FINANCIAL INSTITUTIONS

ISSUER COMMENT27 July 2017

Contacts

Peter E. Nerby, CFA 212-553-3782Senior Vice Presidentpeter.nerby@moodys.com

Ross J Hampson 44-20-7772-1440Associate Analystross.hampson@moodys.com

Laurie Mayers 44-20-7772-5582Associate ManagingDirectorlaurie.mayers@moodys.com

Ana Arsov 212-553-3763Managing Directorana.arsov@moodys.com

Deutsche Bank AGQ2 2017 Results: Weak revenues partly offset by further costsavings as restructuring progresses

Deutsche Bank AG reported a €822 million pre-tax profit for 2Q 2017 compared to a €408million profit for the same period a year previously1. Adjusting for derivative valuation effectswithin the Corporate and Investment Bank, pre-tax profit totalled €926 million in 2Q 2017.Based on the quarter’s 43% tax rate, this equates to an annualized after-tax return of on€355 billion of risk weighted assets (RWA) of 59 basis points, compared to a breakevenquarter one year ago. The bank reported a post-tax return on average tangible equity of3.2%, from 0.1% in 2Q 2016.

We consider these results credit neutral and broadly in line with our expectations. The bankfaced stiff revenue headwinds with reported revenues down 10% but management was ableto reduce operating costs by 15% and very low credit costs, mitigated the overall impacton income. Deutsche Bank continues to make progress with its strategic plan, especially inrelation to cost rationalisation. The €8 billion common equity capital raise which closedduring the quarter brings the Common Equity Tier 1 (CET1) ratio to 14.1% as of 30 June2017, a clear credit positive. We continue to expect reduced litigation and legacy costs thisyear but credit costs are expected to rise in the second half leading to only modest overallprofitability in 2017. Nonetheless the capital raise and litigation settlements have bolsteredthe cushion for creditors and enhanced the bank’s financial flexibility, even amidst revenuepressures.

Revenue headwinds continue to challenge Deutsche Bank’s performance, especially in theircapital markets businesses. Revenues in the capital markets franchises continued to beimpacted by lower market volatility, in turn leading to lower client activity and idiosyncraticfactors relating to Deutsche Bank’s business exits and weakened albeit improving clientengagement, which was impacted significantly following the market confidence issuesexperienced over the last 18 months. Revenues across the retail franchises were broadlyflat, despite the on-going low interest rate environment with asset management revenuesincreasing following improvements in market conditions.

Deutsche Bank continued to make good progress in reducing its cost base, re-committing tothe €22 billion adjusted cost target for 2018. Overall, operating expenses were down 15%owing to lower restructuring and impairment charges. On an underlying basis, adjusted costswere down 5% year on year to €5.7 billion (excluding foreign currency effects) reflectingongoing cost management efforts and the absence of costs related to the running of theNon-Core Operating Unit (NCOU). Progress on costs comes despite continued investment inthe technological transformation of the bank.

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Regarding litigation, the bank still expects elevated litigation costs in 2017 and total litigation reserves stood at €2.5 billion at end-June 2017. The estimate of possible contingent liabilities fell to €1.8 billion compared to €2.4 billion at end-March 2017, reflectingsettlements and reduced litigation tail risk.

The key capital, liquidity and earnings trends are detailed below;

Deutsche Bank’s key capital metrics significantly improved following the completion of the €8 billion raise of common equity. Thefully loaded CRDIV Common Equity Tier 1 (CET1) ratio increased to 14.1%, which now compares favourably amongst peers (Exhibit1). Deutsche Bank’s Supervisory Review and Evaluation Process (SREP) requirement for 2017, which sets a minimum amount beforethere would be mandatory restrictions on dividends and coupons on Deutsche Bank’s Additional Tier 1 instruments is 9.52%. Thisrequirement must be met throughout the year, and is calculated on a phased-in basis, which equalled 14.9% as of 30 June 2017. TheCRD IV Leverage Ratio stood at 3.8%.

Exhibit 1

Common Equity Tier 1 (CET1) and Tier 1 Leverage Ratios for Global Investment Banks, end-June 2017

15.9%

14.3% 14.1% 14.1% 14.1%13.4% 13.0% 12.7% 12.5% 12.2% 11.6% 11.6% 11.5%

10.6%

6.4%5.5%

5.0%4.6% 3.8%

5.1%

7.2%6.6%

4.4%

6.3%

4.1% 4.1%

7.0%

4.3%

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

18.0%

MorganStanley

HSBCHoldings*

Royal Bank ofScotland*

UBS** Deutsche Bank CreditSuisse***

Citigroup JP Morgan Barclays* GoldmanSachs

BNP Paribas* SocieteGenerale*

Bank ofAmerica

Royal Bank ofCanada***

CET1 Ratio Tier 1 Leverage ratio Median CET1 ratio (12.9%) Median leverage ratio (5.1%)

(*) figures as of end-March 2017 (**) UBS and CS leverage ratio reflect Common Equity Tier plus Low Trigger Additional Tier 1 and High-Trigger Additional Tier 1 securities. Medians includeDeutsche Bank. (***) end-April 2017Source: Company Reports

Liquidity continues to be a relative strength of the bank, increasing further compared with the first quarter of 2017. Deutsche reporteda liquidity reserve of €285 billion as of end-June 2017. The bank also reported a Liquidity Coverage Ratio (LCR) of 144% as of end-June2017.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

2 27 July 2017 Deutsche Bank AG: Q2 2017 Results: Weak revenues partly offset by further cost savings as restructuring progresses

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In Exhibit 2 we show Deutsche Bank's quarterly pre-tax profits by business line.

Exhibit 2

Quarterly Pre-Tax Profits by business line (excluding impairments, restructuring and valuation adjustments)

-800

-600

-400

-200

-

200

400

600

800

1,000

1,200

Corporate & Investment Bank Private & Commercial Bank Deutsche Asset Management Non Core Operations Unit Consolidation & Adjustments

mill

ions

2Q2016 1Q2017 2Q2017

Note: Valuation adjustments refer to DVA, CVA and FVA within the Corporate & Investment Bank and Consolidation & Adjustments divisions.Source: Moody's Investors Service on Company Reports

Noteworthy credit trends within LOBs included, all comparisons are y-o-y unless otherwise noted:

Corporate and Investment Banking (CIB), which now contains the businesses formally included within Global Markets, reported apre-tax profit of €543 million compared to €460 million profit for the same period last year. Revenues were down 16% year on year,as revenues declined across all businesses. Debt sales and trading revenues decreased 12% (whereas US peers are down about 15%).Equities sales and trading revenues were down 28% (a greater decline than US peers), impacted by lower volatility and lower activityand margins in DB’s prime brokerage business. Debt origination revenues were down 24% reflecting lower client activity levels andcompared to a favourable second quarter of 2016 while equity origination revenues were down 7% due to lower volumes. GlobalTransaction Banking revenues, down 12%, were negatively impacted by the reallocation of funding costs from the Consolidation &Adjustments division and lower cash management revenues. Financing, which now contains businesses previously included is debt salesand trading and loan products reported revenues 5% lower year on year, following good performance across asset-based lending andcommercial real estate offset by lower investment grade lending revenues.

Private & Commercial Bank (PCB) reported a pre-tax profit of €310 million compared to a €367 million profit for the same periodlast year. Revenues were broadly flat (-1%) year on year (excluding the gain on the sale of the stake in Visa Europe in Q2 2016) despitethe continued low interest rate environment in Europe. Positively, there were net invested asset inflows for the second consecutivequarter totalling €3 billion. Now contained within PCB, Postbank revenues were up 6% (excluding Visa gain and loss on terminationof legacy securities) as a result of growth in loan products and fee income related to current accounts and investment products,offsetting the effects of the low interest rate environment. Wealth Management revenues were up 7% which included one off gainson legacy positions that more than offset business exits, on an underlying basis lower revenues were driven by a lower deposit baseand the impact of loan sales. Across PCB, there was continued progress on non-interest expenses due to lower restructuring costs andheadcount reductions related to its branch closure initiatives, despite on-going IT infrastructure investment.

Deutsche Asset Management (AM) reported a pre-tax profit of €234 million compared to a €170 million pre-tax profit a yearpreviously. AM was the only division to report an increase in revenues year on year, excluding Abbey Life, revenues increased 7% drivenby higher performance fees in Alternatives and management fees as a result of improved market conditions. Operating expenses weredown 4% on lower restructuring costs, however on an underlying basis adjusted costs were up 3% as a result of higher compensationcosts. Positively, there were positive asset inflows across both active and passive businesses especially in Germany, with net new moneytotalling €5.7 billion in the quarter, partially offsetting outflow derived from liquidity products in the Americas.

Asset quality strengthened as impaired loans fell 10% to €6.7 billion with a reserve coverage ratio of 59%, down two percentage pointsfrom one year ago.

3 27 July 2017 Deutsche Bank AG: Q2 2017 Results: Weak revenues partly offset by further cost savings as restructuring progresses

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Rating Considerations

Deutsche Bank has a baseline credit assessment of ba1 and is rated A3 for deposits, Baa2 for senior debt and is assigned a CounterpartyRisk Assessment of A3(cr)/Prime-2(cr). The outlook on the ratings is stable and incorporates expectations of only limited profitability in2017.

4 27 July 2017 Deutsche Bank AG: Q2 2017 Results: Weak revenues partly offset by further cost savings as restructuring progresses

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Moody's Related ResearchCredit Opinions

» Deutsche Bank AG, March 2017 (1062937)

Issuer Comment

» Potential Litigation Costs Pose a Hurdle for Deutsche Bank’s Reengineering Efforts, October 2016 (192450)

» Deutsche Bank Looks to Settle US Mortgage Legal Exposure at a Reasonable Cost, September 2016 (192220)

Issuer In-Depth

» Global Investment Banks: Legacy litigation risks recede, July 2017 (1079483)

» Global Investment Banks: Indicators of Capital Markets Risk for the Moody’s GIB Peer Group, June 2017 (1075509)

» Deutsche Bank AG: Capital Raise, Strategic Course Correction Are Credit Positive (1062377)

» Barclays, Credit Suisse, Deutsche Bank, Royal Bank of Scotland and UBS: De-risking Will Slow with Heightened Market Uncertainty,October 2016 (1042606)

» Brexit-related Costs and Uncertainties Pose Fresh Challenge to Non-UK GIBS’ Pan European Business Models, July 2016 (1033749)

Rating Action

» Moody's Affirms Baa2 Debt and A3 Deposit Ratings of Deutsche Bank AG. Outlook Stable, March 2017

» Moody's Affirms Baa2 Debt and A3 Deposit Ratings of Deutsche Bank AG. Outlook Stable, December 2016

» Moody's assigns senior-senior unsecured bank debt ratings to 14 German banks and upgrades 350 bonds to the new rating level,November 2016

» Moody's downgrades Deutsche Bank's ratings (senior debt to Baa2, long term deposits to A3 and counterparty risk assessment toA3(cr)); outlook stable, May 2016

Banking System Outlook

» Germany, October 2016 (1038523)

Rating Methodology

» Banks, January 2016 (186998)

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of thisreport and that more recent reports may be available. All research may not be available to all clients.

5 27 July 2017 Deutsche Bank AG: Q2 2017 Results: Weak revenues partly offset by further cost savings as restructuring progresses

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Endnotes1 All comparisons in this document are YOY unless otherwise noted.

6 27 July 2017 Deutsche Bank AG: Q2 2017 Results: Weak revenues partly offset by further cost savings as restructuring progresses

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7 27 July 2017 Deutsche Bank AG: Q2 2017 Results: Weak revenues partly offset by further cost savings as restructuring progresses