the acquisition of Berliner Bank and norisbank. Our overall funding costs rose slightly by 2 basis points, mainly reflecting increased rates on customer deposits and longer-term funding.
The development of our net interest income is also impacted by the accounting treatment of some of our hedging-related derivative transactions. We enter into nontrading derivative transactions primarily as economic hedges of the interest rate risks of our nontrading interest-earning assets and interest-bearing liabilities. Some of these derivatives qualify as hedges for accounting purposes while others do not. When derivative transactions qualify as hedges of interest rate risks for accounting purposes, the interest arising from the derivatives is reported in interest income and expense, where it offsets interest flows from the hedged items. When derivatives do not qualify for hedge accounting treatment, the interest flows that arise from those derivatives will appear in trading income.
NET GAINS (LOSSES) ON FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
The following table sets forth data related to our Net gains (losses) on financial assets/liabilities at fair value through profit or loss.

 
 
                                 
                    2007 increase (decrease)  
                    from 2006  
in m. (except percentages)   2007     2006     in     in %  
CIB – Sales & Trading (equity)
    3,335       2,441       894       37  
 
               
CIB – Sales & Trading (debt and other products)
    3,858       5,919       (2,061 )     (35 )
 
               
Other
    (18 )     531       (549 )     N/M  
 
               
Total net gains (losses) on financial assets/liabilities at fair value through profit or loss
    7,175       8,892       (1,717 )     (19 )

 
 
N/M – Not meaningful
Net gains (losses) on financial assets/liabilities at fair value through profit or loss from CIB – Sales & Trading (debt and other products) decreased by  2.1 billion, or 35 %. This development was primarily driven by a weaker performance in our credit trading businesses given exceptionally challenging markets in the second half of 2007. The increase in net gains (losses) on financial assets/liabilities at fair value through profit or loss from Sales & Trading (equity), which was partially offset in net interest income from trading activities as described below, reflected significant improvements across our customer-driven businesses. The main contributors to the decrease in Other net gains (losses) on financial assets/liabilities at fair value through profit or loss were mark-to-market losses (net of fees and gains on sales) on leveraged loans and loan commitments in 2007 as a consequence of the difficulties in the leveraged finance markets.
Our trading and risk management businesses include significant activities in interest rate instruments and related derivatives. Under IFRS, interest and similar income earned from trading instruments and financial instruments designated at fair value through profit or loss (e.g. coupon and dividend income), and the costs of funding net trading positions are part of net interest income. Our trading activities can periodically shift income between net interest income and net gains (losses) of financial assets/liabilities at fair value through profit or loss depending on a variety of factors, including risk management strategies. In order to provide a more business-focused commentary, we disclose net
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20-F // ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
interest income and net gains (losses) of financial assets/liabilities at fair value through profit or loss by group division and by product within the Corporate and Investment Bank, rather than by type of income generated.
NET INTEREST INCOME AND NET GAINS (LOSSES) ON FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
The following table sets forth data relating to our combined net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss by group division and product within the Corporate and Investment Bank.
 
 
                                 
                    2007 increase (decrease)  
                    from 2006  
in m. (except percentages)   2007     2006     in     in %  
Net interest income
    8,849       7,008       1,841       26  
 
               
Total net gains (losses) on financial assets/liabilities at fair value through profit or loss
    7,175       8,892       (1,717 )     (19 )
 
               
Total net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss
    16,024       15,900       124       1  
 
               
 
                               
 
               
Breakdown by Group Division/CIB product1:
                               
 
               
Sales & Trading (equity)
    3,117       2,613       504       19  
Sales & Trading (debt and other products)
    7,483       8,130       (648 )     (8 )
Total Sales & Trading
    10,600       10,743       (144 )     (1 )
 
               
Loan products2
    499       490       9       2  
 
               
Transaction services
    1,297       1,074       223       21  
 
               
Remaining products3
    (118 )     435       (554 )     N/M  
 
               
Total Corporate and Investment Bank
    12,278       12,743       (465 )     (4 )
 
               
Private Clients and Asset Management
    3,529       3,071       457       15  
 
               
Corporate Investments
    157       3       154       N/M  
 
               
Consolidation & Adjustments
    61       83       (22 )     (27 )
 
               
Total net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss
    16,024       15,900       124       1  
 
 
N/M – Not meaningful
 
1  
Note that this breakdown reflects net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss only. For a discussion of the group divisions’ total revenues by product please refer to “Results of Operations by Segment”.
 
2  
Includes the net interest spread on loans as well as the fair value changes of credit default swaps and loans designated at fair value through profit or loss.
 
3  
Includes net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss of origination, advisory and other products.
CORPORATE AND INVESTMENT BANK (CIB). Combined net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss from sales and trading products were  10.6 billion in 2007, a decrease of  144 million, or 1 %. This development reflects the aforementioned difficult market situation for our credit trading businesses in Sales & Trading (debt and other products) during the second half of 2007 as well as improvements across customer-driven businesses in Sales & Trading (equity). The increase of  223 million, or 21 %, in Transaction services was due to higher customer balances along with a growth in payment volumes from Cash Management and new client mandates in domestic custody products. Mark-to-market losses on leveraged loans and loan commitments were the main drivers of the decrease in Remaining products.
PRIVATE CLIENTS AND ASSET MANAGEMENT (PCAM). Combined net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss were  3.5 billion in 2007. Berliner Bank and norisbank, together with higher volumes from organic business expansion were the main contributors to the increase of  457 million, or 15 %, compared to 2006.
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CORPORATE INVESTMENTS (CI). Combined net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss increased  154 million, primarily reflecting mark-to-market gains from our option to increase our shareholding in Hua Xia Bank in China.
PROVISION FOR CREDIT LOSSES
Provision for credit losses was  612 million in 2007, compared to  298 million in 2006. This reflects net charges of  109 million in CIB (including a significant provision taken on a single counterparty relationship partly offset by releases), compared to net releases of  94 million in 2006, and a 28 % increase in PCAM’s provisions to  501 million, driven predominantly by provisions in PBC.
For further information on the provision for loan losses see “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Credit Loss Experience and Allowance for Loan Losses”.
REMAINING NONINTEREST INCOME

 
 
                                 
                    2007 increase (decrease)  
                    from 2006  
in m. (except percentages)   2007     2006     in     in %  
Commissions and fee income1
    12,289       11,195       1,094       10  
 
               
Net gains (losses) on financial assets available for sale
    793       591       202       34  
 
               
Net income (loss) from equity method investments
    353       419       (66 )     (16 )
 
               
Other income
    1,286       389       897       N/M  
 
               
Total remaining noninterest income
    14,721       12,594       2,127       17  

 
 
N/M – Not meaningful
 
1  
Includes

 
 
                                 
    2007     2006     in     in %  
Commissions and fees from fiduciary activities:
                               
 
               
Commissions for administration
    427       436       (9 )     (2 )
 
               
Commissions for assets under management
    3,376       3,293       83       3  
 
               
Commissions for other securities business
    162       182       (20 )     (11 )
 
               
Total
    3,965       3,911       54       1  
 
               
Commissions, broker’s fees, markups on securities underwriting and other securities activities:
                               
 
               
Underwriting and advisory fees
    2,515       2,220       295       13  
 
               
Brokerage fees
    2,982       2,489       493       20  
 
               
Total
    5,497       4,709       788       17  
 
               
Fees for other customer services
    2,827       2,575       252       10  
 
               
Total commissions and fee income
    12,289       11,195       1,094       10  

 
 
COMMISSIONS AND FEE INCOME. Total 2007 commissions and fee income was  12.3 billion, an increase of  1.1 billion, or 10 %, compared with 2006. Commissions and fees from fiduciary activities increased  54 million compared to the prior year. Underwriting and advisory fees increased by  295 million, mainly attributable to CIB’s Advisory products. Brokerage fees were up  493 million with CIB’s Sales & Trading (equity) products having a significant impact, mainly driven by increased volumes and market activity in Asia. Fees for other customer services increased  252 million, driven by increases in Sales & Trading (equity) in CIB as well as in PBC Germany.
NET GAINS (LOSSES) ON FINANCIAL ASSETS AVAILABLE FOR SALE. Total net gains on financial assets available for sale were  793 million in 2007, up  202 million, or 34 %, compared to 2006. The 2007 result was primarily attributable to disposal gains of  626 million related to CI’s industrial holdings portfolio, of which the most significant were gains from the reduction of our stakes in Allianz SE and Linde AG, and from the disposal of our investment in Fiat S.p.A.
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20-F // ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Gains in CIB’s sales and trading areas were offset by impairment charges. The 2006 result was mainly attributable to CIB’s Sales & Trading areas as well as to net gains in CI, of which the most significant was a gain of  92 million related to the partial sale of our stake in Linde AG.
NET INCOME (LOSS) FROM EQUITY METHOD INVESTMENTS. Net income from our equity method investments was  353 million and  419 million in 2007 and 2006, respectively. The key contributors in 2007 were in CI and the RREEF Alternative Investments business in AM. CI’s income in 2007 was driven by a gain of  178 million from our investment in Deutsche Interhotel Holding GmbH & Co. KG (which also triggered an impairment review of CI’s goodwill, resulting in an impairment charge of  54 million). A gain of  131 million from the sale of our remaining holding in EUROHYPO AG contributed significantly to CI’s 2006 equity method income.
OTHER INCOME. Total other income was  1.3 billion in 2007, an increase of  898 million compared to 2006, resulting mainly from the sale and leaseback transaction of our premises at 60 Wall Street, higher revenues from consolidated investments and higher insurance premiums as a result of the Abbey Life Assurance Company Limited acquisition.
NONINTEREST EXPENSES
The following table sets forth information on our noninterest expenses.
 
 
                                 
                    2007 increase (decrease)  
                    from 2006  
in m. (except percentages)   2007     2006     in     in %  
Compensation and benefits
    13,122       12,498       624       5  
 
               
General and administrative expenses1
    7,954       7,069       885       13  
 
               
Policyholder benefits and claims
    193       67       126       188  
 
               
Impairment of intangible assets
    128       31       97       N/M  
 
               
Restructuring activities
    (13 )     192       (205 )     N/M  
 
               
Total noninterest expenses
    21,384       19,857       1,527       8  
 
 
N/M – Not meaningful
 
1  
Includes:
 
 
                                 
    2007     2006     in     in %  
IT costs
    1,867       1,585       282       18  
 
               
Occupancy, furniture and equipment expenses
    1,347       1,198       149       12  
 
               
Professional service fees
    1,257       1,203       54       4  
 
               
Communication and data services
    680       634       46       7  
 
               
Travel and representation expenses
    539       503       36       7  
 
               
Payment, clearing and custodian services
    437       431       6       1  
 
               
Marketing expenses
    411       365       46       13  
 
               
Other expenses
    1,416       1,150       266       23  
 
               
Total general and administrative expenses
    7,954       7,069       885       13  
 
 
COMPENSATION AND BENEFITS. The increase of  624 million, or 5 %, in 2007 compared to 2006 was mainly driven by higher salary expenses, partly resulting from a rise in staff of 9,442 (on a full-time equivalent basis), and accelerated recognition of share-based compensation expense following a new definition of early retirement eligibility for the awards granted under the DB Equity Plan in 2007. Also contributing to the increase were higher severance payments, which were up  72 million in 2007.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses in 2007 were  885 million, or 13 %, higher than in 2006 due mainly to business growth, primarily reflected in IT costs and occupancy expenses. The increase of  266 million in “Other expenses” was largely attributable to a provision release related to grundbesitz-invest,
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our German open-ended real estate fund, in the prior year. In addition, expenses increased due to the consolidation of an infrastructure investment intended for a RREEF fund during 2007, which was partly offset in other income.
POLICYHOLDER BENEFITS AND CLAIMS. The  126 million, or 188 %, rise in the current year resulted primarily from our acquisition of Abbey Life Assurance Company Limited in the fourth quarter 2007. These expenses are mainly offset by related net gains (losses) on financial assets/liabilities at fair value through profit or loss and by insurance premium revenues.
IMPAIRMENT OF INTANGIBLE ASSETS. 2007 included an impairment of  74 million on non-amortizing intangible assets in AM and a goodwill impairment charge of  54 million in CI. In 2006, CI incurred a goodwill impairment charge of  31 million related to a fully consolidated private equity investment.
RESTRUCTURING ACTIVITIES. The Business Realignment Program was completed and remaining provisions of  13 million were released in 2007, compared to charges of  192 million in 2006.
INCOME TAX EXPENSE
Income tax expense was  2.2 billion in 2007 compared to  2.3 billion in 2006. The tax expense in 2007 was primarily reduced by the effects of the German tax reform, utilization of capital losses, successful resolution of outstanding tax matters, recoverable taxes subsequent to decisions of the Court of Justice of the European Communities regarding the non-conformity of certain German tax provisions with the European Community Law, and claims relating to current and prior years. In 2006, the tax expense was primarily reduced by the effect of a German tax law change for the refund of prior years’ distribution tax credits, which resulted in the accelerated recognition of corporate tax credits and the settlement of tax audits at favorable terms. The actual effective tax rates were 25.6 % in 2007 and 27.1 % in 2006.
      

RESULTS OF OPERATIONS BY SEGMENT
The following is a discussion of the results of our business segments. See Note [2] to the consolidated financial statements for information regarding
—   
our organizational structure;
 
—   
effects of significant acquisitions and divestitures on segmental results;
 
—   
changes in the format of our segment disclosure;
 
—   
the framework of our management reporting systems;
 
—   
consolidating and other adjustments to the total results of operations of our business segments;
 
—   
definitions of non-GAAP financial measures that are used with respect to each segment, and
 
—   
the rationale for including or excluding items in deriving the measures.
The criterion for segmentation into divisions is our organizational structure as it existed at December 31, 2007. Segment results were prepared in accordance with our management reporting systems.
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20-F // ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
 
                                                 
2007   Corporate     Private     Corporate     Total Man-     Consolida     Total  
    and Invest-     Clients and     Investments     agement     tion & Ad-     Consolidated  
    ment Bank     Asset Man-             Reporting     justments          
in m. (except percentages)           agement                                  
 
                       
Net revenues
    19,092       10,129       1,517       30,738       7       30,745 1
 
                       
Provision for credit losses
    109       501       3       613       (1 )     612  
 
                       
Total noninterest expenses
    13,802       7,561       220       21,583       (200 )     21,384  
 
                       
therein:
                                               
Policyholder benefits and claims
    116       73             188       5       193  
Impairment of intangible assets
          74       54       128             128  
Restructuring activities
    (4 )     (9 )     (0 )     (13 )           (13 )
 
                       
Minority interest
    34       8       (5 )     37       (37 )     --  
 
                       
Income (loss) before income tax expense
    5,147       2,059       1,299       8,505       244       8,749  
 
                       
Cost/income ratio
    72 %       75 %       15 %       70 %       N/M       70 %  
 
                       
Assets2
    1,895,756       156,391       13,002       2,011,654       8,695       2,020,349  
 
                       
Average active equity3
    20,714       8,539       473       29,725       121       29,846  
 
                       
Pre-tax return on average active equity4
    25 %       24 %       N/M       29 %       N/M       29 %  
 
 
N/M – Not meaningful
 
1  
Includes gain from the sale of industrial holdings (Fiat S.p.A., Linde AG and Allianz SE) of  514 million, income from equity method investments (Deutsche Interhotel Holding GmbH & Co. KG) of  178 million, and gains from the sale of premises (sale/leaseback transaction of 60 Wall Street) of  317 million, which are excluded from our target definition.
 
2  
The sum of corporate divisions does not necessarily equal the total of the corresponding group division because of consolidation items between corporate divisions, which are to be eliminated on group division level. The same approach holds true for the sum of group divisions compared to ‘Total Consolidated’.
 
3  
For management reporting purposes goodwill and other intangible assets with indefinite lives are explicitly assigned to the respective divisions. Average active equity is first allocated to divisions according to goodwill and intangible assets; remaining average active equity is allocated to divisions in proportion to the economic capital calculated for them.
 
4  
For the calculation of pre-tax return on average equity please refer to Note [2]. For ‘Total consolidated’, pre-tax return on average shareholders’ equity is 24% .
 
 
                                                 
2006   Corporate     Private     Corporate     Total Man-     Consolida     Total  
    and Invest-     Clients and     Investments     agement     tion & Ad-     Consolidated  
    ment Bank     Asset Man-             Reporting     justments          
in m. (except percentages)           agement                                  
 
                       
Net revenues
    18,802       9,315       574       28,691       (197 )     28,494 1
 
                       
Provision for credit losses
    (94 )     391       2       298       (0 )     298  
 
                       
Total noninterest expenses
    12,789       7,000       214       20,003       (147 )     19,857  
 
                       
therein:
                                               
Policyholder benefits and claims
          63             63       4       67  
Impairment of intangible assets
                31       31             31  
Restructuring activities
    99       91       1       192             192  
 
                       
Minority interest
    23       (11 )     (3 )     10       (10 )     --  
 
                       
Income (loss) before income tax expense
    6,084       1,935       361       8,380       (41 )     8,339  
 
                       
Cost/income ratio
    68 %       75 %       37 %       70 %       N/M       70 %  
 
                       
Assets2
    1,468,321       130,642       17,783       1,576,714       7,779       1,584,493  
 
                       
Average active equity3
    17,105       7,206       1,057       25,368       100       25,468  
 
                       
Pre-tax return on average active equity4
    36 %       27 %       34 %       33 %       N/M       33 %  
 
 
N/M – Not meaningful
 
1  
Includes gain from the sale of the bank’s remaining holding in EUROHYPO AG of  131 million, gains from the sale of industrial holdings (Linde AG) of  92 million, and a settlement of insurance claims in respect of business interruption losses and costs related to the terrorist attacks of September 11, 2001 of  125 million, which are excluded from our target definition.
 
2  
The sum of corporate divisions does not necessarily equal the total of the corresponding group division because of consolidation items between corporate divisions, which are to be eliminated on group division level. The same approach holds true for the sum of group divisions compared to ‘Total Consolidated’.
 
3  
For management reporting purposes goodwill and other intangible assets with indefinite lives are explicitly assigned to the respective divisions. Average active equity is first allocated to divisions according to goodwill and intangible assets; remaining average active equity is allocated to divisions in proportion to the economic capital calculated for them.
 
4  
For the calculation of pre-tax return on average equity please refer to Note [2]. For ‘Total consolidated’, pre-tax return on average shareholders’ equity is 28% .
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GROUP DIVISIONS
CORPORATE AND INVESTMENT BANK GROUP DIVISION
The following table sets forth the results of our Corporate and Investment Bank Group Division for the years ended December 31, 2007 and 2006, in accordance with our management reporting systems.

 
 
                 
in m. (except percentages)   2007     2006  
Net revenues:
               
 
       
Sales & Trading (equity)
    4,613       4,039  
 
       
Sales & Trading (debt and other products)
    8,407       9,016  
 
       
Origination (equity)
    861       760  
 
       
Origination (debt)
    714       1,331  
 
       
Advisory
    1,089       800  
 
       
Loan products
    974       946  
 
       
Transaction services
    2,585       2,228  
 
       
Other products
    (151 )     (318 )
 
       
Total net revenues
    19,092       18,802  
therein: Net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss
    12,278       12,743  
 
       
Provision for credit losses
    109       (94 )
 
       
Total noninterest expenses
    13,802       12,789  
therein:
               
Policyholder benefits and claims
    116        
Impairment of intangible assets
           
Restructuring activities
    (4 )     99  
 
       
Minority interest
    34       23  
 
       
Income (loss) before income tax expense
    5,147       6,084  
 
       
Cost/income ratio
    72 %       68 %  
 
       
Assets
    1,895,756       1,468,321  
 
       
Average active equity1
    20,714       17,105  
 
       
Pre-tax return on average active equity
    25 %       36 %  

 
 
1  
See Note [2] to the consolidated financial statements for a description of how average active equity is allocated to the divisions.
The following paragraphs discuss the contribution of the individual corporate divisions to the overall results of the Corporate and Investment Bank Group Division.
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20-F // ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
CORPORATE BANKING & SECURITIES CORPORATE DIVISION
The following table sets forth the results of our Corporate Banking & Securities Corporate Division for the years ended December 31, 2007 and 2006, in accordance with our management reporting systems.
 
 
                 
in m. (except percentages)   2007     2006  
Net revenues:
               
 
       
Sales & Trading (equity)
    4,613       4,039  
 
       
Sales & Trading (debt and other products)
    8,407       9,016  
 
       
Origination (equity)
    861       760  
 
       
Origination (debt)
    714       1,331  
 
       
Advisory
    1,089       800  
 
       
Loan products
    974       946  
 
       
Other products
    (151 )     (318 )
 
       
Total net revenues
    16,507       16,574  
 
       
Provision for credit losses
    102       (65 )
 
       
Total noninterest expenses
    12,169       11,236  
therein:
               
Policyholder benefits and claims
    116        
Impairment of intangible assets
           
Restructuring activities
    (4 )     77  
 
       
Minority interest
    34       23  
 
       
Income (loss) before income tax expense
    4,201       5,379  
 
       
Cost/income ratio
    74 %       68 %  
 
       
Assets
    1,881,638       1,459,190  
 
       
Average active equity1
    19,619       16,041  
 
       
Pre-tax return on average active equity
    21 %       34 %  
 
 
1  
See Note [2] to the consolidated financial statements for a description of how average active equity is allocated to the divisions.
Net revenues of  16.5 billion in 2007 were marginally lower than in 2006. Higher revenues from our more mature “flow” businesses were offset by write-downs and mark-to-market losses in the third quarter in some Sales & Trading areas and in Leveraged Finance on loans and loan commitments, which are described below. Income before income taxes decreased by  1.2 billion, or 22 %, to  4.2 billion for the year ended December 31, 2007. The reduction was mainly attributable to an increase in noninterest expenses resulting from higher staff levels and an increase in provision for credit losses.
Sales & Trading (debt and other products) revenues were  8.4 billion in 2007, a decrease of  609 million, or 7 %, compared to 2006. Sales & Trading (equity) revenues were a record  4.6 billion,  574 million, or 14 %, higher than in 2006.
Sales and Trading results for the entire year were comparable to those of 2006 despite the exceptionally challenging markets of the second half of 2007.
During the third and fourth quarters of 2007, fears of further U.S. homeowner delinquencies on subprime loans led to a significant deterioration in the subprime-related and other credit markets. The effect of this, in some cases, caused spreads to widen and liquidity levels to decline. During this difficult period, we reported relatively lower losses than some of our competitors in our Collateralized Debt Obligations (CDO) and U.S. residential mortgage businesses, despite the investment banking industry facing substantial problems in both sectors. This was due to the relative size of our exposure, protection purchased and significant sales activity.
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In the third quarter of 2007, we announced losses of  1.6 billion related to relative value trading (both debt and equity), CDO correlation trading and Residential Mortgage-Backed Securities (RMBS). Of this amount,  726 million related to CDO correlation and RMBS and was principally driven by exposure to positions linked to subprime residential mortgages. In the fourth quarter of 2007, the CDO and RMBS businesses produced an overall net positive result after factoring in gains from hedges.
Elsewhere, CB&S benefited from the scale and diversity of its Global Markets platform, particularly its leadership in products such as foreign exchange, interest rates and money markets and its strong position in emerging markets, which helped to offset a weaker performance in our credit trading businesses. Customer-driven business remains the predominant source of CB&S’ Sales & Trading revenues. Designated proprietary trading gains were lower compared to 2006, in both absolute terms and as a percentage of net revenues, having been negatively affected by the market dislocations occurring in the second half of the year.
Revenues from Origination and Advisory of  2.7 billion were  226 million, or 8 %, lower than in 2006. The reduction in revenue year-on-year arose principally from the deterioration in the market for private equity leveraged loans and financing as part of the overall dislocation of credit markets experienced in the second half of the year. Mark-to-market losses of  759 million (excluding fees and hedges,  1.4 billion) were taken against leveraged finance loans and loan commitments during 2007.
Revenues from Loan products were  1.0 billion, an increase of  28 million, or 3 %, from 2006, due to gains on sales of equity from restructured loans, which were partly offset by the application of the fair value option to an increased level of new lending activity.
Revenues from Other products were a loss of  151 million, an improvement of  167 million versus 2006, primarily driven by higher revenues following our acquisition of Abbey Life Assurance Company Limited in the fourth quarter 2007, which were offset in noninterest expenses within policyholder benefits and claims.
The provision for credit losses resulted in a net charge of  102 million in 2007, compared to a net release of  65 million in 2006, driven primarily by a provision taken on a single counterparty relationship.
Noninterest expenses in 2007 were  12.2 billion, an increase of  933 million, or 8 %, versus 2006, largely due to increased staff levels, accelerated recognition of share-based compensation expense, the impact of acquisitions and higher business volumes.
The ongoing dislocations in the credit market and a lack of adequate liquidity may continue to impact our remaining risk positions in a number of our key businesses within CB&S, primarily those relating to credit structuring, leveraged finance and commercial real estate. The following paragraphs summarize these exposures as of the end of 2007.
KEY EXPOSURES OF CDO TRADING AND ORIGINATION BUSINESSES: The activities of the Group’s CDO trading and origination businesses span multiple asset classes. Managing our remaining exposure to the U.S. subprime residential mortgage market continues to be a particular focus.
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20-F // ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following table outlines our overall U.S. subprime residential mortgage-related exposures in our CDO trading businesses as of December 31, 2007.
 
 
                         
CDO subprime exposure – Trading   Subprime ABS CDO     Hedges and other     Subprime ABS CDO  
    gross exposure     protection purchased     net exposure  
in m.   Dec 31, 2007     Dec 31, 2007     Dec 31, 2007  
Super Senior tranches  
                       
 
           
Underlying collateral type: High Grade
                 
Underlying collateral type: Mezzanine
    1,778       (938 )     840  
 
           
Total Super Senior tranches
    1,778       (938 )     840  
 
           
Mezzanine tranches
    1,086       (922 )     164  
 
           
Total Super Senior and Mezzanine tranches
    2,864       (1,860 )     1,004  
 
           
Other net subprime-related exposure held by CDO businesses
                    186  
 
           
Total net subprime exposure in CDO businesses
                    1,190  
 
 
Net exposure represents our potential loss as of December 31, 2007 in the event of a 100 % default of subprime securities and related ABS CDO, assuming zero recovery. It is not an indication of our trading position as of that date. The net exposure above is an aggregated view of all positions linked to the U.S. subprime residential mortgage market. The various gross components of our overall net exposure shown above represent different vintages, locations, credit ratings and other market-sensitive factors. Therefore, while the overall numbers above provide a view of the absolute levels of our exposure to an extreme market movement, actual future profits and losses will depend on actual market movements, relative price movements between different components of our positions and our ability to adjust hedges in these circumstances.
In the course of their activities, our CDO businesses will also take exposure to non-subprime residential mortgages (including Alt-A) and to other asset classes, including commercial mortgages, trust preferred securities, and collateralized loan obligations. These exposures are typically hedged through transactions arranged with other market participants or through other related market instruments.
In addition to our trading-related exposure, the table below summarizes our exposure to U.S. subprime ABS CDOs held within our “Available for Sale” category. These exposures arise from asset financing activities. Our potential economic exposure is hedged by additional short positions in our trading book. In our 2007 results, we have recorded charges of  207 million against these positions.
 
 
         
CDO subprime exposure – Available for Sale   Exposure  
in m.   Dec 31, 2007  
Available for Sale
    499  
 
   
Short positions on trading book
    (446 )
 
   
Total net CDO subprime exposure
    53  
 
 
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OTHER U.S. MORTGAGE BUSINESS EXPOSURE: We also have ongoing exposure to the U.S. residential mortgage market through our trading, origination and securitization businesses in residential mortgages. These are summarized below, which does not include agency CMOs and agency eligible loans.

 
 
         
Other U.S. Mortgage business exposure:   Exposure  
in m.   Dec 31, 2007  
Alt-A
    7,908  
 
   
Subprime
    216  
 
   
Other
    1,679  
 
   
Total other U.S. residential Mortgage gross assets
    9,803  
 
   
Hedges and other protection purchased
    (7,592 )
 
   
Trading related net positions
    803  
 
   
Total net other U.S. Mortgage business exposure
    3,014  

 
 
In the table above, our total net exposure is defined as the market value of the gross exposure on RMBS bonds, loans and portions of loans, less the value of protection provided by the associated hedges. The trading-related positions arise from our market-making and secondary activities in credit-sensitive U.S. mortgage markets. Hedges consist of a number of different market instruments, including single-name CDS contracts with market counterparties, protection provided by monoline insurers and index-based contracts. The comments made above in relation to CDOs regarding ongoing exposure to absolute and relative market movements therefore also apply to this portfolio.
MONOLINE EXPOSURE: The deterioration of the U.S. subprime mortgage market has generated large exposures for financial guarantors, such as monoline insurers, that have insured or guaranteed the value of pools of collateral referenced by CDOs and other market-traded securities. This has led to some uncertainty as to whether the ultimate liabilities of monoline insurers to banks and other buyers of protection will be met and may, in some cases, lead to a ratings downgrade of those insurers. The following table summarizes our net counterparty exposures to monoline insurers with respect to residential mortgage-related activity, as of December 31, 2007, on the basis of the mark-to-market value of the assets compared with the face value guaranteed or underwritten by monoline insurers.

 
 
         
Monoline exposure related to U.S. residential Mortgages   Market value of  
    bought protection  
in m.   Dec 31, 2007  
Super Senior ABS CDO
    805  
 
   
Other subprime
    69  
 
   
Alt-A
    229  
 
   
Total value of bought CDS protection
    1,103  

 
 
A proportion of this mark-to-market exposure has been mitigated with CDS protection arranged with other market counterparties and other economic hedge activity.
As of December 31, 2007, we had made credit valuation adjustments of  82 million against these exposures, including a full provision against our exposure to one monoline counterparty. The credit valuation adjustments are based on a name-by-name assessment of credit worthiness.
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20-F // ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
In addition to the residential mortgage-related activities shown in the table above, we have other exposures of  1.2 billion as of December 31, 2007, related to net counterparty exposure to monoline insurers, based on the mark-to-market value of other insured assets. These arise from a range of client activity, including financing of collateralized loan obligations, commercial mortgage-backed securities, trust preferred securities, student loans and public sector or municipal debt.
COMMERCIAL REAL ESTATE EXPOSURE: In conducting its activities, our Commercial Real Estate business takes positions in whole loans, assets held for securitization and commercial mortgage-backed securities. The following is a summary of our gross exposure to loans and loan securities secured in part or whole on commercial property or commercial mortgage pools as of December 31, 2007.
 
 
         
Commercial Real Estate Exposure   Gross Exposure  
in m.   Dec 31, 2007  
Funded positions
    15,999  
 
   
Unfunded commitments
    1,166  
 
   
Total Commercial Real Estate Exposure
    17,165  
 
   
Of which:
       
North America
    8,366  
Europe
    8,799  
(of which Germany  6,873)
       
 
 
 
 
         
Mark-to-market write-downs of loans and loan commitments  
in m.   2007  
Net mark-to-market losses excluding hedges
    (386 )
 
   
Gross mark-to-market losses excluding fees and hedges
    (558 )
 
 
Mark-to-market losses as of December 31, 2007 arose primarily from the illiquid market conditions that developed during the second half of 2007, which impacted our ability to securitize commercial real estate loans. The impact of these losses on our reported income was to some extent mitigated by the results of related hedge activity, and overall, the Commercial Real Estate business was profitable in 2007. Subsequent to December 31, 2007, there has been further widening in credit spreads for commercial real estate loans that, if sustained, could result in additional write-downs for loans that remain unsold, which may not be fully mitigated by offsetting hedge activity or by the realization of property or mortgage assets securing the exposures.
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LEVERAGED FINANCE EXPOSURE: The following is a summary of our exposures to leveraged loan and other financing commitments arising from the activities of our Leveraged Finance business. These activities include private equity transactions and other buyout arrangements. Also shown are the write-downs taken against these loans and loan commitments as of December 31, 2007.

 
 
         
Leveraged Finance Exposure:   Gross Exposure  
in m.   Dec 31, 2007  
Funded positions
    15,317  
 
   
Unfunded commitments
    20,897  
 
   
Total Leveraged Finance exposure
    36,214  
 
   
Of which:
       
North America
    26,620  
Europe
    8,959  
Asia/Pacific
    635  

 
 

 
 
         
Mark-to-market write-downs of loans and loan commitments  
in m.   2007  
Net write-downs in 2007 excluding hedges
    (759 )
 
   
Gross write-downs excluding fees and hedges on Dec 31 loans and commitments
    (1,351 )

 
 
Of these commitments,  1.3 billion has been accounted for on an amortized cost basis with the balance of  34.9 billion accounted for at fair value.
Challenging market conditions for leveraged financing activities have continued in the early part of 2008 and it is likely that our leveraged lending commitments will require further write-downs if market conditions fail to improve. Valuations will also be impacted if commitments are renegotiated or if acquisition transactions fail to close.
GLOBAL TRANSACTION BANKING CORPORATE DIVISION
The following table sets forth the results of our Global Transaction Banking Corporate Division for the years ended December 31, 2007 and 2006, in accordance with our management reporting systems.

 
 
                 
in m. (except percentages)   2007     2006  
Net revenues:
               
 
       
Transaction services
    2,585       2,228  
 
       
Other products
           
 
       
Total net revenues
    2,585       2,228  
 
       
Provision for credit losses
    7       (29 )
 
       
Total noninterest expenses
    1,633       1,552  
therein:
               
Policyholder benefits and claims
           
Impairment of intangible assets
           
Restructuring activities
    (1 )     22  
 
       
Minority interest
           
 
       
Income (loss) before income tax expense
    945       705  
 
       
Cost/income ratio
    63 %       70 %  
 
       
Assets
    32,083       25,646  
 
       
Average active equity1
    1,095       1,064  
 
       
Pre-tax return on average active equity
    86 %       66 %  

 
 
1  
See Note [2] to the consolidated financial statements for a description of how average active equity is allocated to the divisions.
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Income before income tax expense increased by 34 %, or  241 million, to a record  945 million for the year ended December 31, 2007. This development was based on double-digit profit growth in all geographic regions.
Net revenues increased by 16 % to  2.6 billion in 2007. The significant rise of  357 million compared to 2006 was derived in all regions. All products achieved a double-digit revenue growth. Cash Management grew substantially due to increased customer balances and a strong increase in payment volumes. This reflected the continued tendency of banks and corporates to consolidate to fewer banking counterparties, as well as the Single Euro Payments Area (SEPA) initiative and new Cash Management capabilities in emerging markets, such as Brazil, Russia and Turkey. Revenue growth in Trade Finance products was predominantly driven by strong business activity in the EMEA region. Trust & Securities Services grew in Asia/Pacific and EMEA, particularly due to increased asset inflows and significant new client mandates in domestic custody.
The provision for credit losses amounted to a net charge of  7 million in 2007, compared to a net release of  29 million for 2006.
Noninterest expenses of  1.6 billion increased by 5 %, or  80 million, from 2006, mainly reflecting higher staff levels, performance-related compensation, and transaction-related costs in support of increased business volumes.
PRIVATE CLIENTS AND ASSET MANAGEMENT GROUP DIVISION
The following table sets forth the results of our Private Clients and Asset Management Group Division for the years ended December 31, 2007 and 2006, in accordance with our management reporting systems.
 
 
                 
in m. (except where indicated)   2007     2006  
Net revenues:
               
 
       
Portfolio/fund management
    3,062       3,089  
 
       
Brokerage
    2,172       1,910  
 
       
Loan/deposit
    3,173       2,774  
 
       
Payments, account & remaining financial services
    979       899  
 
       
Other products
    742       643  
 
       
Total net revenues
    10,129       9,315  
therein:
Net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss
    3,529       3,071  
 
       
Provision for credit losses
    501       391  
 
       
Total noninterest expenses
    7,561       7,000  
therein:
               
Policyholder benefits and claims
    73       63  
Impairment of intangible assets
    74        
Restructuring activities
    (9 )     91  
 
       
Minority interest
    8       (11 )
 
       
Income (loss) before income tax expense
    2,059       1,935  
 
       
Cost/income ratio
    75 %       75 %  
 
       
Assets
    156,391       130,642  
 
       
Average active equity1
    8,539       7,206  
 
       
Pre-tax return on average active equity
    24 %       27 %  
 
       
Invested assets (in bn.)2
    952       908  
 
 
1  
See Note [2] to the consolidated financial statements for a description of how average active equity is allocated to the divisions.
 
2  
We define invested assets as (a) assets we hold on behalf of customers for investment purposes and/or (b) client assets that are managed by us. We manage invested assets on a discretionary or advisory basis, or these assets are deposited with us.
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The following paragraphs discuss the contribution of the individual corporate divisions to the overall results of Private Clients and Asset Management Group Division.
ASSET AND WEALTH MANAGEMENT CORPORATE DIVISION
The following table sets forth the results of our Asset and Wealth Management Corporate Division for the years ended December 31, 2007 and 2006, in accordance with our management reporting systems.

 
 
                 
in m. (except where indicated)   2007     2006  
Net revenues:
               
 
       
Portfolio/fund management (AM)
    2,351       2,470  
 
       
Portfolio/fund management (PWM)
    414       332  
 
       
Total portfolio/fund management
    2,765       2,802  
 
       
Brokerage
    964       811  
 
       
Loan/deposit
    223       191  
 
       
Payments, account & remaining financial services
    22       18  
 
       
Other products
    401       345  
 
       
Total net revenues
    4,374       4,166  
 
       
Provision for credit losses
    1       (1 )
 
       
Total noninterest expenses
    3,453       3,284  
therein:
               
Policyholder benefits and claims
    73       63  
Impairment of intangible assets
    74        
Restructuring activities
    (8 )     43  
 
       
Minority interest
    7       (11 )
 
       
Income (loss) before income tax expense
    913       894  
 
       
Cost/income ratio
    79 %       79 %  
 
       
Assets
    39,081       35,922  
 
       
Average active equity1
    5,109       4,917  
 
       
Pre-tax return on average active equity
    18 %       18 %  
 
       
Invested assets (in bn.)2
    749       732  

 
 
1  
See Note [2] to the consolidated financial statements for a description of how average active equity is allocated to the divisions.
 
2  
We define invested assets as (a) assets we hold on behalf of customers for investment purposes and/or (b) client assets that are managed by us. We manage invested assets on a discretionary or advisory basis, or these assets are deposited with us.
Income before income tax expense was  913 million in 2007, which is an increase of  19 million, or 2 %, compared to 2006. The results for 2007 included an impairment charge of  74 million related to a write-down of intangible assets in the Asset Management business. In 2006, income before income taxes included charges of  43 million for restructuring activities and net gains of  43 million from the sale of businesses.
Net revenues were  4.4 billion in 2007, an increase of  208 million, or 5 %, compared to 2006.
Portfolio/fund management revenues were  2.4 billion in AM,  119 million, or 5 %, below 2006. The decrease in revenues was driven by lower levels of performance fees in the Alternative Investments business. Partially offsetting these results were increases in performance fees in the Retail and Institutional businesses, as well as increases in management fees primarily in the Alternative Investments and the Retail business.
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In PWM, portfolio/fund management revenues of  414 million increased by  81 million, or 24 %, compared to 2006. The growth was driven by a higher invested asset base after the acquisition of Tilney and the additions of new client advisors since the beginning of 2006.
Brokerage revenues of  964 million were up  154 million, or 19 %, compared to the previous year. The increase was attributable to higher client activity, including a high demand from clients for alternative investment and other innovative products.
Revenues related to loans/deposits of  223 million were up by  31 million, or 16 %, due to higher volumes and margins in both our loan and deposit business.
Revenues from Other products of  401 million were  57 million, or 16 %, higher than in 2006, due largely to the consolidation of an infrastructure investment intended for a RREEF fund during 2007 in AM.
Noninterest expenses were  3.5 billion in 2007, an increase of  169 million, or 5 %, from 2006. The increase in noninterest expenses was mainly driven by the impairment charge of  74 million related to intangible assets in AM and PWM’s acquisition and growth strategy, partially offset by a decrease in charges for restructuring activities.
The cost/income ratio was 79 % in 2007, unchanged from 2006.
AWM’s invested assets increased by  17 billion to  749 billion in 2007. In AM, invested assets were  555 billion in 2007, an increase of  12 billion, or 2 %, from 2006. The increase in assets in 2007 was driven by net new assets of  27 billion. Invested assets in PWM grew from  189 billion in 2006 to  194 billion at the end of 2007, caused by net new assets of  13 billion. The increases were partially offset by a reduction in the value of dollar-based balances driven by the impact of a strong euro.
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PRIVATE & BUSINESS CLIENTS CORPORATE DIVISION
The following table sets forth the results of our Private & Business Clients Corporate Division for the years ended December 31, 2007 and 2006, in accordance with our management reporting systems.

 
 
                 
in m. (except where indicated)   2007     2006  
Net revenues:
               
 
       
Portfolio/fund management
    297       287  
 
       
Brokerage
    1,208       1,099  
 
       
Loan/deposit
    2,950       2,583  
 
       
Payments, account & remaining financial services
    958       881  
 
       
Other products
    341       299  
 
       
Total net revenues
    5,755       5,149  
 
       
Provision for credit losses
    501       391  
 
       
Total noninterest expenses
    4,108       3,717  
therein:
               
Policyholder benefits and claims
           
Impairment of intangible assets
           
Restructuring activities
    (1 )     49  
 
       
Minority interest
    0       0  
 
       
Income (loss) before income tax expense
    1,146       1,041  
 
       
Cost/income ratio
    71 %       72 %  
 
       
Assets
    117,533       94,760  
 
       
Average active equity1
    3,430       2,289  
 
       
Pre-tax return on average active equity
    33 %       45 %  
 
       
Invested assets (in bn.)2
    203       176  
 
       
Loan volume (in bn.)
    87       79  
 
       
Deposit volume (in bn.)
    96       72  

 
 
1  
See Note [2] to the consolidated financial statements for a description of how average active equity is allocated to the divisions.
 
2  
We define invested assets as (a) assets we hold on behalf of customers for investment purposes and/or (b) client assets that are managed by us. We manage invested assets on a discretionary or advisory basis, or these assets are deposited with us.
Income before income tax expense was  1.1 billion in 2007, which was  105 million, or 10 %, higher than in 2006. In 2006, income before income tax expense of  1.0 billion included charges of  49 million for restructuring activities.
Net revenues of  5.8 billion increased by  606 million, or 12 %, compared to 2006. The increase was driven by the acquisitions of norisbank (consolidated since November 2006) and Berliner Bank (consolidated since January 2007).
Portfolio/fund management revenues and brokerage revenues increased by  11 million and  109 million, respectively. The improvements reflect successful placements of innovative investment products, as well as higher transaction-based flow revenues. Furthermore the acquisitions of Berliner Bank and norisbank contributed to the increased revenues.
Loan/deposit revenues were the key drivers of the growth in 2007 with increases of  367 million, or 14 %, mainly driven by the aforementioned acquisitions.
Payments, account and remaining financial services revenues increased by  76 million, or 9 %, primarily due to the acquisitions, but also from increased insurance brokerage revenues in 2007 due to higher sales of pension related products.
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Revenues from Other products of  341 million in 2007 increased by  43 million, or 14 %, compared to 2006.
Provision for credit losses increased by  109 million, or 28 %, to  501 million in 2007, primarily driven by the acquisitions of norisbank and Berliner Bank.
Noninterest expenses of  4.1 billion were  391 million, or 11 %, higher than in 2006, mainly due to the acquisitions. In addition, integration related expenses contributed to the increase. Furthermore the higher expenses reflect investments in business growth in emerging markets, including the branch banking and credit card offerings in India and China, and the extension of the branch network and consumer finance offerings in Poland.
The cost/income ratio was 71 % in 2007, slightly improved compared to 2006.
Invested assets of  203 billion at the end of 2007 grew by  28 billion or 16 %, of which  19 billion was net new money, and the remainder was generated by performance and acquisitions.
The number of clients in PBC reached 13.8 million by year end 2007, an increase of 1 million net new clients, excluding the impact of the acquisition of Berliner Bank and the sale of the credit card processing activities in Italy. The increases mainly relate to Germany and India.
CORPORATE INVESTMENTS GROUP DIVISION
The following table sets forth the results of our Corporate Investments Group Division for the years ended December 31, 2007 and 2006, in accordance with our management reporting systems.
 
 
                 
in m. (except percentages)   2007     2006  
Net revenues
    1,517       574  
 
       
therein:
Net interest income and net gains (losses) on financial assets/liabilities at fair value through profit or loss
    157       3  
 
       
Provision for credit losses
    3       2  
 
       
Total noninterest expenses
    220       214  
therein:
               
Policyholder benefits and claims
           
Impairment of intangible assets
    54       31  
Restructuring activities
    (0 )     1  
 
       
Minority interest
    (5 )     (3 )
 
       
Income (loss) before income tax expense
    1,299       361  
 
       
Cost/income ratio
    15 %       37 %  
 
       
Assets
    13,002       17,783  
 
       
Average active equity1
    473       1,057  
 
       
Pre-tax return on average active equity
    N/M       34  
 
 
N/M – Not meaningful
 
1  
See Note [2] to the consolidated financial statements for a description of how average active equity is allocated to the divisions.
CI reported income before income tax expense of  1.3 billion in 2007 compared to  361 million in 2006.
Net revenues were  1.5 billion in 2007, an increase of  943 million compared to the previous year. Net revenues in 2007 included net gains of  626 million from selling some of our industrial holdings (mainly related to Allianz SE, Linde AG and Fiat S.p.A.), a gain of  178 million from our equity method investment in Deutsche Interhotel Holding
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GmbH & Co. KG (which also triggered an impairment review of CI’s goodwill resulting in an impairment charge of  54 million), dividend income in the amount of  141 million and mark-to-market gains from our option to increase our share in Hua Xia Bank Co. Ltd. In addition, the net revenues included a gain of  313 million related to the sale and leaseback transaction of our premises at 60 Wall Street.
Net revenues in 2006 included a gain of  131 million from the sale of our remaining holding in EUROHYPO AG,  92 million related to the partial sale of our stake in Linde AG and dividend income of  122 million.
Total noninterest expenses increased in 2007 to  220 million from  214 million in 2006. The increase was the result of higher goodwill impairment charges in 2007, offset by reductions in other expense categories.
At year end 2007, the alternative assets portfolio of CI had a carrying value of  631 million, of which 51 % was real estate investments, 43 % was private equity direct investments and 6 % was private equity indirect and other investments. This compares to a value at year end 2006 of  895 million.
CONSOLIDATION & ADJUSTMENTS
For a discussion of Consolidation & Adjustments to our business segment results see Note [2] to the consolidated financial statements.
      

LIQUIDITY AND CAPITAL RESOURCES
For a detailed discussion of our liquidity risk management, see “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Risk and Capital Management – Liquidity Risk.” For a detailed discussion of our capital management, see “Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk – Risk and Capital Management – Capital Management” and Note [36] to the consolidated financial statements.
 

POST-EMPLOYMENT BENEFIT PLANS
We have a number of post-employment benefit plans. In addition to defined contribution plans, there are plans accounted for as defined benefit plans.
As a matter of principle all defined benefit plans with a benefit obligation exceeding  1 million are included in our globally coordinated accounting process. Reviewed by our global actuary, the plans in each country are evaluated by locally appointed actuaries.
By applying our global policy for determining the financial and demographic assumptions we seek to ensure that the assumptions are unbiased and mutually compatible and that they follow the best estimate and ongoing plan principles.
For a further discussion on our employee benefit plans see Note [32] to our consolidated financial statements.
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OFF-BALANCE SHEET ARRANGEMENTS WITH UNCONSOLIDATED ENTITIES
INTRODUCTION
We engage in various business activities with unconsolidated entities which may be off-balance sheet arrangements; the face value of the financial instruments associated with these arrangements and the movements in their fair value are not reflected in our financial statements. Generally, the following discussion is limited to off-balance sheet arrangements with special purpose entities (SPEs). While our involvement with these entities can take many different forms, it consists primarily of liquidity facilities and guarantees. Where appropriate, this disclosure also encompasses certain instruments recorded on-balance sheet, particularly liquidity arrangements embedded in total return swaps, written put options and certain other types of guarantees.
We provide financial support to off-balance sheet entities in connection with commercial paper conduit programs, asset securitizations, mutual funds that are managed but not consolidated and real estate leasing vehicles. Such vehicles are critical to the functioning of several significant investor markets, including the mortgage-backed and other asset-backed securities markets, since they offer investors access to specific cash flows and risks created through the securitization process. Because we consolidate the majority of our sponsored conduit programs, only those arrangements with unconsolidated entities we sponsor are discussed. We also provide financing arrangements to both our own sponsored securitization programs and third party-sponsored securitizations.
Our accounting policies regarding consolidation and reassessment of consolidation of SPEs are outlined in Note [1] to the consolidated financial statements.
The purposes, risks and effects of the off-balance sheet arrangements are described in the following sections. As of December 31, 2007, these arrangements have not had a material impact on our debt covenants, capital ratios, credit ratings or dividends.
All balance sheet and notional values are reported as of December 31, 2007. All income statement and cash flow amounts are reported for the year ended December 31, 2007.
GROUP SPONSORED ABCP CONDUITS
We originate and administer our own asset-backed commercial paper (ABCP) programs. These programs provide our customers with access to liquidity in the commercial paper market. As an administrative agent for the commercial paper programs, we facilitate the purchase of non-Deutsche Bank Group loans, securities and other receivables by the commercial paper conduit (conduit), which then issues high-grade, short-term commercial paper that is collateralized by the underlying assets to the market to fund the purchase. The conduits require sufficient collateral, credit enhancements and liquidity support to maintain an investment grade rating for the commercial paper. We are the liquidity provider to these entities.
Some conduits remain off-balance sheet because we are not deemed to control them; these have assets totaling  4.8 billion which consist of securities backed by non-U.S. residential mortgages issued by warehouse SPEs set up by the sellers to facilitate the purchase of the assets by the conduits. The minimum credit rating for these securities is AA-. The credit enhancement necessary to achieve the required credit ratings is ordinarily provided by mortgage insurance extended by third-party insurers to the SPEs.
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The weighted-average life of the assets held in the conduits is 5 years. The average life of the commercial paper issued by these off-balance sheet conduits is one to three months.
No material difficulties have been experienced by these conduits during 2007 although a general widening in credit spreads was experienced on the conduits’ issued commercial paper, the cost of which was passed on to the original asset sellers. Our exposure to these entities is limited to the committed liquidity facilities entered into by us to provide funding to the conduits in the event of market disruption. The committed liquidity facilities to these conduits total  6.3 billion and we are the only liquidity facility provider to these entities. Advances against the liquidity facilities are collateralized by the underlying assets held in the conduits, and thus a drawn facility will be exposed to volatility in the value of the underlying assets. Should the assets decline sufficiently in value, there may not be sufficient funds to repay the advance.
As of December 31, 2007, we held  1.0 billion of commercial paper issued by these nonconsolidated entities. We purchased the paper voluntarily as dealer in commercial paper on standard commercial terms. In addition, we purchased  0.5 billion in term notes issued by one SPE whose paper was ordinarily purchased by the conduits. This represents 100 % of its issued debt, which has caused us to consolidate that SPE. This entity holds assets backed by non-conforming residential mortgages. The pre-existing liquidity facility with this entity was required to be renegotiated in late 2007 and under the terms of the refinancing we elected to transform the financing from an off-balance sheet arrangement to on-balance sheet financing. No write-offs were recorded by us as a consequence of this purchase or from the holding of the conduit’s commercial paper.
Our revenues from these arrangements in 2007 totaled  6 million. No losses were incurred as a consequence of our off-balance sheet arrangements with these entities. Cash flows to the conduits during 2007 totaled  1.1 billion, including the  0.5 billion purchase of SPE notes.
THIRD PARTY ABCP CONDUITS
In addition to sponsoring our own commercial paper programs, we also assist third parties with the formation and ongoing risk management of their commercial paper programs. (This section excludes the third party Canadian ABCP conduits which are discussed separately below.)
Our assistance to third party conduits is primarily financing-related in the form of unfunded committed liquidity facilities ( 3.1 billion) and unfunded committed repurchase agreements ( 0.5 billion) in the event of disruption in the commercial paper market. The liquidity facilities and committed repurchase agreements are recorded off-balance sheet unless a contingent payment is deemed probable and estimable, in which case a liability is recorded.
We also provide market value support in the form of total return swaps over specific assets purchased by the conduits from third parties ( 3.6 billion notional value). Embedded into the total return swaps are liquidity puts which allow the conduit to sell to us the underlying assets in the event that the conduit is unable to refinance the commercial paper funding the asset. The total return swaps are derivatives and are reported at fair value with changes reported in the consolidated statement of income.
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Other financial institutions also provide liquidity funding to these conduits and thus we are not the sole liquidity provider. Our interests rank pari passu with other interests. Advances against the liquidity facilities are collateralized by identified pools of underlying assets held in the conduits, and so a drawn facility will be exposed to volatility in the value of these underlying assets. Should the assets decline sufficiently in value, there may not be sufficient funds to repay the advance. Changes in value of other assets in the conduits will not impact our credit risk. For this reason, the details below of our support for these entities are limited to the assets and liabilities related to our interests. We do not provide details of conduit assets in which we hold no interest and to which we are not exposed.
Our interests in the conduits are supported by equities, bonds, commercial mortgage-backed securities, residential mortgage-backed securities, and securities backed by automotive leasing receivables, credit card receivables, student loans and consumer loans. Including our derivative hedges, we are carrying a net exposure of  0.5 billion to U.S. subprime residential mortgages which collateralize our off-balance sheet interest. The weighted-average life of these assets varies significantly but is consistently of significantly longer duration than the short-term commercial paper issued by the conduits. The average life of the commercial paper issued by these off-balance sheet conduits is one to three months.
During the second half of 2007, the global ABCP conduits market experienced significantly less liquidity and higher borrowing costs, and in some instances experienced write-downs in the values of their assets. No specific credit-related write-downs occurred on assets collateralizing our interests. We purchased conduit-issued commercial paper totaling  3.5 billion and certain underlying assets totaling  3.3 billion, and originated loans totaling  0.8 billion. These cash outflows totaled  7.6 billion and are in addition to the unfunded off-balance sheet exposures referred to above. The reasons for the purchase of the commercial paper and assets and loan origination were twofold. First, one of our businesses operates as a dealer for certain of the conduits’ commercial paper and voluntarily purchased the paper as part of its normal trading activities on commercial terms. Second, commercial paper and assets were purchased and loans were made upon an early termination of the total return swaps with the conduits triggered by their inability to refinance their commercial paper in the market. We have not recorded any net losses as a result of these total return swap arrangements because we held offsetting hedging positions.
Our revenues from these off-balance sheet arrangements in 2007 totaled  4 million. A provision for credit losses of  188 million was taken on a single third party conduit relationship in 2007.
THIRD PARTY SPONSORED CANADIAN ABCP CONDUITS
We have financial relationships with third party-sponsored ABCP conduits in Canada. These conduits operate in a similar manner to other ABCP conduit programs in that the basic investment strategy is to earn a spread between the relatively inexpensive funding and the higher yields on assets held. They also have the equivalent liquidity mismatch between longer-dated assets and short-dated commercial paper funding. One key difference however is that the assets are typically a combination of AAA-rated bond collateral and portfolio credit default swaps linked to super-senior tranches referencing a pool of corporate credit default swaps, usually with leverage in order to enhance the yield. The transactions contain triggers pursuant to which we can call for further collateral in a given market environment. Less common transactions involve residential mortgage-backed securities collateral or credit default swaps on mezzanine tranches, and on occasion the absence of leverage, collateral triggers or liquidity support.
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Another key difference is that the conduits issue junior interests and/or medium-term notes in addition to senior short-term commercial paper. The commercial paper also includes a portion of extendible commercial paper, whereby the securities can be extended beyond their original maturity date on pre-agreed terms at the option of the issuer. The more junior interests earn the residual return, bear first losses, and provide the capital to support the credit rating of the conduits, in addition to other credit enhancements and liquidity arrangements.
We perform no management role for any of the Canadian conduits but are the portfolio credit default swap provider and/or the liquidity facility provider. In some instances we are the sole liquidity provider but in others there are multiple providers. The following details our support for these entities which are limited to the assets and liabilities related to our interests. We do not provide details of conduit assets in which we hold no interest and to which we are not exposed.
Under the terms of the various committed liquidity facilities and written liquidity put options, the conduits have the right to sell existing commercial paper or assets held by them to us on pre-agreed terms. The liquidity facilities can only be drawn upon in the event of ‘general market disruption’ (GMD), which is when market participants generally are unable to refinance fully their maturing commercial paper in the commercial paper market.
The Canadian ABCP conduit market experienced significant liquidity problems during the last six months of 2007. The GMD liquidity facilities committed by us were not drawn upon during this period. In August 2007, an agreement referred to as the Montreal Accord was agreed by 22 conduits, their commercial paper investors, and bank counterparties, including us, under which all agreed to a standstill period to renegotiate the terms of the vehicles’ issued liabilities. For the standstill period (60 days), the banks could not trigger collateral calls and, for the standstill period plus another 150 days, the vehicles could not draw upon the liquidity puts and facilities. The standstill agreement has since been extended twice through February 22, 2008 and standstill arrangements beyond this date are being re-agreed on a daily basis. Our liquidity arrangements with the conduits at December 31, 2007 totaled  5.5 billion, with a representative interest in the conduits’ assets of  8.3 billion. In addition, we held  90 million of commercial paper issued by these vehicles. Due to the standstill agreement, no amounts can be drawn under these liquidity arrangements and they will have expired by the time the extended standstill period ends.
On December 23, 2007, a framework agreement was published, setting forth proposed terms for the restructuring of these conduits as agreed in principle by investors and banks. Pursuant to this framework agreement, the asset exposures and issued liabilities of the vehicles would be combined into two “master” vehicles, the issued liabilities would be restructured into senior and subordinated term debt of the new vehicles and a new margin facility would be established. Under the proposed restructuring, we would contribute  1.6 billion towards that margin facility and earn a fair market return. The framework agreement would also contain revised collateral triggers.
We also have a broadly similar standstill arrangement with another vehicle outside of the Montreal Accord, with liquidity arrangements totaling  0.1 billion and representative asset interests of  0.4 billion.
We have earned fees for the liquidity facilities and puts of  9 million during 2007. Although the impact of the currently proposed restructuring on our profit and loss for 2008 would be insignificant, negotiations are continuing and further changes to the proposed restructuring could occur that may impact our profit and loss in the future.
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THIRD PARTY-SPONSORED SECURITIZATIONS
The third party securitization vehicles to which we provide financing are third party-managed investment vehicles that purchase diversified pools of assets, including fixed income securities, corporate loans, asset-backed securities (predominantly commercial mortgage backed securities, residential mortgage backed securities and credit card receivables) and film rights receivables. The vehicles fund these purchases by issuing multiple tranches of debt and equity securities, the repayment of which is linked to the performance of the assets in the vehicles. Total asset size of these entities is  30.2 billion.
Our financing arrangements with these entities can take various forms: warehousing lines during the ramp-up period of the securitization ( 4.8 billion, with  1.5 billion drawn), variable funding notes (VFNs) issued by the securitization vehicles that contain funding commitments by the note purchaser up to a pre-defined amount ( 8.1 billion, with  5.0 billion drawn), and ongoing liquidity commitments ( 1.9 billion, with  0.1 billion drawn).
All committed amounts are available to be drawn at the investment manager’s discretion. These agreements are secured by the securitization vehicles’ assets and so a drawn facility will be exposed to volatility in the value of these assets. These liquidity facilities rank senior to the issued debt tranches and pari passu with any other liquidity providers.
Due to the wide variety of different types of securitization vehicles, the weighted-average life of the assets and their credit ratings also vary widely. In general terms, the funding provided is designed to be co-terminus with the weighted-average life of the assets and no vehicles were experiencing liquidity problems as of December 31, 2007. The credit ratings range from B- to AAA.
All securitization vehicles experienced a general widening of credit spreads during the second half of 2007. In 2007, we incurred losses totaling  302 million on amounts drawn against these off-balance sheet arrangements. We have not provided any additional financial support to these vehicles as a result of the general market difficulties and hold an insignificant interest in the issued tranches of these securitization vehicles. In 2007, we earned commitment fee revenues of  62 million as a result of our financing arrangements with these entities. Our net cash flows to the vehicles during 2007 totaled  4.9 billion.
MUTUAL FUNDS
We offer clients mutual fund-related products which pay returns linked to the performance of the assets held in the funds. Certain of these funds contain a guarantee feature which guarantees the minimum net asset value to be returned to investors at certain dates. The investors earn the return between the guaranteed minimum and a certain performance benchmark and then share the returns with us above that benchmark. The remaining funds contain no such guarantee feature. The risk for us as guarantor is that we have to compensate the investors if the market values of such products at their respective guarantee dates are lower than the guaranteed levels. For our investment management service in relation to such products, we earn management fees and on occasion performance-based fees.
The guarantees extended by us are recorded on-balance sheet as derivatives at fair value with changes in fair value recorded in the consolidated statement of income.
During 2007, we injected cash of  49 million into these mutual funds on a discretionary basis where actual yields were lower than originally projected, although still above any guarantee thresholds. This amount was recorded as a loss in our 2007 earnings.
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Assets under management for the funds supported with guarantees and/or discretionary yield enhancement total  29.8 billion. The funds’ assets are a combination of floating rate debt securities, asset-backed securities (predominantly residential mortgage-backed securities, commercial mortgage-backed securities and collateralized bond obligations), investments in other funds, repurchase agreements and cash. No subprime risk is held in any of these asset pools.
The average life of the assets is approximately 2-3 years, and the credit ratings on the assets range from BBB to AAA, with 60 % representing either AAA or AA and a cap of 5 % on BBB ratings.
Financing is provided by third-party investor holdings in the funds. Up to the maturity or liquidation date of the funds, the fund units have no contractual maturity and can instead be redeemed by investors at any time without restriction. We hold no equity interests in these funds.
We have earned  111 million in management and performance fees on the above funds in 2007, and incurred a loss of  49 million for the discretionary cash injections provided during the year. Other than these amounts, we have reported no cash flow movements with these entities during 2007.
REAL ESTATE SPECIAL PURPOSE ENTITIES AND CLOSED END FUNDS
Real estate leasing vehicles provide financing for the purchase of real estate assets which are leased under finance leases to third parties. The leases are primarily for commercial and residential land and buildings and infrastructure assets. The vehicles may either be corporate SPEs or partnerships. The SPEs are financed with debt provided by one or more financial institutions, and the closed-end funds with a combination of equity in the form of limited partnership interests and debt financing. Lessee credit risk in the SPEs is borne by the lenders who have recourse to the lease asset as collateral in the event of lessee default, and in the closed-end funds by the equity investors. We administer the lessor entities and earn fees for this service.
We have two principal types of off-balance sheet arrangements with these funds. First, under the terms of certain German lease arrangements, the lessee commits to maintain the lease payments at pre-agreed levels in the event that the lease asset is partly or wholly damaged or destroyed. The lessor SPE in turn agrees to compensate the lessee for rental overpayments, and we guarantee the performance of the lessor vehicles’ obligations under this arrangement. The notional value of these guarantees is  0.5 billion. Second, for some of the closed-end funds, we give investors an option to exit their interest in the fund by selling either their limited partnership interests or the leased asset to us at the end of the first lease term under certain limited conditions at a pre-agreed price. We thus bear the risk that the lease asset market value declines below the option price at the end of the lease term. As of December 31, 2007, the notional value of the put options is  0.6 billion.
The total assets in the real estate leasing vehicles are  1.2 billion, with an average life of 10 to 12 years. The credit quality of the lessees on the finance lease assets varies from BB to AAA. No material difficulties have been experienced in the credit quality or market value of these assets during 2007.
Funding for the real estate assets is provided by financial institutions in the form of long term debt and, in the case of the closed-end funds, limited partnership equity. All funding is designed to be co-terminus with the contractual or expected maturities of the assets. Financing for all vehicles is committed for their expected lives. We have experienced
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no difficulties in the funding arrangements for these vehicles. We hold negligible debt and equity interests in the vehicles and have not provided any financial support to them during 2007.
We earned  3 million in servicing fees from these real estate leasing vehicles and real estate closed-end funds in 2007. No significant losses were incurred by us during 2007 as a consequence of these arrangements. Other than these amounts, we have reported no cash flow movements with these entities in 2007.
 

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The table below shows the cash payment requirements from specified contractual obligations outstanding as of December 31, 2007.
 
 
                                         
Contractual obligations   Payment due by period  
            Less than       1-3 years     3-5 years   More than  
in m.   Total     1 year                               5 years  
Long-term debt obligations
    126,703       23,256       34,729       34,979       33,739  
 
                   
Trust preferred securities
    6,345             4,008       518       1,819  
 
                   
Long-term financial liabilities designated at fair value through profit or loss1
    52,725       11,393       17,560       10,251       13,521  
 
                   
Finance lease obligations
    732       199       94       92       347  
 
                   
Operating lease obligations
    4,243       639       1,027       762       1,815  
 
                   
Purchase obligations
    3,050       618       1,341       776       315  
 
                   
Long-term deposits
    39,952             15,498       7,158       17,296  
 
                   
Other long-term liabilities
    6,927       871       1,711       971       3,374  
 
                   
Total
    240,677       36,976       75,968       55,507       72,226  
 
 
1  
Includes long-term debt and long-term deposits designated at fair value through profit or loss.
Figures above do not include the benefit of noncancelable sublease rentals of  421 million on finance leases and  253 million on operating leases. Purchase obligations for goods and services include future payments for, among other things, processing, information technology and custodian services. Some figures above for purchase obligations represent minimum contractual payments and actual future payments may be higher. Long-term deposits exclude contracts with a remaining maturity of less than one year. Under certain conditions future payments for some long-term financial liabilities designated at fair value through profit or loss may occur earlier. Other long-term liabilities consist primarily of obligations to purchase common shares, and insurance policy reserves. The latter are classified in the “More than 5 years” column since the obligations are long term in nature and actual payment dates cannot be specifically determined. See the following notes to the consolidated financial statements for further information: Note [11] regarding financial liabilities at fair value through profit or loss, Note [20] regarding lease obligations, Note [24] regarding deposits, Note [27] regarding long-term debt and trust preferred securities, and Note [28] regarding obligation to purchase common shares.
 

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
Not applicable.
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Item 6: Directors, Senior Management and Employees

DIRECTORS AND SENIOR MANAGEMENT
In accordance with the German Stock Corporation Act (Aktiengesetz), we have a Management Board (Vorstand) and a Supervisory Board (Aufsichtsrat). The German Stock Corporation Act prohibits simultaneous membership on both the Management Board and the Supervisory Board. The members of the Management Board are the executive officers of our company. The Management Board is responsible for managing our company and representing us in dealings with third parties. The Supervisory Board oversees the Management Board and appoints and removes its members and determines their salaries and other compensation components, including pension benefits.
The Supervisory Board may not make management decisions. However, German law and our Articles of Association (Satzung) require the Management Board to obtain the consent of the Supervisory Board for certain actions. The most important of these actions are:
—   
Granting general powers of attorney (Generalvollmachten). A general power of attorney authorizes its holder to represent the company in substantially all legal matters without limitation to the affairs of a specific office;
 
—   
Acquisition and disposal (including transactions carried out by a subsidiary) of real estate when the value of the object exceeds 1 % of our regulatory banking capital (haftendes Eigenkapital);
 
—   
Granting loans and acquiring participations if the German Banking Act requires approval by the Supervisory Board. In particular, the German Banking Act requires the approval of the Supervisory Board if we grant a loan (to the extent legally permissible) to a member of the Management Board or the Supervisory Board or one of our employees who holds a procuration (Prokura) or general power of attorney; and
 
—   
Acquisition and disposal (including transactions carried out by a subsidiary) of other participations, insofar as the object involves more than 2 % of our regulatory banking capital; the Supervisory Board must be informed without delay of any acquisition or disposal of such participations involving more than 1 % of our regulatory banking capital.
The Management Board must submit regular reports to the Supervisory Board on our current operations and future business planning. The Supervisory Board may also request special reports from the Management Board at any time.
SUPERVISORY BOARD AND MANAGEMENT BOARD
In carrying out their duties, members of both the Management Board and Supervisory Board must exercise the standard of care of a prudent and diligent business person, and they are liable to us for damages if they fail to do so. Both boards are required to take into account a broad range of considerations in their decisions, including our interests and those of our shareholders, employees and creditors. The Management Board is required to ensure that shareholders are treated on an equal basis and receive equal information. The Management Board is also required to ensure appropriate risk management within our operations and to establish an internal monitoring system.
As a general rule under German law, a shareholder has no direct recourse against the members of the Management Board or the Supervisory Board in the event that they are believed to have breached a duty to us. Apart from insol-
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vency or other special circumstances, only we have the right to claim damages from members of either board. We may waive this right or settle these claims only if at least three years have passed since the alleged breach and if the shareholders approve the waiver or settlement at the shareholders’ meeting with a simple majority of the votes cast, and provided that opposing shareholders do not hold, in the aggregate, one tenth or more of our share capital and do not have their opposition formally noted in the minutes maintained by a German notary.
SUPERVISORY BOARD
Our Articles of Association require our Supervisory Board to have twenty members. In the event that the number of members on our Supervisory Board falls below twenty, the Supervisory Board maintains its authority to pass resolutions so long as at least ten members remain on the board. If the number of members remains below twenty, upon application to a competent court, the court may appoint replacement members to serve on the board until official appointments are made.
The German Co-Determination Act of 1976 (Mitbestimmungsgesetz) requires that the shareholders elect half of the members of the supervisory board of large German companies, such as Deutsche Bank, and that employees in Germany elect the other half. None of the current members of either of our boards were selected pursuant to any arrangement or understandings with major shareholders, customers or others.
Each member of the Supervisory Board generally serves for a fixed term of approximately five years. For the election of shareholder representatives, the shareholders’ meeting may establish that the terms of office of up to five members may begin or end on differing dates. Pursuant to German law, the term expires at the latest at the end of the Annual General Meeting that approves and ratifies such member’s actions in the fourth fiscal year after the year in which the Supervisory Board member was elected. Supervisory Board members may also be re-elected. The shareholders may, by a majority of the votes cast in a shareholders’ meeting, remove any member of the Supervisory Board they have elected in a shareholders’ meeting. The employees may remove any member they have elected by a vote of three-quarters of the employee votes cast.
The members of the Supervisory Board elect the chairperson and the deputy chairperson of the Supervisory Board. Traditionally, the chairperson is a representative of the shareholders, and the deputy chairperson is a representative of the employees. At least half of the members of the Supervisory Board must be present at a meeting or must have submitted their vote in writing to constitute a quorum. In general, approval by a simple majority of the members of the Supervisory Board present and voting is required to pass a resolution. In the case of a deadlock, the resolution is put to a second vote. In the case of a second deadlock, the chairperson casts the deciding vote.
The following table shows information on the current members of our Supervisory Board. Most of the members representing our shareholders were elected at the Annual General Meeting on June 10, 2003, and the members elected by employees in Germany were elected on May 8, 2003. As described further below, a number of the current members were originally appointed by a court or elected by the subsequent General Meetings to fill vacancies created by members who left the Supervisory Board, or had been designated as the substitute for a departing member. The information includes their ages as of December 31, 2007, the years in which they were first elected or appointed, the years when their terms expire, their principal occupation and their membership on other companies’ supervisory boards, other nonexecutive boards and other positions.
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Member   Principal occupation   Supervisory board memberships and other directorships
Dr. Clemens Börsig
Age: 59
Appointed by the court: 2006
Term expires: 2008
  Chairman of the Supervisory Board of Deutsche Bank AG, Frankfurt   Deutsche Lufthansa AG (until April 2008); Linde AG; Heidelberger Druckmaschinen AG (until March 2007); Foreign & Colonial Eurotrust Plc (until December 2007); Bayer AG (since April 2007); Daimler AG (since April 2007)
 
       
Dr. Karl-Gerhard Eick
Age: 53
Appointed by the court: 2004
Term expires: 2008
  Deputy Chairman of the Board of Managing Directors of Deutsche Telekom AG, Bonn   DeTe Immobilien Deutsche Telekom Immobilien und Service GmbH; T-Mobile International AG; T-Systems Enterprise Services GmbH; T-Systems Business Services GmbH; Sireo Real Estate Asset Management GmbH (until December 2007); FC Bayern München AG; Corpus Immobiliengruppe GmbH & Co KG (since September 2007)
 
       
Heidrun Förster*
Age: 60
First elected: 1993
Term expires: 2008
  Deputy Chairperson of the Supervisory Board of Deutsche Bank AG; Chairperson of the Combined Staff Council Berlin of Deutsche Bank AG    
 
       
Ulrich Hartmann
Age: 69
First elected: 2003
Term expires: 2008
  Chairman of the Supervisory Board of E.ON AG, Düsseldorf   Deutsche Lufthansa AG; Hochtief AG (until July 2007); IKB Deutsche Industriebank AG (Chairman, until March 2008); Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft; Henkel KGaA (member of the Shareholders’ Committee)
 
       
Gerd Herzberg*
Age: 57
Appointed by the court: 2006
Term expires: 2008
  Deputy Chairman of ver.di Vereinte Dienstleistungsgewerkschaft, Berlin   Franz Haniel & Cie GmbH (Deputy Chairman); DBV Winterthur Lebensversicherung AG; BGAG – Beteiligungsgesellschaft der Gewerkschaften AG; DAWAG – Deutsche Angestellten Wohnungsbau AG (Chairman); Vattenfall Europe AG
 
       
Sabine Horn*
Age: 46
First elected: 1998
Term expires: 2008
  Employee of Deutsche Bank AG, Frankfurt    
 
       
Rolf Hunck*
Age: 62
First elected: 2003
Term expires: 2008
  Member of the management of PWM Germany of Deutsche Bank AG, Hamburg   Fibula Finanz AG; HCI Capital AG (until May 2007); Kûhne-Stiftung, Switzerland
 
       
Sir Peter Job
Age: 66
Appointed by the court: 2001
Term expires: 2008
      Schroders Plc; Tibco Software Inc.; Royal Dutch Shell Plc; Mathon Systems (Advisory Board, since January 2007)
 
       
Prof. Dr. Henning Kagermann
Age: 60
First elected: 2000
Term expires: 2008
  CEO of SAP AG, Walldorf   Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft; Nokia Corporation (since May 2007) 
 
       
Ulrich Kaufmann*
Age: 61
First elected: 1988
Term expires: 2008
  Deutscher Bankangestellten-Verband, labor union for financial services providers    
 
       
Peter Kazmierczak*
Age: 50
First elected: 2002
Term expires: 2008
  Deputy Chairman of the Staff Council Deutsche Bank Ruhrgebiet-West    
 
       
Maurice Lévy
Age: 65
First elected: 2006
Term expires: 2008
  Chairman and CEO, Publicis Groupe S.A. Paris   Publicis Conseil SA (France); Publicis USA Holdings, Inc. (until December 2007); Medias et Régies Europe SA (France); MMS USA Holdings, Inc.; Fallon Group, Inc. ; Zenith Optimedia Group Ltd.
 
       
Henriette Mark*
Age: 50
First elected: 2003
Term expires: 2008
  Chairperson of the Combined Staff Council Munich and Southern Bavaria of Deutsche Bank AG    

 
 
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Member   Principal occupation   Supervisory board memberships and other directorships
Prof. Dr. jur. Dr.-Ing. E. h.
Heinrich von Pierer

Age: 66
First elected: 2005
Term expires: 2008
      Hochtief AG; Mûnchener Rûckversicherungs-Gesellschaft Aktiengesellschaft; ThyssenKrupp AG; Volkswagen AG; Koç Holding A.S. (since January 2008)
 
       
Gabriele Platscher*
Age: 50
First elected: 2003
Term expires: 2008
  Chairperson of the Combined Staff Council Braunschweig/Hildesheim of Deutsche Bank AG   Deutsche Bank Privat- und Geschäftskunden AG; BVV Versicherungsverein des Bankgewerbes a.G.; BVV Pensionsfonds des Bankgewerbes AG (since November 2007)
 
       
Karin Ruck*
Age: 42
First elected: 2003
Term expires: 2008
  Deputy Chairperson of the Combined Staff Council Frankfurt branch of Deutsche Bank AG   Deutsche Bank Privat- und Geschäftskunden AG; BVV Versicherungsverein des Bankgewerbes a.G.; BVV Pensionsfonds des Bankgewerbes AG (since November 2007)
 
       
Dr. Theo Siegert
Age: 60
Appointed by the court: 2006
Term expires: 2012
  Managing Partner of de Haen Carstanjen & Söhne, Düsseldorf   E.ON AG (since July 2007); ERGO AG; Merck KGaA; E. Merck OHG, (member of the Shareholders’ Committee); DKSH Holding Ltd. (member of the Board of Administration)
 
           
Tilman Todenhöfer
Age: 64
Appointed by the court: 2001
Term expires: 2008
  Managing Partner of Robert Bosch Industrietreuhand KG, Stuttgart   Robert Bosch GmbH; Robert Bosch Int. Beteiligungen AG (President of the Board of Administration); Carl Zeiss AG (Chairman); Schott AG (Chairman)
 
       
Dipl.-Ing. Dr.-Ing. E. h.
Jürgen Weber

Age: 66
First elected: 2003
Term expires: 2008
  Chairman of the Supervisory Board of Deutsche Lufthansa AG, Cologne   Allianz Lebensversicherungs-AG; Bayer AG; Deutsche Post AG (Chairman); Voith AG; LP Holding GmbH (Chairman); Tetra Laval Group, Willy Bogner GmbH & Co. KGaA
 
       
Leo Wunderlich*
Age: 58
First elected: 2003
Term expires: 2008
  Chairman of the Group Staff Council of Deutsche Bank AG, Mannheim    
 
 
*  
Employee-elected member of the Supervisory Board.
Dr. Clemens Börsig was a member of the Management Board of Deutsche Bank AG until May 3, 2006. He was appointed member of the Supervisory Board by the court from May 4, 2006, until the end of the General Meeting on June 1, 2006, and elected by the Supervisory Board to be its Chairman. The General Meeting on June 1, 2006 elected him for the remainder of the term of office of the Supervisory Board. Subsequently, the Supervisory Board reelected him as its Chairman. The General Meeting on May 24, 2007, confirmed this resolution, and the Supervisory Board elected him again as Chairman. Dr. Börsig has declared that he would abstain from voting in his function as member of the Supervisory Board and its committees on all questions that relate to his former membership of the Management Board and could create a conflict of interest.
According to Section 5.4.2 of the German Corporate Governance Code, the Supervisory Board determined that it has what it considers to be an adequate number of independent members.
The Supervisory Board has the authority to establish, and appoint its members to standing committees. The Supervisory Board may delegate certain of its powers to these committees. Our Supervisory Board has established the following five standing committees:
CHAIRMAN’S COMMITTEE: The Chairman’s Committee is responsible for all Management Board and Supervisory Board matters. It prepares the decisions for the Supervisory Board on the appointment and dismissal of members of the Management Board, including long-term succession planning, and is responsible for deciding on the amount and structure of the Management Board members’ compensation and entering into, amending and terminating the service
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contracts and other agreements with the Management Board members. It provides its approval for ancillary activities of Management Board members pursuant to Section 112 of the German Stock Corporation Act and for certain contracts with Supervisory Board members pursuant to Section 114 of the German Stock Corporation Act. Furthermore, it prepares the decisions of the Supervisory Board in the field of corporate governance. The Chairman’s Committee held four meetings in 2007.
The current members of the Chairman’s Committee are Dr. Clemens Börsig (Chairman), Heidrun Förster, Ulrich Hartmann and Ulrich Kaufmann.
NOMINATION COMMITTEE: In accordance with a new recommendation of the German Corporate Governance Code, the Nomination Committee was formed on October 30, 2007. This Committee prepares the Supervisory Board’s proposals for the election or appointment of new shareholder representatives to the Supervisory Board. The Nomination Committee held one meeting in 2007.
The current members of the Nomination Committee are Dr. Clemens Börsig (Chairman), Ulrich Hartmann and Dr. Jürgen Weber.
AUDIT COMMITTEE: The Audit Committee reviews the documentation relating to the annual and consolidated financial statements and discusses the audit reports with the auditor. It prepares the decisions of the Supervisory Board on the annual financial statements and the approval of the consolidated financial statements and discusses important changes to the audit and accounting methods. The Audit Committee also discusses the quarterly financial statements and the report on the limited review of the quarterly financial statements with the Management Board and the auditor. In addition, the Audit Committee issues the audit mandate to the auditor elected by the General Meeting. It resolves on the compensation paid to the auditor and monitors the auditor’s independence, qualifications and efficiency. The Head of Internal Audit reports to the Audit Committee several times during the year on the work done by internal audit. The Audit Committee is informed about special audits, substantial complaints and other exceptional measures on the part of bank regulatory authorities. It has functional responsibility for taking receipt of and dealing with complaints concerning accounting, internal controls and issues relating to the audit. At its meetings, reports are regularly presented on issues of compliance. Subject to its review, the Audit Committee grants its approval for mandates engaging the auditor for non-audit-related services (in this context, see also “Item 16C: Principal Accountant Fees and Services”). The Audit Committee held seven meetings in 2007.
The current members of the Audit Committee are Dr. Karl-Gerhard Eick (Chairman), Dr. Clemens Börsig, Heidrun Förster, Sabine Horn, Rolf Hunck and Sir Peter Job.
RISK COMMITTEE: The Risk Committee handles loans which require a resolution by the Supervisory Board pursuant to law or our Articles of Association. Subject to its review, it grants its approval for the acquisition of shareholdings in other companies that amount to between 2 % and 3 % of our regulatory banking capital. At the meetings of the Risk Committee, the Management Board reports on credit, market, liquidity, operational, litigation and reputational risks. The Management Board also reports on risk strategy, credit portfolios, loans requiring a Supervisory Board approval pursuant to law or the Articles of Association, questions of capital resources and matters of special importance due to the risks they entail. The Risk Committee held six meetings in 2007.
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The current members of the Risk Committee are Dr. Clemens Börsig (Chairman), Professor Dr. Henning Kagermann and Sir Peter Job. Tilman Todenhöfer and Professor Dr. Heinrich von Pierer are substitute members of the Risk Committee. They are invited to all meetings and regularly attend them.
In addition to these four committees, the MEDIATION COMMITTEE, which is required by German law, makes proposals to the Supervisory Board on the appointment or dismissal of members of the Management Board in those cases where the Supervisory Board is unable to reach a two-thirds majority decision with respect to the appointment or dismissal. The Mediation Committee only meets if necessary and did not hold any meetings in 2007.
The current members of the Mediation Committee are Dr. Clemens Börsig (Chairman), Heidrun Förster, Ulrich Hartmann and Henriette Mark.
The business address of the members of the Supervisory Board is the same as our business address, Theodor-Heuss-Allee 70, 60486 Frankfurt am Main, Germany.
Our common shares are listed on several German stock exchanges as well as the New York Stock Exchange. The corporate governance rules of the New York Stock Exchange applicable to foreign private issuers such as us require that we disclose the significant ways in which our corporate governance practices differ from those applicable to U.S. domestic companies under the New York Stock Exchange’s listing standards. This disclosure is available on our internet website at: http://www.deutsche-bank.com/corporate-governance under the heading “Differences in Corporate Governance Practices”.
MANAGEMENT BOARD
Our Articles of Association require the Management Board to have at least three members. Our Management Board currently has four members. The Supervisory Board has appointed a chairman of the Management Board.
The Supervisory Board appoints the members of the Management Board for a maximum term of five years and supervises them. They may be re-appointed or have their term extended for one or more terms of up to a maximum of five years each. The Supervisory Board may remove a member of the Management Board prior to the expiration of his or her term for good cause.
Pursuant to our Articles of Association, two members of the Management Board, or one member of the Management Board together with a holder of procuration (Prokurist), may represent us for legal purposes. A Prokurist is an attorney-in-fact who holds a legally defined power under German law, which cannot be restricted with respect to third parties. However, pursuant to German law, the Management Board itself must resolve on certain matters as a body. In particular, it may not delegate strategic planning, coordinating or controlling responsibilities to individual members of the Management Board.
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Other responsibilities of the Management Board are:
—   
Appointing key personnel;
 
—   
Making decisions regarding significant credit exposures or other risks which have not been delegated to individual risk management units in accordance with the terms of reference (Geschäftsordnung) for the Management Board and terms of reference for our Risk Executive Committee;
 
—   
Calling shareholders’ meetings;
 
—   
Filing petitions to set aside shareholders’ resolutions;
 
—   
Preparing and executing shareholders’ resolutions; and
 
—   
Reporting to the Supervisory Board.
According to German law, our Supervisory Board represents us in dealings with members of the Management Board. Therefore, no member of the Management Board may enter into any agreement with us without the prior consent of our Supervisory Board.
On May 24, 2007 Dr. Tessen von Heydebreck left the Management Board. His responsibilities were taken over by the remaining members of the Management Board. The following paragraphs show information on the current members of the Management Board. The information includes their ages as of December 31, 2007, the year in which they were appointed and the year in which their term expires, their current positions or area of responsibility and their principal business activities outside our company. The business address of the members of the Management Board is the same as our business address, Theodor-Heuss-Allee 70, 60486 Frankfurt am Main, Germany.
DR. JOSEF ACKERMANN
Age: 59
First Appointed: 1996
Term Expires: 2010
Dr. Josef Ackermann joined Deutsche Bank as a member of the Management Board in 1996, where he was responsible for the investment banking division. On May 22, 2002, Dr. Ackermann was appointed Spokesman of the Management Board and Chairman of our Group Executive Committee. On February 1, 2006, he was appointed Chairman of the Management Board.
After studying Economics and Social Sciences at the University of St. Gallen, he worked at the University’s Institute of Economics as research assistant and received a doctorate in Economics. Dr. Ackermann started his professional career in 1977 at Schweizerische Kreditanstalt (SKA) where he held a variety of positions in Corporate Banking, Foreign Exchange/Money Markets and Treasury, Investment Banking and Multinational Services. He worked in London and New York, as well as at several locations in Switzerland. Between 1993 and 1996, he served as President of SKA’s Executive Board, following his appointment to that board in 1990.
Dr. Ackermann is a member of the Supervisory Board of Siemens AG (Second Deputy Chairman) and a member of the International Advisory Council of Zurich Financial Services Group (since January 2007). Until April 2007, he was a member of the Supervisory Board of Bayer AG.
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20-F // ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DR. HUGO BÄNZIGER
Age: 51
First Appointed: 2006
Term Expires: 2009
Dr. Hugo Bänziger became a member of our Management Board on May 4, 2006. He is our Chief Risk Officer and a member of the Group Executive Committee. He joined Deutsche Bank in London in 1996 as Head of Global Markets Credit. He was appointed Chief Credit Officer in 2000 and became Chief Risk Officer for Credit and Operational Risk in 2004.
Dr. Bänziger began his career in 1983 at the Swiss Federal Banking Commission in Berne. From 1985 to 1996, he worked at Schweizerische Kreditanstalt (SKA) in Zürich and London, first in Retail Banking and subsequently as Relationship Manager in Corporate Finance. In 1990 he was appointed Global Head of Credit for CS Financial Products.
He studied Modern History, Law and Economics at the University of Berne, where he subsequently earned a doctorate in Economic History.
Dr. Bänziger engages in the following principal business activities outside our company: He is a member of the Supervisory Board of EUREX Clearing AG, EUREX Frankfurt AG and a member of the Board of Directors of EUREX Zürich AG.
ANTHONY DI IORIO
Age: 64
First Appointed: 2006
Term Expires: 2008
Anthony Di Iorio became member of our Management Board on May 4, 2006. He is our Chief Financial Officer and a member of the Group Executive Committee. He joined Deutsche Bank in April 2001 as Head of Corporate Center Controlling and shortly thereafter became the Group Controller, based in Frankfurt.
Mr. Di Iorio began his professional career with KPMG. Joining as a member of their audit department in New York, he later moved to the management consulting unit and was ultimately responsible for the financial institutions advisory practice in the Midwest region of the United States, based in Chicago. His career in the financial services industry includes positions at Goldman Sachs & Co. (serving in several capacities in the finance function, ultimately as Co-Controller, based in New York), Bank of America (then: Nationsbank, Chief Financial Officer of the Trading & Sales and Corporate Finance businesses, based in Charlotte, North Carolina), and PaineWebber Group (joining as Executive Vice President in New York, ultimately Chairman/Chief Executive Officer of PaineWebber International, Ltd., based in London).
Mr. Di Iorio holds a Bachelor of Business Administration from Iona College and a Master of Business Administration from Columbia University and qualified as a Certified Public Accountant in New York.
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HERMANN-JOSEF LAMBERTI
Age: 51
First Appointed: 1999
Term Expires: 2009
Hermann-Josef Lamberti was appointed a member of our Management Board in 1999. He is our Chief Operating Officer and a member of the Group Executive Committee. He joined us in 1998 as an Executive Vice President, based in Frankfurt.
Mr. Lamberti began his professional career in 1982 with Touche Ross in Toronto and subsequently joined Chemical Bank in Frankfurt. From 1985 to 1998 he worked for IBM, initially in Germany in the areas Controlling, Internal Application Development and Sales Banks/Insurance Companies. In 1993, he was appointed General Manager of the Personal Software Division for Europe, the Middle East and Africa at IBM Europe in Paris. In 1995, he moved to IBM in the U.S., where he was Vice President for Marketing and Brand Management. He returned to Germany in 1997 to take up the position of Chairman of the Management of IBM Germany in Stuttgart.
Mr. Lamberti studied Business Administration at the Universities of Cologne and Dublin and graduated in 1982 with a master’s degree in Business Administration.
Mr. Lamberti engages in the following principal business activities outside our company: He is a member of the supervisory board or similar bodies of Deutsche Börse AG, BVV Versicherungsverein (since June 2007), BVV Versicherungskasse (since June 2007), EADS N.V. (since October 2007) and Carl Zeiss AG, and he was a member of the Supervisory Board of Fiat S.p.A. until July 2007.
STEFAN KRAUSE
Age: 45
First Appointed: 2008
On March 19, 2008, the Supervisory Board appointed Stefan Krause as member of the Management Board effective April 1, 2008. Mr. Krause became a member of the Board of Management of BMW AG in May 2002, served as Chief Financial Officer until September 2007 and subsequently had functional responsibility for Sales and Marketing. As a member of the Management Board of Deutsche Bank AG, Mr. Krause will take on the responsibilities of Chief Financial Officer with effect from Mr. Di Iorio’s retirement on October 1, 2008.
      

BOARD PRACTICES OF THE MANAGEMENT BOARD
The Supervisory Board issued new terms of reference for our Management Board for the conduct of its affairs in October 2007. These terms of reference provide that in addition to the joint overall responsibility of the Management Board as a Group, the individual responsibilities of the members of the Management Board are determined by the business allocation plan for the Management Board. The terms of reference stipulate that, notwithstanding the Management Board’s joint management and joint responsibility, and the functional responsibilities of the operating commit-
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tees of our Group divisions and of the functional committees, the members of the Management Board each have a primary responsibility for the divisions or functions to which they are assigned, as well as for those committees of which they are members.
In addition to managing our company, some of the members of our Management Board also supervise and advise our affiliated companies. As permitted by German law, some of the members also serve as members of the supervisory boards of other companies. Also, to assist us in avoiding conflicts of interest, the members of our Management Board have generally undertaken not to assume chairmanships of supervisory boards of companies outside our consolidated group.
Section 161 of the German Stock Corporation Act (Aktiengesetz) requires that the management board and supervisory board of any German exchange-listed company declare annually that the recommendations of the German Corporate Governance Code have been adopted by the company or which recommendations have not been so adopted. These recommendations go beyond the requirements of German law. The Declaration of Conformity of our Management Board and Supervisory Board dated October 30, 2007 is available on our Internet website at http://www.deutsche-bank.com/corporate-governance under the heading “Declarations of Conformity”.
      

GROUP EXECUTIVE COMMITTEE
The Group Executive Committee was established in 2002. It comprises the members of the Management Board, the Business Heads of our Group Divisions CIB and PCAM and the head of the management of our regions. The Group Executive Committee serves as a tool to coordinate across our businesses and regions through the following tasks and responsibilities:
—   
Provision of ongoing information to the Management Board on business developments and particular transactions;
 
—   
Regular review of our business segments;
 
—   
Consultation with and furnishing advice to the Management Board on strategic decisions; and
 
—   
Preparation of decisions to be made by the Management Board.
      

COMPENSATION
SUPERVISORY BOARD
PRINCIPLES OF THE COMPENSATION SYSTEM FOR MEMBERS OF THE SUPERVISORY BOARD
The principles of the compensation of the Supervisory Board members are set forth in our Articles of Association, which our shareholders amend from time to time at their annual meetings. Such compensation provisions were last amended at our Annual General Meeting on May 24, 2007. The amendment was due mainly to increased requirements, developments in the Bank and within the banking industry, business practices in Germany and among our Bank’s European competitors as well as the provisions of the German Corporate Governance Code. For these reasons the fixed portion of compensation was doubled. The dividend-based compensation was reduced by more than 50 %, while the threshold above which dividend-based compensation is paid was raised significantly. The compensation component linked to our long-term performance was revised: the component previously linked to the total return of
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shares of a group of peer companies is now based on our average earnings per share (diluted) for the three previous financial years. A corresponding threshold was also fixed for this compensation component. In addition, the increased supervisory and advisory responsibilities on the committees of a complex, global financial services company are taken into account through significantly higher rates of increment for the chairperson and membership in the committees. The Chairman of the Supervisory Board previously received three times the total compensation of a regular Supervisory Board member as well as the respective rates of increment for his work in all committees. The new compensation provisions take account of his responsibility by awarding him four times the total compensation of a regular Supervisory Board member, but exclude any rates of increment for committee work.
The following provisions apply to the 2007 financial year: compensation generally consists of a fixed compensation of  60,000 per year and a dividend-based bonus of  100 per year for every full or fractional  0.01 increment by which the dividend we distribute to our shareholders exceeds  1.00 per share. The members of the Supervisory Board also receive annual remuneration linked to our long-term profits in the amount of  100 each for each  0.01 by which the average earnings per share (diluted), reported in our financial statements in accordance with the accounting principles to be applied in each case on the basis of the net income figures for the three previous financial years, exceed the amount of  4.00.
These amounts increase by 100 % for each membership in a committee of the Supervisory Board. For the chairperson of a committee the rate of increment is 200 %. These provisions do not apply to the Mediation Committee formed pursuant to Section 27 (3) of the Co-determination Act. We pay the Supervisory Board Chairman four times the total compensation of a regular member, without any such increment for committee work, and we pay his deputy one and a half times the total compensation of a regular member. In addition, the members of the Supervisory Board receive a meeting fee of  1,000 for each Supervisory Board and committee meeting which they attend. Furthermore, in our interest, the members of the Supervisory Board will be included in any financial liability insurance policy held in an appropriate amount by us, with the corresponding premiums being paid by us.
We also reimburse members of the Supervisory Board for all cash expenses and any value added tax (Umsatzsteuer, at present 19 %) they incur in connection with their roles as members of the Supervisory Board. Employee representatives on the Supervisory Board also continue to receive their employee benefits. For Supervisory Board members who served on the board for only part of the year, we pay a fraction of their total compensation based on the number of months they served, rounding up to whole months.
The members of the Nomination Committee, formed on October 30, 2007, waived all remuneration, including the meeting fee, for such Nomination Committee.
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SUPERVISORY BOARD COMPENSATION FOR FISCAL YEAR 2007
We compensate our Supervisory Board members after the end of each fiscal year. In January 2008, we paid each Supervisory Board member the fixed portion of their remuneration for their services in 2007 and their meeting fees. In addition, we will pay each Supervisory Board member a remuneration linked to our long-term performance as well as a dividend-based bonus, as defined in our Articles of Association, for their services in 2007. Assuming that the Annual General Meeting in May 2008 approves the proposed dividend of  4.50 per share, the Supervisory Board will receive a total remuneration of  6,022,084 (2006:  3,388,583). Individual members of the Supervisory Board received the following compensation for the 2007 financial year (excluding statutory value added tax):
 
 
                                                                 
Members of the Supervisory Board   Compensation for fiscal year 2007     Compensation for fiscal year 2006  
                    Meeting                             Meeting        
in   Fixed     Variable6     fee     Total     Fixed     Variable     fee     Total  
Dr. Clemens Börsig1
    240,000       400,667       22,000       662,667       85,000       228,167       11,000       324,167  
 
                               
Heidrun Förster
    210,000       350,583       16,000       576,583       60,000       169,000       16,000       245,000  
 
                               
Dr. Karl-Gerhard Eick
    180,000       300,500       11,000       491,500       52,500       149,750       10,000       212,250  
 
                               
Ulrich Hartmann
    120,000       200,333       9,000       329,333       37,500       111,250       9,000       157,750  
 
                               
Gerd Herzberg2
    60,000       100,167       5,000       165,167       17,500       53,667       2,000       73,167  
 
                               
Sabine Horn
    120,000       200,333       10,000       330,333       37,500       111,250       11,000       159,750  
 
                               
Rolf Hunck
    120,000       200,333       12,000       332,333       37,500       111,250       10,000       158,750  
 
                               
Sir Peter Job
    180,000       300,500       16,000       496,500       45,000       130,500       16,000       191,500  
 
                               
Prof. Dr. Henning Kagermann
    120,000       200,333       8,000       328,333       37,500       111,250       10,000       158,750  
 
                               
Ulrich Kaufmann
    120,000       200,333       9,000       329,333       37,500       111,250       11,000       159,750  
 
                               
Peter Kazmierczak3
    60,000       100,167       5,000       165,167       27,500       84,333       5,000       116,833  
 
                               
Maurice Lévy4
    60,000       100,167       4,000       164,167       17,500       53,667       2,000       73,167  
 
                               
Henriette Mark
    60,000       100,167       5,000       165,167       30,000       92,000       5,000       127,000  
 
                               
Prof. Dr. jur. Dr.-Ing. E.h. Heinrich von Pierer
    120,000       200,333       10,000       330,333       37,500       111,250       11,000       159,750  
 
                               
Gabriele Platscher
    60,000       100,167       5,000       165,167       30,000       92,000       6,000       128,000  
 
                               
Karin Ruck
    60,000       100,167       5,000       165,167       30,000       92,000       6,000       128,000  
 
                               
Dr. Theo Siegert5
    60,000       100,167       5,000       165,167       12,500       38,333       2,000       52,833  
 
                               
Tilman Todenhöfer
    120,000       200,333       10,000       330,333       37,500       111,250       11,000       159,750  
 
                               
Dipl.-Ing. Dr.-Ing. E.h. Jürgen Weber
    60,000       100,167       4,000       164,167       30,000       92,000       5,000       127,000  
 
                               
Leo Wunderlich
    60,000       100,167       5,000       165,167       30,000       92,000       6,000       128,000  
 
                               
Total
    2,190,000       3,656,084       176,000       6,022,084       730,000       2,146,167       183,000       3,041,167  
 
 
1  
New member since May 4, 2006.
 
2  
New member since June 2, 2006.
 
3  
New member since February 1, 2006.
 
4  
New member since June 1, 2006.
 
5  
New member since July 16, 2006.
 
6  
Variable compensation for a regular member of  100,167 is made up of a dividend-based amount of  35,000 and an amount of  65,167 linked to our long-term performance.
As mentioned above, most of the employee-elected members of the Supervisory Board are employed by us. In addition, Dr. Börsig was formerly employed by us as a member of the Management Board. The aggregate compensation we and our consolidated subsidiaries paid to such members as a group during the year ended December 31, 2007 for their services as employees or status as former employees (retirement, pension and deferred compensation) was  4.1 million.
We do not provide the members of the Supervisory Board any benefits upon termination of their service on the Supervisory Board, except that members who are or were employed by us are entitled to the benefits associated with their termination of such employment. During 2007 we set aside  0.1 million for pension, retirement or similar benefits for the members of the Supervisory Board who are or were employed by us.
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MANAGEMENT BOARD
The Chairman’s Committee of the Supervisory Board is responsible for determining the structure and amount of compensation of the members of the Management Board. The structure of the Management Board’s compensation is discussed and reviewed regularly by the Supervisory Board in full session on the basis of recommendations by the Chairman’s Committee.
For the 2007 financial year, the members of the Management Board received compensation (including the performance-related components paid in 2008 for the 2007 financial year) for their service on the Management Board in a total amount of  33,182,395 (2006:  32,901,538). This aggregate compensation consisted of the following, primarily performance-related components:

 
 
                 
in   2007     2006  
Non-performance-related components:
               
Salary
    3,883,333       4,081,111  
Other benefits
    466,977       526,369  
 
       
Performance-related components
    17,360,731       18,332,086  
 
       
Components with long-term incentives
    11,471,354       9,961,972  
 
       
Total compensation
    33,182,395       32,901,538  

 
 
Figures relate to Management Board members active in the respective financial year.
We have entered into service agreements with members of our Management Board. These agreements established the following principal elements of compensation:
NON-PERFORMANCE-RELATED COMPONENTS. The non-performance-related components comprise the salary and other benefits.
The members of the Management Board receive a salary which is determined on the basis of an analysis of salaries paid to executive directors at a selected group of comparable international companies. The salary is disbursed in monthly installments.
Other benefits comprise the monetary value of non-cash benefits such as company cars and driver services, insurance premiums, expenses for company-related social functions and security measures, including payments, if applicable, of taxes on these benefits.
PERFORMANCE-RELATED COMPONENTS. The performance-related components comprise a cash bonus payment and the mid-term incentive (“MTI”). The annual cash bonus payment is based primarily on the achievement of our planned return on equity. As further part of the variable compensation, Management Board members receive a performance-related mid-term incentive which reflects, for a rolling two year period, the ratio between our total shareholder return and the corresponding average figure for a selected group of comparable companies. The MTI payment consists of a cash payment (approximately one third) and equity-based compensation elements (approximately two thirds), which contain long-term risk components, which are discussed in the following paragraph.
COMPONENTS WITH LONG-TERM INCENTIVES. As part of their mid-term incentives, members of the Management Board receive equity-based compensation elements (DB Equity Units) under the DB Global Partnership Plan. The
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ultimate value of the equity-based compensation elements to the members of the Management Board will depend on the price of Deutsche Bank shares upon their delivery, so that these have a long-term incentive effect.
In February 2008, members of the Management Board active in 2007 were granted a total of 150,008 equity rights (DB Equity Units) for their performance in the 2007 financial year (2006: 86,499). With receipt subject to certain conditions, the shares from these rights will be delivered on August 1, 2011.
For further information on the terms of our DB Global Partnership Plan, pursuant to which these equity rights (DB Equity Units) are issued, see Note [31] to the consolidated financial statements.
The Management Board members active in 2007 received the following compensation components for their service on the Management Board for the years 2007 and 2006:
 
 
                                                 
Members of the           Non-performance-related     Performance-     Components     Total  
Management Board           components     related     with long-term     compensation  
in         Salary     Other benefits     components     incentives1        
Dr. Josef Ackermann
    2007       1,150,000       151,517       8,148,725       4,531,250       13,981,492  
 
                       
 
    2006       1,150,000       156,930       8,134,813       3,770,000       13,211,743  
 
                       
Dr. Hugo Bänziger2
    2007       800,000       73,451       2,713,368       2,031,250       5,618,069  
 
                       
 
    2006       528,889       40,359       1,615,194       1,117,278       3,301,720  
 
                       
Anthony Di Iorio2
    2007       800,000       50,806       2,713,368       2,031,250       5,595,424  
 
                       
 
    2006       528,889       35,217       1,615,194       1,117,278       3,296,578  
 
                       
Dr. Tessen von Heydebreck3
    2007       333,333       61,145       1,071,902       846,354       2,312,734  
 
                       
 
    2006       800,000       147,918       2,884,938       1,690,000       5,522,856  
 
                       
Hermann-Josef Lamberti
    2007       800,000       130,058       2,713,368       2,031,250       5,674,676  
 
                       
 
    2006       800,000       94,390       2,884,938       1,690,000       5,469,328  
 
 
1  
The number of DB Equity Units granted in 2008 to each member was determined by dividing such euro amounts by  76.47, the average Xetra closing price of the DB share during the last 10 trading days prior to February 5, 2008. As a result, the number of DB Equity Units granted to each member was as follows: Dr. Ackermann: 59,255, Dr. Bänziger: 26,562, Mr. Di Iorio: 26,562, Dr. von Heydebreck: 11,067, and Mr. Lamberti: 26,562. The number of DB Equity Units granted in 2007 to each member was determined by dividing such euro amounts by 108.49, the closing price of our shares on February 1, 2007. As a result, the number of DB Equity Units granted to each member was as follows: Dr. Ackermann: 34,749, Dr. Bänziger: 10,298, Mr. Di Iorio: 10,298, Dr. von Heydebreck: 15,577, and Mr. Lamberti: 15,577.
 
2  
Member of the Management Board since May 4, 2006.
 
3  
Member of the Management Board until May 24, 2007.
Management Board members did not receive any compensation for mandates on boards of our Group’s own companies.
The active members of the Management Board are entitled to a contribution-oriented pension plan which in its structure corresponds to the general pension plan for our employees. Under this contribution-oriented pension plan, a personal pension account has been set up for each member of the Management Board. A contribution is made annually by us into this pension account. This annual contribution is calculated using an individual contribution rate on the basis of each member’s base salary and bonus up to a defined ceiling and accrues interest, determined by means of an age-related factor, at an average rate of 6 % up to the age of 60. From the age of 61 on, the pension account is credited with an annual interest payment of 6 % up to the date of retirement. The annual payments, taken together, form the pension amount which is available to pay the future pension benefit. The pension may fall due for payment after a member has left the Management Board, but before a pension event (age limit, disability or death) has occurred. The pension right is vested from the start.
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In 2007, service cost for the aforementioned pensions was  354,291 for Dr. Ackermann,  501,906 for Dr. Bänziger,  345,271 for Mr. Di Iorio,  94,980 for Dr. von Heydebreck and  307,905 for Mr. Lamberti. In 2006, service cost for the aforementioned pensions was  389,403 for Dr. Ackermann,  112,893 for Dr. Bänziger, 85,918 for Mr. Di Iorio,  238,937 for Dr. von Heydebreck and  338,710 for Mr. Lamberti.
As of December 31, 2007, the pension accounts of the current Management Board members had the following balances:  3,782,588 for Dr. Ackermann,  785,668 for Dr. Bänziger,  414,094 for Mr. Di Iorio and  3,770,174 for Mr. Lamberti. As of December 31, 2006, the pension accounts had the following balances:  3,434,713 for Dr. Ackermann,  158,668 for Dr. Bänziger,  79,334 for Mr. Di Iorio and 3,352,174 for Mr. Lamberti. The different sizes of the balances are due to the different length of services on the Management Board, the respective age-related factors, the different contribution rates and the individual pensionable compensation amounts. Dr. Ackermann and Mr. Lamberti are also entitled, in principle, after they have left the Management Board, to a monthly pension payment of  29,400 each under a discharged prior pension entitlement.
If a current Management Board member leaves office he is entitled, for a period of six months, to a transition payment. Exceptions to this arrangement exist where, for instance, the Management Board member gives cause for summary dismissal. The transition payment a Management Board member would have received over this six months period, if he had left on December 31, 2007 or on December 31, 2006, was for Dr. Ackermann  2,825,000 and for Dr. Bänziger, Mr. Di Iorio and Mr. Lamberti  1,150,000, respectively.
If a Management Board member, whose appointment was in force at the beginning of 2006, leaves after reaching the age of 60, he is subsequently entitled, in principle, directly after the end of the six-month transition period, to payment of first 75 % and then 50 % of the sum of his salary and last target bonus, each for a period of 24 months. The transition payment ends no later than six months after the end of the General Meeting in the year in which the Board member reaches his 65th birthday.
Pursuant to the service agreements concluded with each of the Management Board members, they are entitled to receive a severance payment upon a premature termination of the appointment at our initiative, without us having been entitled to revoke the appointment or give notice of the service agreement for cause. The severance payment will be fixed by the Chairman´s Committee according to its reasonable discretion and, as a rule, will not exceed the lesser of two annual compensation amounts and the claims to compensation for the remaining term of the contract (compensation calculated on the basis of the annual compensation (salary, bonus and MTI) for the previous financial year).
If a Management Board member’s departure is in connection with a change of control, he is entitled to a severance payment. The severance payment will be fixed by the Chairman´s Committee according to its reasonable discretion and, as a rule, will not exceed the lesser of three annual compensation amounts and the claims to compensation for the remaining term of the contract (compensation calculated on the basis of the annual compensation (salary, bonus and MTI) for the previous financial year).
The total compensation paid to former Management Board members or their surviving dependents in 2007 and 2006 amounted to an aggregate of  33,479,343 and  27,453,021, respectively.
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20-F // ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

EMPLOYEES
As of December 31, 2007, we employed a total of 78,291 staff members as compared to 68,849 as of December 31, 2006. We calculate our employee figures on a full-time equivalent basis, meaning we include proportionate numbers of part-time employees.
The following table shows our numbers of full-time equivalent employees as of December 31, 2007 and 2006.
 
 
                 
Employees1
  Dec 31, 2007   Dec 31, 2006  
 
       
Germany
    27,779       26,401  
 
       
Europe (outside Germany), Middle East and Africa2
    21,989       20,025  
 
       
Asia/Pacific
    15,080       10,723  
 
       
North America3
    13,088       11,369  
 
       
Central & South America
    355       331  
 
       
Total employees
    78,291       68,849  
 
 
1  
Full-time equivalent employees.
 
2  
Includes Israel, Saudi Arabia and United Arab Emirates, formerly reported as part of Asia-Pacific.
 
3  
Primarily the United States: North America includes Mexico, formerly reported as part of South America.
The number of our employees increased in 2007 by 9,442, or 13.7 %, to 78,291. This increase is attributable mainly to the implementation of growth initiatives including acquisitions and the related expansion in the growth markets of the world. Excluding investments and divestments, the number of our employees increased by 6,726. Furthermore, jobs were created at less expensive locations, especially in the infrastructure groups. Most of the overall expansion, over 40 %, took place in the growth markets of the Asia-Pacific region.
The following charts show the relative proportions of employees in the Group Divisions and Infrastructure/Regional Management as of December 31, 2007 and 2006.
(BAR CHART)
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LABOR RELATIONS
In Germany, labor unions and employers’ associations generally negotiate collective bargaining agreements on salaries and benefits for employees below the management level. Many companies in Germany, including ourselves and our material German subsidiaries, are members of employers’ associations and are bound by collective bargaining agreements.
Each year, our employers’ association, the Arbeitgeberverband des privaten Bankgewerbes e.V., ordinarily renegotiates the collective bargaining agreements that cover many of our employees. The current agreement reached in June 2006 (after only 3 sessions of intensive bargaining) terminates on June 30, 2008. The agreement includes no pay raise from June until August 2006, a single payment of  100 in August 2006, a 3.0 % pay raise from September 1, 2006 to November 30, 2007 and another 1.5 % pay raise from December 1, 2007. Further aspects of the agreement relate to an increasing part of total compensation being variable according to performance criteria and corporate results. Furthermore, an initiative to raise the quota of apprentices in the banking sector was agreed as well as several improvements in the master tariff agreement, including an extension of regulations governing work on Saturdays, part-time retirement arrangements and early retirement.
Our employers’ association negotiates with the following unions:
—   
ver.di (Vereinigte Dienstleistungsgewerkschaft), a union formed in July 2001 resulting from the merger of five unions, including the former bank unions Deutsche Angestellten Gewerkschaft and Gewerkschaft Handel, Banken und Versicherungen
 
—   
Deutscher Bankangestellten Verband (DBV – Gewerkschaft der Finanzdienstleister)
 
—   
Deutscher Handels- und Industrieangestellten Verband (DHV – Die Berufsgewerkschaft)
German law prohibits us from asking our employees whether they are members of labor unions. Therefore, we do not know how many of our employees are members of unions. Approximately 15 % of the employees in the German banking industry are organized into unions. We estimate that less than 15 % of our employees in Germany are unionized. On a worldwide basis, we estimate that approximately 15 % of our employees are members of labor unions.
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20-F // ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

SHARE OWNERSHIP
MANAGEMENT BOARD
As of February 29, 2008 and February 28, 2007, respectively, the current members of our Management Board held the following numbers of our shares, DB Equity Units and Performance Options.
 
 
                                 
Members of the Management Board           Number of     Number of     Number of  
            shares     DB Equity Units1     Performance  
                      Options  
Dr. Josef Ackermann
    2008       275,421       192,945        
 
               
 
    2007       232,903       176,208        
 
               
Dr. Hugo Bänziger
    2008       31,219       103,881        
 
               
 
    2007       10,734       112,114       59,286  
 
               
Anthony Di Iorio
    2008       16,363       69,598        
 
               
 
    2007       7,330       60,234       16,676  
 
               
Hermann-Josef Lamberti
    2008       74,445       86,491        
 
               
 
    2007       55,385       78,989       30,697  
 
               
Total
    2008       397,448       452,915        
 
               
Total
    2007       306,352       427,545       106,659  
 
 
1  
Including the Restricted Equity Units Dr. Bänziger and Mr. Di Iorio received in connection with their employment by us prior to their appointment as members of the Management Board. The DB Equity Units and Restricted Equity Units listed in the table have different vesting and allocation dates. As a result, the last equity rights will mature and be allocated on August 1, 2011.
The current members of our Management Board held an aggregate of 397,448 of our shares on February 29, 2008, amounting to approximately 0.07 % of our shares issued on that date. They held an aggregate of 306,352 of our shares on February 28, 2007, amounting to approximately 0.06 % of our shares issued on that date.
Members of the Management Board received Performance Options under the DB Global Partnership Plan in the years 2002 to 2004. Each Performance Options was accompanied by a Partnership Appreciation Right. No further Performance Options were granted after 2004. As of December 31, 2006 the current members of the Management Board held the following Performance Options:
 
 
                 
    Exercise price in     Number of  
          Performance Options  
Dr. Josef Ackermann
    N/A        
 
       
Dr. Hugo Bänziger
    89.96       59,286  
 
       
Anthony Di Iorio
    89.96       6,854  
 
    47.53       9,822  
 
       
Hermann-Josef Lamberti
    89.96       16,056  
 
    76.61       14,641  
 
 
N/A – Not applicable
All of the aforementioned Performance Options were exercised on May 25, 2007. The share price at exercise was  111.46.
In 2007, compensation expense for long-term incentive components of compensation granted in the 2007 financial year and in prior years for their service on the Management Board was 3,199,221 for Dr. Ackermann,  403,758 for Dr. Bänziger,  403,758 for Mr. Di Iorio,  1,434,133 for Dr. von Heydebreck and  1,434,133 for Mr. Lamberti. In 2006, the corresponding compensation expense for these components was  3,210,564 for Dr. Ackermann,  1,440,380 for Dr. von Heydebreck and  1,440,380 for Mr. Lamberti. Dr. Bänziger and Mr. Di Iorio joined the Management Board
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only in 2006 and no expense was therefore recognized for long-term incentives granted for service on the Management Board in that year.
For more information on DB Equity Units, Performance Options and Partnership Appreciation Rights, all of which are granted under the DB Global Partnership Plan, see Note [31] to the consolidated financial statements.
SUPERVISORY BOARD
As of February 29, 2008, the current members of our Supervisory Board held the following numbers of our shares, share grants under our employee share plans, derivatives on our shares and options on our shares.

 
 
                                 
    Number of     Number of     Derivatives     Number of  
Members of the Supervisory Board   shares     share grants           options  
Dr. Clemens Börsig1
    124,834       49,674              
 
               
Dr. Karl-Gerhard Eick
                       
 
               
Heidrun Förster
    585       10              
 
               
Ulrich Hartmann
                       
 
               
Gerd Herzberg
                       
 
               
Sabine Horn
    61       10              
 
               
Rolf Hunck
          10,869       2,000       200  
 
               
Sir Peter Job
                       
 
               
Prof. Dr. Henning Kagermann
                       
 
               
Ulrich Kaufmann
    85                   100  
 
               
Peter Kazmierczak
    20       10              
 
               
Maurice Lévy
                       
 
               
Henriette Mark
    368       10             100  
 
               
Prof. Dr. jur. Dr.-Ing. E. h. Heinrich von Pierer
    295                    
 
               
Gabriele Platscher
    729                    
 
               
Karin Ruck
    94       8             100  
 
               
Dr. Theo Siegert
                       
 
               
Tilman Todenhöfer
    300                    
 
               
Dipl.-Ing. Dr.-Ing. E. h. Jürgen Weber
                       
 
               
Leo Wunderlich
    702       10             200  
 
               
Total
    128,073       60,601       2,000       700  

 
 
1  
Excluding 150 Deutsche Bank shares, pooled in a family-held partnership, in which Dr. Clemens Börsig has an interest of 25% .
As of February 29, 2008, the members of the Supervisory Board held 128,073 shares, amounting to less than 0.03 % of our shares issued on that date.
Some of the Supervisory Board members who are or were formerly employees received grants under our employee share plans entitling them to receive shares at specified future dates or granting them options to acquire shares at future dates. For a description of our employee share plans, please refer to Note [31] of the consolidated financial statements. Shares that have been delivered to such employees as a result of grants under the plans (including following the exercise of options granted thereunder), and that have not been disposed by them, are shown in the “Number of Shares” column in the table above, as are shares otherwise acquired by them. Shares granted under the plans that have not yet been delivered to such employees are shown in the “Number of Share Grants” column.
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20-F // ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
As listed in the “Number of Share Grants” column in the table, Dr. Clemens Börsig holds 49,674 DB Equity Units granted under the DB Global Partnership Plan in connection with his prior service as a member of our Management Board; the granted shares are scheduled to be delivered to him in installments through August 2010. The share grants to Rolf Hunck were made in connection with his employment with us and consist of 7,937 shares granted under the Restricted Equity Units Plan, which are scheduled to be delivered to him in portions in August 2008, 2009 and 2010, and a further 2,922 shares granted under the DB Equity Units Plan, which are scheduled to be delivered to him in portions in February 2009, 2010, 2011 and 2012. The other grants reflected in the table were made to employee members of our Supervisory Board under the DB Global Share Plan in 2007, and are scheduled to be delivered on November 1, 2008.
The derivatives reflected in the table were acquired by Rolf Hunck in February 2008 and include a discount certificate on Deutsche Bank shares.
The options reflected in the table were acquired via the voluntary participation of employee members of our Supervisory Board in the DB Global Share Plan. DB Global Share Plan options issued in 2002 generally have a strike price of  55.39, were exercisable since January 2, 2005, and have an expiration date of November 13, 2008; those issued in 2003 generally have a strike price of  75.24, were exercisable since January 2, 2006, and have an expiration date of December 11, 2009. All options are with respect to our ordinary shares.
The German law on directors’ dealings (Section 15a of the German Securities Trading Act (Wertpapierhandelsgesetz)) requires persons discharging managerial responsibilities within an issuer of financial instruments, and persons closely associated with them, to disclose their personal transactions in shares of such issuer and financial instruments based on them, especially derivatives, to the issuer and to the BaFin.
In accordance with German law, we disclose directors’ dealings in our shares and financial instruments based on them through the media prescribed by German law and through the Company Register (Unternehmensregister).
EMPLOYEE SHARE PROGRAMS
For a description of our employee share programs, please refer to Note [31] to the consolidated financial statements
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Item 7: Major Shareholders and Related Party Transactions

MAJOR SHAREHOLDERS
On December 31, 2007, our issued share capital amounted to  1,357,824,256 divided into 530,400,100 no par value ordinary registered shares.
On December 31, 2007, we had 360,785 registered shareholders. The majority of our shareholders are retail investors in Germany.
The following charts show the distribution of our share capital and the composition of our shareholders on December 31, 2007:
(PIE CHARTS)
On February 29, 2008, a total of 64,286,742 of our shares were registered in the names of 1,470 shareholders resident in the United States. These shares represented 12.12 % of our share capital on that date. On December 31, 2006, a total of 53,196,752 of our shares were registered in the names of 1,460 shareholders resident in the United States. These shares represented 10.14 % of our share capital on that date.
The German Securities Trading Act (Wertpapierhandelsgesetz) requires investors in publicly-traded corporations whose investments reach certain thresholds to notify both the corporation and the BaFin of such change within seven days. The minimum disclosure threshold is 3 % of the corporation’s issued voting share capital.
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20-F // ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
As of February 29, 2008, we had been notified by the following investors holding 3 % or more of our shares: UBS AG, Switzerland, holds 4.07 %, AXA S.A., France, holds 3.31 % and Barclays Global Investors UK Holdings Limited, United Kingdom, holds 3.09 %.
We are neither directly nor indirectly owned nor controlled by any other corporation, by any government or by any other natural or legal person severally or jointly.
Pursuant to German law and our Articles of Association, to the extent that we may have major shareholders at any time, we may not give them different voting rights from any of our other shareholders.
We are aware of no arrangements which may at a subsequent date result in a change in control of our company.
      

RELATED PARTY TRANSACTIONS
We have business relationships with a number of the companies in which we own significant equity interests. We also have business relationships with a number of companies where members of our Management Board also hold positions on boards of directors. Our business relationships with these companies cover many of the financial services we provide to our clients generally. For more detailed information, refer to Note [38] of the consolidated financial statements.
We believe that we conduct all of our business with these companies on terms equivalent to those that would exist if we did not have equity holdings in them or management members in common, and that we have conducted business with these companies on that basis in 2007 and prior years. None of these transactions is or was material to us.
Among our business with related party companies in 2007, there have been and currently are loans, guarantees and commitments, which totaled  3.0 billion (including loans of  1.8 billion) as of January 31, 2008. All these credit exposures
—   
were made in the ordinary course of business,
 
—   
were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and
 
—   
did not involve more than the normal risk of collectibility or present other unfavorable features.
We have not conducted material business with parties that fall outside of the definition of related parties, but with whom we or our related parties have a relationship that enables the parties to negotiate terms of material transactions that may not be available from other, more clearly independent, parties on an arm’s-length basis.
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RELATED PARTY NONACCRUAL LOANS
In addition to our other shareholdings, we hold acquired equity interests in some of our clients arising from our efforts to protect our then-outstanding lending exposures to them.
As of December 31, 2007, we had a loan to a single related party, in which we held a participation of 10 % or more of its voting rights, which was classified as nonaccrual and may, therefore, exhibit more than normal risk of collectibility or present other unfavorable features. As of January 31, 2008, this exposure reflected a real estate financing loan of  22 million with contractual interest of 6.27 % per annum, though interest accrual has ceased, and guarantees, bearing no interest, which were honored after the company filed for liquidation. Nonaccrual loans to related parties were down  17 million, or 44 %, from January 31, 2007. The largest amount outstanding during the period from January 1, 2007 to January 31, 2008 was  22 million.
We have not disclosed the name of the related party customer described above because we have concluded that such disclosure would violate applicable privacy laws, such as customer confidentiality and data protection laws, and such customer has not waived application of these privacy laws. A legal opinion regarding the applicable privacy laws is filed as Exhibit 14.1 hereto.
      

INTERESTS OF EXPERTS AND COUNSEL
Not required because this document is filed as an annual report.
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20-F // ITEM 8: FINANCIAL INFORMATION

Item 8: Financial Information

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
See “Item 18: Financial Statements” and our consolidated financial statements beginning on page F-4.
LEGAL PROCEEDINGS
GENERAL. 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 United States, arising in the ordinary course of our businesses, including as specifically described below. In accordance with applicable accounting requirements, we provide for potential losses that may arise out of contingencies, including contingencies in respect of such matters, when the potential losses are probable and estimable. 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 liabilities may ultimately be materially different. Our total liability recorded 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. Although the final resolution of any such matters could have a material effect on our consolidated operating results for a particular reporting period, we believe that it will not materially affect our consolidated financial position. In respect of each of the matters specifically described below, most of which consist of a number of claims, it is our belief that the reasonably possible losses relating to each such claim in excess of our provisions are either not material or not estimable.
IPO ALLOCATION LITIGATION. Deutsche Bank Securities Inc. (“DBSI”), our U.S. broker-dealer subsidiary, and its predecessor firms, along with numerous other securities firms, have been named as defendants in over 80 putative class action lawsuits pending in the United States District Court for the Southern District of New York. These lawsuits allege violations of securities and antitrust laws in connection with the allocation of shares in a large number of initial public offerings (“IPOs”) by issuers, officers and directors of issuers, and underwriters of those securities. DBSI is named in these suits as an underwriter. The securities cases allege material misstatements and omissions in registration statements and prospectuses for the IPOs and market manipulation with respect to aftermarket trading in the IPO securities. Among the allegations are that the underwriters tied the receipt of allocations of IPO shares to required aftermarket purchases by customers and to the payment of undisclosed compensation to the underwriters in the form of commissions on securities trades, and that the underwriters caused misleading analyst reports to be issued. The antitrust claims allege an illegal conspiracy to affect the stock price based on similar allegations that the underwriters required aftermarket purchases and undisclosed commissions in exchange for allocation of IPO stocks. In the securities cases, the motions to dismiss the complaints of DBSI and others were denied on February 13, 2003. Plaintiffs’ motion to certify six “test” cases as class actions in the securities cases was granted on October 13, 2004. On December 5, 2006, the U.S. Court of Appeals for the Second Circuit vacated the decision and held that the classes in the six cases, as defined, could not be certified. Plaintiffs have filed amended complaints and motions to certify classes in the “test” cases. In the putative antitrust class action, the defendants’ motion to dismiss the complaint was granted on November 3, 2003. On September 28, 2005, the U.S. Court of Appeals for the Second Circuit vacated the dismissal. On June 18, 2007, the U.S. Supreme Court reversed the Second Circuit ruling, thereby terminating the antitrust action.
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ENRON LITIGATION. Deutsche Bank AG and certain of its affiliates are collectively involved in a number of lawsuits arising out of their banking relationship with Enron Corp., its subsidiaries and certain Enron-related entities (“Enron”). These lawsuits include a class action brought on behalf of shareholders of Enron, captioned Newby v. Enron Corp., which purported to allege claims against, among others, Deutsche Bank and certain of its affiliates under federal securities laws. On June 5, 2006, the court dismissed all of the claims in the Newby action against Deutsche Bank and its affiliates. On June 21, 2006, the lead plaintiff in Newby filed a motion requesting the court to reconsider the dismissal of Deutsche Bank and its affiliates from Newby. On February 8, 2007, the court denied the lead plaintiff’s motion for reconsideration.
Also, an adversary proceeding was brought by Enron in the bankruptcy court against, among others, Deutsche Bank and certain of its affiliates. In this proceeding, Enron sought damages from the Deutsche Bank entities under various common law theories, sought to avoid certain transfers to the Deutsche Bank entities as preferential or fraudulent, and sought to subordinate certain of the claims made by the Deutsche Bank entities in the Enron bankruptcy. The adversary proceeding was settled in December 2007.
There are also individual actions brought in various courts by Enron investors and creditors alleging federal and state law claims against Deutsche Bank and certain of its affiliates.
TAX-RELATED PRODUCTS. Deutsche Bank, along with certain affiliates, and current and former employees, have collectively been named as defendants in a number of legal proceedings brought by customers in various tax-oriented transactions. Deutsche Bank provided financial products and services to these customers, who were advised by various accounting, legal and financial advisory professionals. The customers claimed tax benefits as a result of these transactions, and the United States Internal Revenue Service has rejected those claims. In these legal proceedings, the customers allege that the professional advisors, together with Deutsche Bank, improperly misled the customers into believing that the claimed tax benefits would be upheld by the Internal Revenue Service. The legal proceedings are pending in numerous state and federal courts and in arbitration, and claims against Deutsche Bank are alleged under both U.S. state and federal law. Many of the claims against Deutsche Bank are asserted by individual customers, while others are asserted on behalf of a putative customer class. No litigation class has been certified as against Deutsche Bank. Approximately 59 legal proceedings have been resolved and dismissed with prejudice as against Deutsche Bank. Approximately 28 other legal proceedings remain pending as against Deutsche Bank and are currently at various pre-trial stages, including discovery.
The United States Department of Justice (“DOJ”) is also conducting a criminal investigation of tax-oriented transactions that were executed from approximately 1997 through 2001. In connection with that investigation, DOJ has sought various documents and other information from Deutsche Bank and has been investigating the actions of various individuals and entities, including Deutsche Bank, in such transactions. In the latter half of 2005, DOJ brought criminal charges against numerous individuals based on their participation in certain tax-oriented transactions while employed by entities other than Deutsche Bank. In the latter half of 2005, DOJ also entered into a Deferred Prosecution Agreement with an accounting firm (the “Accounting Firm”), pursuant to which DOJ agreed to defer prosecution of a criminal charge against the Accounting Firm based on its participation in certain tax-oriented transactions provided that the Accounting Firm satisfied the terms of the Deferred Prosecution Agreement. On February 14, 2006, DOJ announced that it had entered into a Deferred Prosecution Agreement with a financial institution (the “Financial Institu-
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20-F // ITEM 8: FINANCIAL INFORMATION
tion”), pursuant to which DOJ agreed to defer prosecution of a criminal charge against the Financial Institution based on its role in providing financial products and services in connection with certain tax-oriented transactions provided that the Financial Institution satisfied the terms of the Deferred Prosecution Agreement. Deutsche Bank provided similar financial products and services in certain tax-oriented transactions that are the same or similar to the tax-oriented transactions that are the subject of the above-referenced criminal charges. Deutsche Bank also provided financial products and services in additional tax-oriented transactions as well. DOJ’s criminal investigation is ongoing.
KIRCH LITIGATION. In May 2002, Dr. Leo Kirch personally and as an assignee of two entities of the former Kirch Group, i.e., PrintBeteiligungs GmbH and the group holding company TaurusHolding GmbH & Co. KG, initiated legal action against Dr. Rolf-E. Breuer and Deutsche Bank alleging that a statement made by Dr. Breuer (then the Spokesman of Deutsche Bank’s Management Board) in an interview with Bloomberg television on February 4, 2002 regarding the Kirch Group was in breach of laws and financially damaging to Kirch. On January 24, 2006 the German Federal Supreme Court sustained the action for the declaratory judgment only in respect of the claims assigned by PrintBeteiligungs GmbH. Such action and judgment did not require a proof of any loss caused by the statement made in the interview. PrintBeteiligungs GmbH is the only company of the Kirch Group which was a borrower of Deutsche Bank. Claims by Kirch personally and by TaurusHolding GmbH & Co. KG were dismissed. To be awarded a judgment for damages against Deutsche Bank, Dr. Kirch had to file a new lawsuit. In May 2007, Dr. Kirch filed an action as assignee of PrintBeteiligungs GmbH against Deutsche Bank and Dr. Breuer for the payment of approximately  1.6 billion at the time of the filing (the amount depends, among other things, on the development of the price for the shares of Axel Springer AG) plus interest. In these proceedings he will have to prove that such statement caused financial damages to PrintBeteiligungs GmbH and the amount thereof. In our view, the causality in respect of the basis and scope of the claimed damages has not been sufficiently substantiated in the complaint.
On December 31, 2005, KGL Pool GmbH filed a lawsuit against Deutsche Bank and Dr. Breuer. The lawsuit is based on alleged claims assigned from various subsidiaries of the former Kirch Group. KGL Pool GmbH seeks a declaratory judgment to the effect that Deutsche Bank and Dr. Breuer are jointly and severally liable for damages as a result of the interview statement and the behavior of Deutsche Bank in respect of several subsidiaries of the Kirch Group. In December 2007, KGL Pool GmbH supplemented this lawsuit by a motion for payment of approximately  2.1 billion plus interest as compensation for the purported damages which two subsidiaries of the former Kirch Group allegedly suffered as a result of the statement by Dr. Breuer. In our view, due to the lack of a relevant contractual relationship with any of these subsidiaries there is no basis for such claims, and the causality in respect of the basis and scope of the claimed damages has not been sufficiently substantiated in the complaint.
PHILIPP HOLZMANN AG. Philipp Holzmann AG (“Holzmann”) was a major German construction firm which filed for insolvency in March 2002. Deutsche Bank had been a major creditor bank and holder of an equity interest of Holzmann for many decades, and, from April 1997 until April 2000, a former member of Deutsche Bank’s Management Board was the Chairman of its Supervisory Board. When Holzmann had become insolvent at the end of 1999, a consortium of banks led by Deutsche Bank participated in late 1999 and early 2000 in a restructuring of Holzmann that included the banks’ extension of a credit facility, participation in a capital increase and exchange of debt into convertible bonds. The restructuring package amounted to about  1.6 billion, of which Deutsche Bank’s participation was  547 million. In March 2002, Holzmann and several of its subsidiaries, including in particular imbau Industrielles Bauen GmbH (“imbau”), filed for insolvency. As a result of this insolvency, the administrator for Holzmann had asserted claims against Deutsche Bank because of its role as lender to the Holzmann group prior to and after the re-
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structuring and as leader of the consortium of banks which supported the restructuring, including claims that amounts repaid to the banks constituted voidable preferences that should be returned and claims of lender liability resulting from the banks’ support for an allegedly infeasible restructuring. We and the other banks resolved these claims in out-of-court settlements in December 2007.
Further, several parties filed lawsuits against Deutsche Bank. The administrator for imbau filed a lawsuit in August 2004 alleging that payments (including interest) of  77 million received by Deutsche Bank in respect of a loan made to imbau until 1998 and in connection with a real estate transaction that was part of the restructuring constituted voidable preferences that should be returned to the insolvent entity. Several bondholders filed a lawsuit against Deutsche Bank in December 2005 seeking damages of  53 million because of Deutsche Bank’s allegedly unlawful support of Holzmann’s 1999/2000 restructuring. The lawsuit which Gebema N.V. had filed in 2000, seeking compensation for alleged damages of  187 million on grounds of alleged deficiencies in the offering documents based on which Gebema N.V. had invested in equity and convertible bonds of Holzmann in 1998, was resolved amicably in October 2007.
PARMALAT LITIGATION. Following the bankruptcy of the Italian company Parmalat, the Special Administrator of Parmalat, Mr. Enrico Bondi, is suing Deutsche Bank for damages totaling  2.2 billion for facilitating the insolvency offense of delaying the filing of a petition in insolvency allegedly committed by Parmalat’s former management and supervisory board. There are two separate complaints and they allege that by managing and/or underwriting the issuance of Parmalat bonds in 2003 and entering into certain derivative transactions, Deutsche Bank assisted Parmalat by providing liquidity in order to enable Parmalat to meet its short term liabilities/obligations. It is alleged that Deutsche Bank knowingly helped Parmalat to continue its business for several months until December 2003, despite being aware of the true financial situation of the company. Parmalat reserves the right to increase the amount of damages sought. The damages currently requested are, it is claimed, equal to the loss creditors of Parmalat incurred in the second half of 2003.
Also in connection with the Parmalat insolvency, Mr. Bondi has already brought two claw-back actions for a total of  177 million against Deutsche Bank SpA.
In addition, following the Parmalat insolvency, the prosecutors in Milan conducted a criminal investigation which led to criminal indictments on charges of alleged market manipulation against various banks, including Deutsche Bank and Deutsche Bank SpA, and some of their employees. Trial before the Court of Milan (Second Criminal Section) commenced in January 2008.
DIVIDEND POLICY
We generally pay dividends each year, and expect to continue to do so in the near future. However, we may not pay dividends in the future at rates we have paid them in previous years. If we are not profitable, we may not pay dividends at all.
Under German law, our dividends are based on the results of Deutsche Bank AG as prepared in accordance with German accounting rules. Our Management Board, which prepares the annual financial statements of Deutsche Bank AG on an unconsolidated basis, and our Supervisory Board, which reviews them, first allocate part of Deutsche
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20-F // ITEM 8: FINANCIAL INFORMATION
Bank’s annual surplus (if any) to our statutory reserves and to any losses carried forward, as it is legally required to do. For treasury shares a reserve in the amount of their value recorded on the asset side must be set up from the annual surplus or from other revenue reserves. They then allocate the remainder between other revenue reserves (or retained earnings) and balance sheet profit (or distributable profit). They may allocate up to one-half of this remainder to other revenue reserves, and must allocate at least one-half to balance sheet profit. We then distribute the full amount of the balance sheet profit of Deutsche Bank AG if the shareholders’ meeting so resolves. The shareholders’ meeting may resolve a non-cash distribution instead of or in addition to a cash dividend. However, we are not legally required to distribute our balance sheet profit to our shareholders to the extent that we have issued participatory rights (Genussrechte) or granted a silent participation (stille Gesellschaft) that accord their holders the right to a portion of our distributable profit. If we fail to meet the capital adequacy requirements under the Banking Act on a nonconsolidated or a consolidated basis, or if we fail to meet the liquidity requirements under the Banking Act (see “Item 4: Information on the Company – Regulation and Supervision in Germany”), the BaFin may suspend or limit the payment of dividends.
We declare dividends at the Annual General Meeting and pay them once a year. If we issue a new class of shares, our Articles of Association permit us to declare a different dividend entitlement for the new class of shares.
 

SIGNIFICANT CHANGES
Except as otherwise stated in this document, there have been no significant changes subsequent to December 31, 2007.
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Item 9: The Offer and Listing

OFFER AND LISTING DETAILS
Our share capital consists of ordinary shares issued in registered form without par value. Under German law, shares without par value are deemed to have a “nominal” value equal to the total amount of share capital divided by the number of shares. Our shares have a nominal value of  2.56 per share.
The principal trading market for our shares is the Frankfurt Stock Exchange. We maintain a share register in Frankfurt am Main and, for the purposes of trading our shares on the New York Stock Exchange, a share register in New York.
All shares on German stock exchanges trade in euro. The following table sets forth, for the calendar periods indicated, high, low and period-end prices and average daily trading volumes for our shares as reported by the Frankfurt Stock Exchange and the high, low and period-end quotation for the DAX® (Deutscher Aktienindex) index, the principal German share index. All high and low quotations are based on intraday prices. The DAX is a continuously updated, capital-weighted performance index of 30 major German companies. The DAX includes shares selected on the basis of stock exchange turnover and market capitalization. Adjustments to the DAX are made for capital changes, subscription rights and dividends, as well as for changes in the available free float.

 
 
                                                         
    Our shares     DAX®-Index  
    Price per share     Average daily      
    High     Low     Period end     trading volume     High     Low     Period end  
    (in )     (in )     (in )     (in thousands of                    
                      shares)                    
Monthly 2008:
                                                       
February
    78.55       71.80       74.26       7,988.77       7,079.74       6,655.65       6,748.13  
January
    89.80       67.00       75.16       10,077.28       8,100.64       6,384.40       6,851.75  
 
                           
Monthly 2007:
                                                       
December
    92.31       86.50       89.40       4,978.21       8,117.79       7,777.40       8,067.32  
November
    92.19       81.33       89.79       7,299.38       8,038.41       7,444.62       7,870.52  
October
    96.72       85.52       92.05       6,471.60       8,063.83       7,770.05       8,019.22  
September
    95.31       87.16       90.38       8,772.27       7,882.18       7,369.70       7,861.51  
 
                           
Quarterly 2007:
                                                       
Fourth Quarter
    96.72       81.33       89.40       6,355.85       8,117.79       7,444.62       8,067.32  
Third Quarter
    109.80       87.16       90.38       8,113.83       8,151.57       7,190.36       7,861.51  
Second Quarter
    118.51       99.55       107.81       4,957.13       8,131.73       6,891.80       8,007.32  
First Quarter
    110.00       90.60       100.84       4,767.51       7,040.20       6,437.25       6.917.03  
 
                           
Quarterly 2006:
                                                       
Fourth Quarter
    103.29       94.00       101.34       3,854.14       6,629.33       5,944.57       6,596.92  
Third Quarter
    95.81       82.39       95.16       3,744.65       6,031.55       5,365.06       6,044.33  
Second Quarter
    100.20       80.74       88.00       5,168.40       6,162.37       5,243.71       5,683.31  
First Quarter
    96.19       81.17       94.25       4,047.81       5,993.90       5,290.49       5,970.08  
 
                           
Annual:
                                                       
2007
    118.51       81.33       89.40       6,062.94       8,151.57       6,437.25       8,067.32  
2006
    103.29       80.74       101.34       4,195.14       6,629.33       5,243.71       6,596.92  
2005
    85.00       60.90       81.90       3,709.96       5,469.96       4,157.51       5,408.26  
2004
    77.77       52.37       65.32       4,066.27       4,272.18       3,618.58       4,256.08  
2003
    66.04       32.97       65.70       4,923.58       3,996.28       2,188.75       3,965.16  

 
 
Note: All data is based on Orderbuchstatistik (Xetra).
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20-F // ITEM 9: THE OFFER AND LISTING
On February 29, 2008, the closing quotation of our shares on the Frankfurt Stock Exchange within the Xetra system (which we describe below) was  74.26 per share and the closing quotation of the DAX Index was 6,748.13. Our shares represented 5.6 % of the DAX Index on that date.
Since October 3, 2001 our shares have also traded on the New York Stock Exchange, trading under the symbol “DB”. The following table shows, for the periods indicated, high, low and period-end prices and average daily trading volumes for our shares as reported by the New York Stock Exchange.
 
 
                                 
    Our shares  
    Price per share     Average daily  
    High     Low     Period end     trading volume  
    (in U.S.$ )     (in U.S.$ )     (in U.S.$ )     (in number of  
                      shares)  
Monthly 2008:
                               
February
    116.99       106.81       110.96       417,695  
January
    130.79       104.12       112.64       570,733  
 
               
Monthly 2007:
                               
December
    135.49       124.75       129.41       256,920  
November
    133.86       120.12       131.75       390,162  
October
    135.98       122.60       133.76       283,048  
September
    132.21       121.69       128.39       311,195  
 
               
Quarterly 2007:
                               
Fourth Quarter
    135.98       120.12       129.41       310,030  
Third Quarter
    149.42       120.24       128.39       325,394  
Second Quarter
    159.73       133.15       144.74       122,400  
First Quarter
    142.69       120.02       134.54       149,464  
 
               
Quarterly 2006:
                               
Fourth Quarter
    134.71       119.79       133.24       93,052  
Third Quarter
    121.25       103.37       120.70       134,932  
Second Quarter
    127.74       102.02       112.50       135,844  
First Quarter
    116.71       97.18       114.24       114,147  
 
               
Annual:
                               
2007
    159.73       120.02       129.41       227,769  
2006
    134.71       97.18       133.24       119,515  
2005
    100.41       76.16       96.87       93,537  
2004
    94.99       64.70       89.01       89,483  
2003
    82.62       36.44       82.21       96,537  
 
 
For a discussion of the possible effects of fluctuations in the exchange rate between the euro and the U.S. dollar on the price of our shares, see “Item 3: Key Information – Exchange Rate and Currency Information.”
You should not rely on our past share performance as a guide to our future share performance.
 

PLAN OF DISTRIBUTION
Not required because this document is filed as an annual report.
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MARKETS
As described above, the principal trading market for our shares is the Frankfurt Stock Exchange. Our shares are also traded on the New York Stock Exchange and on the seven other German stock exchanges (Berlin, Bremen, Düsseldorf, Hamburg, Hannover, Munich and Stuttgart).
FRANKFURT STOCK EXCHANGE
Deutsche Börse AG operates the Frankfurt Stock Exchange, the most significant of the eight German stock exchanges. The Frankfurt Stock Exchange, including Xetra (as described below), accounted for more than 96.45 % of the total turnover in exchange-traded shares in Germany in 2007 (including 91.94 % of the total turnover which is accounted for by Xetra in 2007). According to the World Federation of Exchanges, Deutsche Börse AG was the sixth largest stock exchange in the world in 2007 measured by total value of share trading (including investment funds), after the New York Stock Exchange, NASDAQ, London, Tokyo and Euronext.
As of December 31, 2007, the shares of 9,741 companies traded on the various market segments of the Frankfurt Stock Exchange. Of these, 1,045 were German companies and 8,696 were non-German companies.
The prices of actively-traded securities, including our shares, are continuously quoted on the Frankfurt Stock Exchange floor between 9:00 a.m. and 8:00 p.m., Central European time, each bank business day. Most securities listed on the Frankfurt Stock Exchange are traded on the auction market. Securities also trade in interbank dealer markets, both on and off the Frankfurt Stock Exchange. The price of securities on the Frankfurt Stock Exchange is determined by open outcry and noted by publicly commissioned stockbrokers. These publicly commissioned stockbrokers are members of the exchange but do not, as a rule, deal with the public.
The Frankfurt Stock Exchange publishes a daily official list of its quotations (Amtliches Kursblatt) for all traded securities. The list is available on the Internet at http://www.deutsche-boerse.com under the heading: “Market Data & Analytics – Trading Statistics + Analyses – Spot Market Statistic – Order Book Statistics”.
Our shares trade on Xetra (Exchange Electronic Trading) in addition to trading on the auction market. Xetra is an electronic exchange trading platform operated by Deutsche Börse AG. Xetra is integrated into the Frankfurt Stock Exchange and is subject to its rules and regulations. Xetra is available between 9:00 a.m. and 5:30 p.m. Central European time, each bank business day to brokers and banks that have been admitted to Xetra by the Frankfurt Stock Exchange. Private investors are permitted to trade on Xetra through their banks or brokers.
Transactions on the Frankfurt Stock Exchange (including transactions through the Xetra system) are settled on the second business day following the transaction. Transactions off the Frankfurt Stock Exchange are also generally settled on the second business day following the transaction, although parties may agree on a different settlement time. Transactions off the Frankfurt Stock Exchange may occur in the case of large trades or if one of the parties is not German. The standard terms and conditions under which German banks generally conduct their business with customers require the banks to execute customer buy and sell orders for listed securities on a stock exchange unless the customer specifies otherwise.
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20-F // ITEM 9: THE OFFER AND LISTING
The Frankfurt Stock Exchange can suspend trading if orderly trading is temporarily endangered or if necessary to protect the public interest. The BaFin monitors trading activities on the Frankfurt Stock Exchange and the other German stock exchanges.
 

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

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

EXPENSES OF THE ISSUE
Not required because this document is filed as an annual report.
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Item 10: Additional Information

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

For information regarding our Articles of Association, please refer to the discussion under the corresponding section of our Annual Report on Form 20-F for the year ended December 31, 2003, which discussion we hereby incorporate by reference into this document.
 

In the usual course of our business, we enter into numerous contracts with various other entities. We have not, however, entered into any material contracts outside the ordinary course of our business within the past two years.
 

EXCHANGE CONTROLS
As in other member states of the European Union, regulations issued by the competent European Union authorities to comply with United Nations Resolutions have caused freeze orders on assets of certain legal and natural persons designated in such regulations. Currently, these European Union regulations relate to persons of or in Burma/Myanmar, Côte d’Ivoire, the Democratic Republic of Congo (Zaire), Iran, Iraq, Liberia, North Korea, Sudan and Zimbabwe, as well as persons associated with terrorism, the Taliban, Slobodan Milosevic, the deceased former president of Serbia and Yugoslavia, and President Alexander Lukashenko and certain other officials of Belarus.
With some exceptions, corporations or individuals residing in Germany are required to report to the Bundesbank any payment received from, or made to or for the account of, a nonresident corporation or individual that exceeds  12,500 (or the equivalent in a foreign currency). This reporting requirement is for statistical purposes.
Subject to the above-mentioned exceptions, there are currently no German laws, decrees or regulations that would prevent the transfer of capital or remittance of dividends or other payments to our shareholders who are not residents or citizens of Germany.
There are also no restrictions under German law or our Articles of Association concerning the right of nonresident or foreign shareholders to hold our shares or to exercise any applicable voting rights.
 

TAXATION
The following is a summary of the material German and United States federal income tax consequences of the ownership and disposition of shares for a resident of the United States for purposes of the income tax convention between
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20-F // ITEM 10: ADDITIONAL INFORMATION
the United States and Germany (the “Treaty”) who is fully eligible for benefits under the Treaty. A U.S. resident will generally be entitled to Treaty benefits if it is:
—   
the beneficial owner of shares (and of the dividends paid with respect to the shares);
 
—   
an individual resident of the United States, a U.S. corporation, or a partnership, estate or trust to the extent its income is subject to taxation in the United States in its hands or in the hands of its partners or beneficiaries;
—   
not also a resident of Germany for German tax purposes; and
 
—   
not subject to an “anti-treaty shopping” article that applies in limited circumstances.
The Treaty benefits discussed below generally are not available to shareholders who hold shares in connection with the conduct of business through a permanent establishment, or the performance of personal services through a fixed base, in Germany. The summary does not discuss the treatment of those shareholders.
The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to any particular shareholder, including tax considerations that arise from rules of general application or that are generally assumed to be known by shareholders. In particular, the summary deals only with shareholders that will hold shares as capital assets and does not address the tax treatment of shareholders that are subject to special rules, such as fiduciaries of pension, profit-sharing or other employee benefit plans, banks, insurance companies, dealers in securities or currencies, persons that hold shares as a position in a straddle, conversion transaction, synthetic security or other integrated financial transaction, persons that elect mark-to-market treatment, persons that own, directly or indirectly, ten percent or more of our voting stock and persons whose “functional currency” is not the U.S. dollar. The summary is based on laws, treaties and regulatory interpretations in effect on the date hereof, all of which are subject to change. Generally, there are no changes to this taxation under the new protocol to the Treaty of June 1, 2006, which was ratified and, thus, entered into force on December 28, 2007, with the exception that U.S. pension funds will be exempt from German dividend withholding tax under the new protocol to the Treaty. The changes in the Treaty have retroactive effect, in respect of taxes withheld at source, for amounts paid or credited on or after January 1, 2007. Furthermore taxpayers can apply the provisions of the existing 1989 Treaty, unmodified, for 12-month transitional period starting from January 1, 2007 until December 31, 2007.
Shareholders should consult their own advisors regarding the tax consequences of the ownership and disposition of shares in light of their particular circumstances, including the effect of any state, local, or other national laws.
TAXATION OF DIVIDENDS
Dividends that we pay are subject to German withholding tax at an aggregate rate of 21.1 % (consisting of a 20 % withholding tax and a 1.1 % surcharge). Under the Treaty, a U.S. resident will be entitled to receive a refund from the German tax authorities of 6.1% in respect of a declared dividend of 100. For example, for a declared dividend of 100, a U.S. resident initially will receive 78.9, may claim a refund from the German tax authorities of 6.1 and, therefore, receive a total cash payment of 85 (i.e., 85 % of the declared dividend). For U.S. tax purposes, a U.S. resident will be deemed to have received total dividends of 100.
In 2007, a change in the German withholding tax law was enacted. Effective January 1, 2009, a withholding tax at an aggregate rate of 26.375 % (consisting of a 25 % withholding tax and an effective 1.375 % surcharge) will apply to
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dividends. For individual German tax residents, the withholding tax (including an additional church tax charge if applicable) represents, generally, the full and final tax burden applicable to the dividends.
The German rules provide that a dividend received by corporations, and half of the dividend received by individuals, will be exempt from German tax. Since 2004, 5 % of such dividends received by corporations from both domestic and foreign shareholdings is treated as non-deductible expense for corporation tax purposes. These rules apply regardless of whether a shareholder is a tax resident of Germany or a nonresident, if the shares form part of the assets of a permanent establishment or fixed base that the nonresident maintains in Germany. In any event, German withholding tax will be levied on the full amount of the cash dividend paid to a U.S. resident as described above.
The gross amount of dividends that a U.S. resident receives (including amounts withheld in respect of German withholding tax) generally will be subject to U.S. federal income taxation as foreign source dividend income, and will not be eligible for the dividends received deduction generally allowed to U.S. corporations. German withholding tax at the 15 % rate provided under the Treaty will be treated as a foreign income tax that, subject to generally applicable limitations under U.S. tax law, is eligible for credit against a U.S. resident’s U.S. federal income tax liability or, at its election, may be deducted in computing taxable income. Thus, for a declared dividend of 100, a U.S. resident will be deemed to have paid German taxes of 15. A U.S. resident cannot claim credits for German taxes that would have been refunded to it if it had filed a claim for refund. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities. U.S. tax authorities have indicated an intention to use existing law and to issue new regulations to limit the creditability of foreign withholding taxes in certain situations, including where the burden of foreign taxes is separated inappropriately from the related foreign income. A U.S. resident should consult its tax advisor if it has questions about whether such rules may affect its ability to utilize foreign tax credits.
Subject to certain exceptions our dividends received by an individual before January 1, 2011 will be subject to U.S. taxation at a maximum rate of 15 %. This lower rate applies to our dividends only if the shares in respect of which such dividend is paid have been held by the U.S. resident individual for at least 61 days during the 121 day period beginning 60 days before the ex-dividend date. Periods during which a U.S. resident individual hedges a position in its shares or related property may not count for purposes of the holding period test. Our dividends also would not be eligible for the lower rate if a U.S. resident individual elects to take the dividends into account as investment income for purposes of limitations on deductions for investment interest. A U.S. resident individual should consult its own tax advisor regarding the availability of the reduced dividend rate in light of its own particular circumstances.
If a U.S. resident receives a dividend paid in euros, it will recognize income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If dividends are converted into U.S. dollars on the date of receipt, a U.S. resident generally should not be required to recognize foreign currency gain or loss in respect of the dividend income but may be required to recognize foreign currency gain or loss on the receipt of a refund in respect of German withholding tax (but not with respect to the portion of the Treaty refund that is treated as an additional dividend) to the extent the U.S. dollar value of the refund differs from the U.S. dollar equivalent of that amount on the date of receipt of the underlying dividend.
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20-F // ITEM 10: ADDITIONAL INFORMATION
REFUND PROCEDURES
To claim the refund a U.S. resident must submit (either directly or, as described below, through the Depository Trust Company), within four years from the end of the calendar year in which the dividend is received, a claim for refund to the German tax authorities together with the original bank voucher (or certified copy thereof) issued by the paying entity documenting the tax withheld. Claims for refunds are made on a special German claim for refund form (Form E-USA), which must be filed with the German tax authorities: Bundeszentralamt für Steuern (formerly Bundesamt für Finanzen), An der Küppe 1, 53225 Bonn, Germany. The German claim for refund forms may be obtained from the German tax authorities at the same address where the applications are filed, from the Embassy of the Federal Republic of Germany, 4645 Reservoir Road, N.W., Washington, D.C. 20007-1998 or from the Office of International Operations, Internal Revenue Service, 1325 K Street, N.W., Washington, D.C. 20225, Attention: Taxpayer Service Division, Room 900 or can be downloaded from the homepage of the Bundeszentralamt für Steuern (http://www.bzst.bund.de).
A U.S. resident must also submit to the German tax authorities a certification (on IRS Form 6166) with respect to its last filed U.S. federal income tax return. The certification may be obtained from the office of the Director of the Internal Revenue Service Center by filing a request for certification with the Internal Revenue Service, P.O. Box 42530, Philadelphia, PA 19101-2530. Requests for certification are to be made in writing or by faxing a request and must include the U.S. resident’s name, social security number or employer identification number, tax return form number, the address where the certification should be sent, the name of the country requesting the certification (Germany), and the tax year being certified. Generally, the tax year being certified would most likely reflect the period of the U.S. resident’s last filed tax return. If the U.S. resident desires a “current year” Form 6166, its Form 6166 request must include a penalties of perjury statement, which has been signed by it in the current year under penalties of perjury, certifying that (i) it is a resident of the United States currently, and (ii) it will continue to be a resident of the United States for the remainder of the current, taxable year. For the purpose of requesting IRS Form 6166 it must use IRS Form 8802 (which will not be processed unless a user fee is paid). Requests for certification can include a request to the Internal Revenue Service to send the certification directly to the German tax authorities. This certification is valid for three years.
A simplified refund procedure is available if a U.S. resident holds its shares through banks and brokers participating in the Depository Trust Company. These arrangements have been made on a trial basis and may be amended or revoked at any time in the future. If the U.S. resident’s bank or broker elects to participate in the simplified procedure, the Depository Trust Company will perform administrative functions necessary to claim the Treaty refund for it. In this case, its broker will report to the Depository Trust Company the number of shares that it holds together with the number of shares held by other holders that are also eligible to claim Treaty refunds. The Depository Trust Company will then prepare and file a combined claim for refund with the German tax authorities. The combined claim need not include evidence of a U.S. resident’s entitlement to Treaty benefits.
Under audit procedures that apply for several years, the German tax authorities may require banks and brokers to provide evidence regarding the entitlement of their clients to Treaty benefits. In the event of such an audit, brokers must submit to the German tax authorities a list containing names and addresses of the relevant holders of shares, and the official certification on IRS Form 6166 with respect to the last filed United States federal income tax return of those holders. Banks and brokers participating in the Depository Trust Company arrangements may require a U.S. resident to provide documentation evidencing its eligibility for Treaty benefits prior to any audit.
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The German tax authorities will issue refunds denominated in euros. In the case of shares held through banks or brokers participating in the Depository Trust Company, the refunds will be issued to the Depository Trust Company, which will convert the refunds to U.S. dollars. The resulting amounts will be paid to banks or brokers for the account of holders.
If a U.S. resident holds its shares through a bank or broker who participates in the Depository Trust Company that elects to participate in the simplified refund procedure, it could take at least three weeks for it to receive a refund after a combined claim for refund has been filed with the German tax authorities. If a U.S. resident files a claim for refund directly with the German tax authorities, it could take at least eight months for it to receive a refund. The length of time between filing a claim for refund and receipt of that refund is uncertain and we can give no assurances as to when any refund will be received.
TAXATION OF CAPITAL GAINS
Under the Treaty, a U.S. resident will not be subject to German capital gains tax in respect of a sale or other disposition of shares. For U.S. federal income tax purposes, gain or loss realized by a U.S. resident on the sale or disposition of shares will be capital gain or loss, and will be long-term capital gain or loss if the shares were held for more than one year. The net amount of long-term capital gain realized by an individual generally is subject to taxation at a current maximum rate of 15 % under recently enacted legislation. Any such gain generally would be treated as income arising from sources within the United States; any such loss would generally be allocated against U.S. source income. The ability to offset capital losses against ordinary income is subject to limitations.
GERMAN GIFT AND INHERITANCE TAXES
Under the current estate, inheritance and gift tax treaty between the United States and Germany (the “Estate Tax Treaty”), a transfer of shares generally will not be subject to German gift or inheritance tax so long as the donor or decedent, and the heir, donee or other beneficiary, was not domiciled in Germany for purposes of the Estate Tax Treaty at the time the gift was made, or at the time of the decedent’s death, and the shares were not held in connection with a permanent establishment or fixed base in Germany.
The Estate Tax Treaty provides a credit against U.S. federal estate and gift tax liability for the amount of inheritance and gift tax paid in Germany, subject to certain limitations, in a case where shares are subject to German inheritance or gift tax and United States federal estate or gift tax.
OTHER GERMAN TAXES
There are presently no German net wealth, transfer, stamp or other similar taxes that would apply to a U.S. resident as a result of the receipt, purchase, ownership or sale of shares.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING
Dividends and payments of the proceeds on a sale of shares, paid within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the U.S. resident (1) is a corporation or other exempt recipient or (2) provides a taxpayer identification number and certifies (on IRS Form W-9) that no loss of exemption from backup withholding has occurred.
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20-F // ITEM 10: ADDITIONAL INFORMATION
Shareholders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, a non-U.S. person may be required to provide a certification (generally on IRS Form W-8BEN) of its non-U.S. status in connection with payments received in the United States or through a U.S.-related financial intermediary.
 

DIVIDENDS AND PAYING AGENTS
Not required because this document is filed as an annual report.
 

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

DOCUMENTS ON DISPLAY
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, we file reports and other information with the Securities and Exchange Commission. You may inspect and copy these materials, including this document and its exhibits, at the Commission’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, and at the Commission’s regional offices at 175 W. Jackson Boulevard, Suite 900, Chicago, Illinois 60604, and at 233 Broadway, New York, New York, 10279. You may obtain copies of the materials from the Public Reference Room of the Commission at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the Commission’s Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330. Our Securities and Exchange Commission filings are also available over the Internet at the Securities and Exchange Commission’s website at http://www.sec.gov under File Number 1-15242. In addition, you may visit the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005 to inspect material filed by us.
 

SUBSIDIARY INFORMATION
Not applicable.
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Item 11: Quantitative and Qualitative Disclosures about Credit, Market and Other Risk
 

RISK AND CAPITAL MANAGEMENT
The wide variety of our businesses requires us to identify, measure, aggregate and manage our risks effectively, and to allocate our capital among our businesses appropriately. We manage risk and capital through a framework of principles, organizational structures as well as measurement and monitoring processes that are closely aligned with the activities of our group divisions.
RISK AND CAPITAL MANAGEMENT PRINCIPLES
The following key principles underpin our approach to risk and capital management:
 
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Our Management Board provides overall risk and capital management supervision for our consolidated Group as a whole. Our Supervisory Board regularly monitors our risk and capital profile.
 
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We manage credit, market, liquidity, operational, business, legal and reputational risks as well as our capital in a coordinated manner at all relevant levels within our organization. This also holds true for complex products which we typically manage within our framework established for trading exposures.
 
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The structure of our legal, risk & capital function is closely aligned with the structure of our group divisions.
 
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The legal, risk & capital function is independent of our group divisions.
RISK AND CAPITAL MANAGEMENT ORGANIZATION
Our Chief Risk Officer, who is a member of our Management Board, is responsible for our credit, market, liquidity, operational, business, legal and reputational risk management as well as capital management activities within our consolidated Group. In 2007, we merged the legal and compliance departments with the existing risk and capital management function to form an integrated legal, risk & capital function.
Two functional committees are central to the legal, risk & capital function. The Capital and Risk Committee is chaired by our Chief Risk Officer, with the Chief Financial Officer being Vice-Chairman. The responsibilities of the Capital and Risk Committee include risk profile and capital planning, capital capacity monitoring and optimization of funding. In addition, the Chief Risk Officer chairs our Risk Executive Committee, which is responsible for management and control of the aforementioned risks across our consolidated Group. The two Deputy Chief Risk Officers who report directly to the Chief Risk Officer are among the voting members of our Risk Executive Committee.
Dedicated legal, risk & capital units are established with the mandate to:
 
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Ensure that the business conducted within each division is consistent with the risk appetite that the Capital and Risk Committee has set;
 
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Formulate and implement risk and capital management policies, procedures and methodologies that are appropriate to the businesses within each division;
 
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Approve credit risk, market risk and liquidity risk limits;
 
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Conduct periodic portfolio reviews to ensure that the portfolio of risks is within acceptable parameters; and
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20-F // ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT CREDIT, MARKET AND OTHER RISK
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Develop and implement risk and capital management infrastructures and systems that are appropriate for each division.
The Group Reputational Risk Committee (GRRC) is an official sub-committee of the Risk Executive Committee and is chaired by the Chief Risk Officer. The GRRC reviews and makes final determinations on all reputational risk issues, where escalation of such issues is deemed necessary by senior business and regional management, or required under other Group policies and procedures.
Our finance and audit departments support our legal, risk & capital function. They operate independently of both the group divisions and of the legal, risk & capital function. The role of the finance department is to help quantify and verify the risk that we assume and ensure the quality and integrity of our risk-related data. Our audit department reviews the compliance of our internal control procedures with internal and regulatory standards.
 

CATEGORIES OF RISK
The most important risks we assume are specific banking risks and reputational risks, as well as risks arising from the general business environment.
SPECIFIC BANKING RISKS
Our risk management processes distinguish among four kinds of specific banking risks: credit risk, market risk, liquidity risk and operational risk.
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CREDIT RISK arises from all transactions that give rise to actual, contingent or potential claims against any counterparty, borrower or obligor (which we refer to collectively as “counterparties”). This is the largest single risk we face. We distinguish among three kinds of credit risk:
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DEFAULT RISK is the risk that counterparties fail to meet contractual payment obligations.
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COUNTRY RISK is the risk that we may suffer a loss, in any given country, due to any of the following reasons: a possible deterioration of economic conditions, political and social upheaval, nationalization and expropriation of assets, government repudiation of indebtedness, exchange controls and disruptive currency depreciation or devaluation. Country risk includes transfer risk which arises when debtors are unable to meet their obligations owing to an inability to transfer assets to nonresidents due to direct sovereign intervention.
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SETTLEMENT RISK is the risk that the settlement or clearance of transactions will fail. It arises whenever the exchange of cash, securities and/or other assets is not simultaneous.
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MARKET RISK arises from the uncertainty concerning changes in market prices and rates (including interest rates, equity prices, foreign exchange rates and commodity prices), the correlations among them and their levels of volatility.
 
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LIQUIDITY RISK is the risk arising from our potential inability to meet all payment obligations when they come due or only being able to meet these obligations at excessive costs.
 
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OPERATIONAL RISK is the potential for incurring losses in relation to employees, contractual specifications and documentation, technology, infrastructure failure and disasters, projects, external influences and customer relationships. This definition includes legal and regulatory risk, but excludes business and reputational risk.
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REPUTATIONAL RISK
Within our risk management processes, we define reputational risk as the risk that publicity concerning a transaction, counterparty or business practice involving a client will negatively impact the public’s trust in our organization.
BUSINESS RISK
Business risk describes the risk we assume due to potential changes in general business conditions, such as our market environment, client behavior and technological progress. This can affect our earnings if we fail to adjust quickly to these changing conditions.
INSURANCE SPECIFIC RISK
Our exposure to insurance risk increased upon the acquisition of Abbey Life Assurance Company Limited in October 2007. We also hold an equity investment in Paternoster Limited, which is a regulated insurance company taking on the risks associated with companies’ final salary/defined pension schemes and assuming the responsibility for paying their pensioners into the future by writing annuity contracts. We are therefore exposed to the following insurance-related risks.
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MORTALITY AND MORBIDITY RISKS – higher/lower than expected number of death claims on assurance products and occurrence of one or more large claims, and higher/lower than expected disability claims, respectively. These are mitigated by the use of reinsurance and the application of discretionary charges. Annually, rates of mortality and morbidity are investigated.
 
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LONGEVITY RISK – faster/slower than expected improvements in life expectancy on immediate and deferred annuity products. This is carefully monitored against the latest external industry data and emerging trends.
 
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EXPENSES – policies cost more/less to administer than expected. These are monitored by an analysis of our actual expenses relative to budget. Reasons for any significant divergence from expectations are investigated and remedial action taken. The expense risk is reduced by us having in place (until 2010 with the option of renewal for two more years) an outsourcing agreement which covers the administration of the policies.
 
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PERSISTENCY – higher/lower than expected percentage of lapsed policies. Our persistency rates are annually assessed by reference to appropriate risk factors.
 

RISK MANAGEMENT TOOLS
We use a comprehen