FINANCIAL INSTITUTIONS

ISSUER COMMENT26 October 2017

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Deutsche Bank AGQ3 2017 Results: Progress on strategy, strong cost control andlower cost of risk mitigate weak revenues

All figures in this report relate to 3Q 2017 and comparisons are made to 3Q 2016, unlessotherwise indicated.

Deutsche Bank AG (DB, A3/Baa2, stable, ba1)1 reported a €933 million pre-tax profitfor 3Q 2017 compared to a €619 million pre-tax profit for the same period a yearpreviously. Adjusting for derivative valuation effects within the Corporate and InvestmentBank and €108 million in gains relating to a sale of a payment services provider, pre-tax profittotaled €832 million in 3Q 2017. Based on the quarter’s 30% tax rate, this equates to anannualized after-tax return on €355 billion of risk weighted assets (RWA) of 66 basis points(bps), compared to 27 bps one year ago. On adjusted basis, the bank's post-tax return onaverage shareholder’s equity was 4.1% compared to 2%.

On balance, we consider DB’s results as credit neutral. The firm made progress on itsstrategic initiatives to simplify and rebalance its business mix in the face of a challengingrevenue environment. A further reduction in the cost base (-11% on foreign exchange neutralbasis) and lower cost of risk more than offset a 10% decline in DB’s revenues. DB facedrevenue headwinds arising from lower capital market revenues as well as continuing lowinterest rates within its Private and Commercial banking and Asset Management businesses.The firm reported a 36% decline in Fixed Income & Currencies (FIC), as a result of lowermarket volatility and a comparison to a strong prior period. This reported decline wassomewhat greater than its U.S peers (who reported average declines in FIC revenues of22% ). Management observed that the FIC decline was 24%, when certain financing revenuesare included, to put DB’s FIC revenues on a more comparable basis to U.S peers. Revenuesacross the retail franchises were broadly flat, where increase in fee and commission incomehelped to offset the impact of low interest rate environment.

Deutsche Bank continued to make good progress on cost reduction with adjustedcosts currently running at management’s €22 billion interim target. Overall,operating expenses were down 11% (excluding foreign currency effects) on the back of lowerrestructuring and litigation charges. On an underlying basis, adjusted costs were down 3%year on year to €5.5 billion (excluding foreign currency effects) reflecting the absence ofthe Non-Core Operating Unit (NCOU) and lower professional services fees. Progress oncosts comes despite continued investment in the technological transformation of the bank.Management guided toward higher restructuring costs in 4Q 2017, based on agreementsreached with trade unions regarding the merger of banking operations in Germany, nowexpected to occur in 1H 2018.

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DB settled some existing litigation in the quarter with only modest incremental required reserves however the firm stillcautioned that litigation may remain elevated in 2017. Total litigation reserves stood at €2.3 billion at end-September 2017. Theestimate of possible contingent liabilities fell to €1.6 billion compared to €1.8 billion at end-June 2017, which we view as credit positive.

Deutsche Bank’s regulatory capital position declined modestly compared to the previous quarter. DB’s fully-loaded Basel 3CET1 ratio stood at 13.8% versus 14.1% in Q2 2017. Increase in net income only partly helped to offset dividend accrual, exchange rateand other effects. The firm’s leverage ratio of 3.8% remained unchanged in the quarter but lowest among the global peers (see exhibit1).

Exhibit 1

Common Equity Tier 1 (CET1) ratio and Tier 1 Leverage Ratio for Global Investment Banks, end-September 2017

16.7%

14.7%13.8% 13.5% 13.3%

13.1% 13.0% 12.8%

11.7% 11.7% 11.7% 11.9%10.9%

6.5%5.7%

3.8% 4.7%

5.2%

4.4%

7.1%6.6%

6.1%

4.2% 4.2%

7.1%

4.4%

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

18.0%

Morgan Stanley HSBC Holdings* Deutsche Bank UBS* Credit Suisse* Barclays Citigroup JP Morgan Goldman Sachs BNP Paribas* SocieteGenerale*

Bank of America Royal Bank ofCanada**

CET1 Ratio Tier 1 Leverage ratio Median CET1 ratio (13.0%) Median leverage ratio (5.2%)

Note: *end-June 2017 **UBS and CS leverage ratio reflect Common Equity Tier plus Low Trigger Additional Tier 1 and High-Trigger Additional Tier 1 securities *** end-July 2017.Source: Company reports

Asset risk remained stable in the quarter. Impaired loans stood at €6.7 (1.7% of total loan book), unchanged compared with Q22017, while the coverage ratio slightly improved to 61% from 59%. DB’s cost of risk was down to 13 bps in Q3 2017 compared withsame period last year (28 bps) driven by lower cost of risk across all business lines. Average and stressed value-at-risk €30 and €81 ofwas broadly stable over the quarter (Q2 2017: €32 and €83).

Liquidity continues to be a relative strength of the bank. DB reported a liquidity reserve of €279 billion as of end-September 2017.The bank also reported a Liquidity Coverage Ratio (LCR) of 141% as of end-September 2017.

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 26 October 2017 Deutsche Bank AG: Q3 2017 Results: Progress on strategy, strong cost control and lower cost of risk mitigate weak revenues

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Performance by main divisions

Exhibit 2

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

-800

-600

-400

-200

0

200

400

600

800

1000

1200

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

€m

illio

ns

Q3 2016 Q2 2017 Q3 2017

Valuation adjustments refer to DVA and own credit in Corporate & Investment Bank and Consolidation and Adjustments division.Source: Company reports

Corporate and Investment Banking (CIB), which now contains the businesses formally included within Global Markets, reporteda pre-tax profit of €361 million, down 63% compared with the same period last year. Revenues declined almost across all business,except financing. Sales and trading revenues were down by 30%, reflecting lower client volatility in the quarter and the high Q32016 comparison base. Global Transaction Banking revenues declined by 14% on the back of strategic perimeter adjustment in cashmanagement, lower trade volumes and continued margin pressure. Origination and advisory revenues were down 24% as a result oflow volatility and a stronger prior year quarter. Financing revenues were up 5%, driven by increase in asset based and commercial realestate lending.

Private & Commercial Bank (PCB) reported a pre-tax profit of €332 million compared to a €187 million profit for the same periodlast year. Revenues were broadly flat year on year, excluding €108 one off gain from the sales of shares in Concardis GmbH. Growth infee and commission income in Private and Commercial Clients and Postbank divisions helped party to offset the impact of protractedlow interest rates. In Wealth Management revenues were down 14%, impacted by higher base in Q3 2016, that benefited from the saleof PCB unit, and lower interest income on selective loan sales in US as well as lower deposit base. Positively, non-interest expense andadjusted costs declined by 2% and 4%, respectively, reflecting lower restructuring costs and headcount reductions related to its branchclosure initiatives, despite on-going IT infrastructure investment and increase in regulatory costs. Provisions for credit losses were alsodown by 12%, supporting PCB’s pre-tax profit.

Deutsche Asset Management (AM) reported a pre-tax profit of €195 million compared to a €215 million pre-tax profit a yearpreviously. Excluding Abbey Life, revenues and operating expenses were flat in the quarter. Net new assets inflow for the quarter were€4 billion, reflecting liquidity products inflows in US and Germany.

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.

3 26 October 2017 Deutsche Bank AG: Q3 2017 Results: Progress on strategy, strong cost control and lower cost of risk mitigate weak revenues

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Moody's Related ResearchCredit Opinions

» Deutsche Bank AG, September 2017

Issuer Comment

» Deutsche Bank Q2 2017 Results: Weak revenues partly offset by further costs savings as restructuring progresses.

Issuer In-Depth

» Barclay, Credit Suisse, Deutsche Bank, Royal Bank of Scotland and UBS. Risks from remaining legacy assets will continue to weight onstandalone credit profiles, September 2017

» 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)

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, September 2017

Rating Methodology

» Banks, September 2017

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.

4 26 October 2017 Deutsche Bank AG: Q3 2017 Results: Progress on strategy, strong cost control and lower cost of risk mitigate weak revenues

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Endnotes1 The ratings shown in this report are DB’s deposit rating, senior unsecured debt rating, outlook, and baseline credit assessment (BCA).

5 26 October 2017 Deutsche Bank AG: Q3 2017 Results: Progress on strategy, strong cost control and lower cost of risk mitigate weak revenues

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