Deutsche Bank Capital Markets and Treasury Solutions

Deutsche Bank

The Road to Basel 3

January 2012

Deutsche Bank Securities Inc., a subsidiary of Deutsche Bank AG, conducts investment banking and securities activities in the United States. Corporate Solutions & Strategy

Tom Joyce
(212) 250-8754 / tom.joyce@db.com

Implications for Credit, Derivatives & the Economy

Michael Dyadyuk
(212) 250-0470 / michael.dyadyuk@db.com

Javier Guzman
(212) 250-3464 / javier.guzman@db.com

Contents

Section 1 2 3 4 5 Executive Summary Impact on Credit Facilities and Bond Markets Impact on Derivatives Markets Impact on the Global Economy Positioning for Basel 3: Funding Strategies and Solutions for Corporates

Appendix I II Additional Basel 3 Information Glossary of Terms

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Notable contributors

Deutsche Bank Americas Dean Bellissimo Head of Derivative Products Matthias Bergner Head of GTP Asset & Liability Management Americas Esperanza Cerdan Risk & Capital

Deutsche Bank Europe Andreas Boeger Co-Head of Capital Solutions Europe & CEEMEA

Scott Flieger COO CMTS North America

Appendix I

Caitriona Okelly Head of Prudential Policy

Marc Fratepietro Head of Debt and Solutions Coverage - Corporates Andreas Neumeier Head of Corporate Banking North America Paul Puleo Head of Debt and Solutions Coverage Financial Institutions Adam Raucher CMTS Debt & Solutions Coverage Matthew Tilove CMTS Derivative Products James Volkwein Head of Structured Finance and Advisory

Vatsal Parikh Credit Products Group

Shamil Shah Cross Product Structuring

Neil Tranter Core Rates Trading

Daniel Trinder Global Head of Regulatory Policy

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Appendix II

1. Executive Summary

Four key components of Basel 3

Basel 3 focuses on four key regulatory components: 1) Capital: Increases minimum regulatory capital ratios (Common Equity Tier 1, Tier 1, Total Capital) and tightens definitions of eligible capital 2) Liquidity: Introduces two new liquidity ratios 3) Risk Weighted Assets (RWA): Introduces additional risk charges to account for counterparty credit risk in trading book and derivatives exposures 4) Leverage: Introduces global leverage limitations (Basel 3 goes beyond existing requirements in the U.S.) New Capital Requirements (1)
Minimal Capital Requirement Conservation Buffer = 2.5% G-SIBs Buffer = 1.0% -3.5%
16.5% 14.5% 13.0% 11.0% 10.5% 9.5% 8.5% 8.0%

New Liquidity Ratios Liquidity Coverage Ratio (LCR) Tests an institution's ability to survive acute short-term stress (30-day period) Objective: Increase banks holdings of highly liquid assets Net Stable Funding Ratio (NSFR) Requires longer-term funding of banks assets (1-year time horizon) Objective: Promote better matching of banks assets and liabilities; reduce banks liquidity-constraining activities

18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0%

Countercyclical Buffer = 0.0% - 2.5%

13.0%

7.0% 6.0% 4.5%

4.0% 2.0% 0.0% Common Equity

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Tier 1

Total Capital

(1) New capital requirements to be phased in between 2013-2019 G-SIB: Global systemically important banks; Currently, no banks fall under highest G-SIB G bucket (buffer of 3.5%) Source: Deutsche Bank, BCBS Press Release

Transmission channels from Basel 3 to the economy

Basel 3 Key Components

1. Higher capital ratios

Availability / Pricing of Credit

Impact on credit facilities Increased internal charges to be passed through to borrowers (via higher spreads) and/or investors in bank shares (via lower ROEs) Curtailment of certain lending products (e.g. liquidity facilities, long-term term cash lending) Resource allocation to top tier client relationships

Impact on the Global Economy

Reduced business cycle volatility

2. Increased liquidity requirements (LCR, NSFR)

Reduced perception of systemic risks in financial system

3. Additional capital charges (CVA, etc.)

Increased funding costs for private sector

4. Leverage constraints (LR) Impact on derivatives markets Increased credit charges on derivatives transactions Impact on bond markets Shift in supply / demand dynamics

Reduced access to certain types of credit

Reduced global output and employment

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Summary of Basel 3 impact on markets

Expected Impact Credit Facilities New liquidity and leverage requirements to lead d to re-pricing re and re-allocation of credit commitments Undrawn commitments (particularly liquidity back-stop back facilities) to be acutely affected Impact studies project wide range of lending spread increases (from 15 bps to 500+ bps) Bond Markets Banks to decrease reliance on short-term (1-3 3 yr) funding in favor of longer-term ( 5 yr) issuance Increased demand by bank investors for highly-rated rated (AA(AA and higher) non-financial corporate debt Banks currently represent only ~5% of the investor buyer base Derivatives Markets Increased capital charges related to Counterparty Credit Risk S&P estimates a 46x increase in credit-related related charges New Credit Valuation Adjustment (CVA) capital charge on all OTC derivatives transactions will have greatest impact on:
Deutsche Bank

Potential Responses New capital charges may force banks to: Increase rates and/or reduce availability of liquidity back-stop facilities Focus on bifurcating revolving facilities (where possible) between GCP and CP back-stop uses Shift to shorter tenors, particularly <1 year Corporates should explore alternative funding strategies: Short-dated capital markets issuance to fill potential market void CDS-based funding commitments (for short-term financing needs of lower-rated corporates) Impact can be mitigated through: Use of CSAs with daily re-margining (provides nearly full relief) Use of master netting agreements (provides partial relief)

Corporates with higher and more volatile CDS spreads Corporates with no observable CDS Lower-rated corporates Longer-dated dated and/or highly complex transactions High threshold margining agreements
Source: BIS, OECD, Fed, IIF, McKinsey Global Institute, Deutsche Bank

What can corporate borrowers do to be best positioned for Basel 3?

Given Basel 3s expected (negative) impact on the pricing and availability of bank credit, clients should explore alternative financing strategies

Closely monitor bank market developments around pricing/availability/structure of revolving credit lines, particularly CP back-stop stop facilities Consider alternatives to traditional bank products that are expected to be most affected (e.g. CP back-stops, stops, syndicated letter of credit facilities) In Section 5, we present an overview of potential solutions, including: 4 financing alternatives that leverage the capital markets to meet clients funding needs (Tabs A-D) back programs that DB can work with our 3 potential alternatives to traditional commercial paper / back-stop clients to explore in more detail (Tab E) Overview of the mechanics and key attributes of Credit Support Annexes (CSA), which can improve the pricing and execution on OTC derivatives transactions (Tab F)

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Basel 3 implementation timeline

Key Dates July 21, 2010 December 1, 2010 July 20, 2011 December 20, 2011 Q1 2012 2012 Dodd-Frank Frank Financial Reform Act signed into law

Detail

Basel Committee releases details of the Basel III rules text EU Commission publishes a provisional draft of its legislation to implement Basel III (CRD4) U.S. Fed releases proposed rules on enhanced prudential standards for large financial institutions (not intended to directly address Basel 3) Expected timing of U.S. Feds release of Basel III guidelines Observation period of Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) commences Expected implementation timing of Basel 3 in EU

2013

Start of phase-in in period of higher capital requirements Introduction of counterparty risk charges

2015 2016 2018 2019

Deutsche Bank

Enforcement of LCR Start of phase-in of G-SIBs SIBs capital buffer Enforcement of NSFR Enforcement of Leverage Ratio (LR) Completion of phase-in of higher capital requirements

Source: Basel Committee on Banking Supervision, Deutsche Bank

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Appendix III

2. Impact on Credit Facilities and Bond Markets

Overview of Basel 3 regulatory changes

Description Liquidity Coverage Ratio (LCR) New ratio to test an institution's ability to survive acute short-term short stress (30 day period) Assumes various outflow factors for undrawn commitments to non-financial non corporates during a stress period s potential outflows Banks must retain High Quality Liquid Assets (HQLA) to offset such Net Stable Funding Ratio (NSFR) New ratio designed to promote longer-term longer funding of banks assets Assigns various funding factors depending on the nature and maturity of corporate loan exposures Banks must retain sufficient Available Stable Funding (ASF) to satisfy ratio requirements Leverage Ratio (LR) ed on gross exposure (i.e. no risk weighting) New ratio focused Includes 100% of unutilized commitments Intended as a back-stop to the risk-based risk capital requirements

Risk Weighted Assets (RWA)

No change under Basel 3 to banking book treatment of non-financial loan exposures

Deutsche Bank

Source: BIS, OECD, Fed, IIF, McKinsey Global Institute, Deutsche Bank

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Key Basel 3 ratios

Liquidity Coverage Ratio (LCR)

Stock of High Quality Liquid Assets (HQLA)

Definition
Net Cash Outflows Over a 30-Day Time Period

100%

HQLA - characterized by low credit/market risk, high liquidity, low correlation to risky assets Level 1 Assets (e.g. cash, central bank reserves) and Level 2 Assets (e.g. highly-rated highly corporate bonds) Net Cash Outflows - defined as expected cash outflows minus expected cash inflows Complex formula for weighting cash inflows and outflows Stress scenarios: Partial loss of deposits; significant reduction of unsecured funding; increase in haircuts for secured funding; out flows due to rating downgrade; collateral requirements for derivatives; drawings on commitments Ratio assumes the following outflow factors related to corporate loan exposures (i.e. LCR denominator): 10% for Credit Facilities (1) 100% for Liquidity Facilities (2) Any loan commitments to financial institutions are subject to a 100% outflow factor Banks to avoid granting large un-utilized utilized facilities to corporates due to higher outflow factors
Key Implications

Details

Relevant Metrics for Corporates

Ensure facilities are documented as General Corporate Purpose and Working Capital (vs. Liquidity Back-stop)

Deutsche Bank

(1) Credit Facility: explicit contractual agreements and/or obligations to extend funds at a future date to retail or wholesale counterparties , and a which do not fall under the Liquidity Facility definition (2) Liquidity Facility: any back-up up facility put in place expressly for the purpose of refinancing the debt of a customer in situations where such a customer is unable to obtain its ordinary course of business funding requirements in the financial markets
Source: BIS Publications, Deutsche Bank

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Key Basel 3 ratios

Net Stable Funding Ratio (NSFR)

Available Amount of Stable Funding (ASF)

Definition
Required Amount of Stable Funding (RSF)

100%

Available Stable Funding (ASF) Different weightings applied to different forms of funding Focuses on Liability side of balance sheet
Details

Required Stable Funding (RSF) All balance sheet assets and off-balance balance sheet commitments multiplied by an RSF factor that varies based on asset type Focuses on Asset side of balance sheet Ratio applies the following factors to corporate loan exposures to calculate RSF (i.e. denominator): 50% for <1 yr maturities 100% for >1 yr maturities 5% for undrawn commitments (same for Credit and Liquidity Facilities) Increased focus on short-term term loans (<1 yr) due to favorable RSF factor

Relevant Metrics for Corporates

Key Implications

Deutsche Bank

Source: BIS Publications, Deutsche Bank

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Key Basel 3 ratios

Leverage Ratio (LR)

New Definition of Tier 1 Capital

Definition
Total On and Off-Balance Sheet Assets

3%

Capital: : Tier 1 Capital (i.e. Core / Additional Tier 1 Capital) after deductions Assets: On-balance balance sheet items based on accounting value Collateral, guarantees and other risk mitigations not subtracted from assets Derivatives: accounting measure of exposure plus add-on add (exposure can be netted) Off Balance Sheet Items: : Includes 100% of all Commitments, Guarantees, LCs Ratio includes the following in calculation of total assets (i.e. denominator): 100% of utilized and undrawn commitments 100% of contingencies and guarantees Gross leverage measure to constrain overall size of bank balance sheets, including loan portfolios

Details

Relevant Metrics for Corporates

Key Implications

Deutsche Bank

Source: BIS Publications, Deutsche Bank

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Estimating Basel 3 impact on undrawn commitments

Revolving credit facilities may be acutely impacted under Basel 3 as a result of the new Liquidity Coverage Ratio (and to a lesser extent, Leverage Ratio) requirements The impact may be significantly mitigated if revolving credit facilities (or sub-limits sub thereof) qualify as Credit Facilities as opposed to Liquidity Facilities

LCR/LR Impact on Banks Internal Capital Charges

$100mn, 5yr RCL (Liquidity Facility treatment)
Banks Funding Cost Negative Carry on Liquidity Buffer LCR Factor Annual Liquidity Charge (bps) Annual Liquidity Charge ($)
(a)

$100mm, 5yr RCL (Credit Facility treatment)

L + 75 bps 75 bps 10% 8 bps $75,000 L + 150 bps 150 bps 10% 15 bps $150,000 L + 225 bps 225 bps 10% 23 bps $225,000
LCR impact

L + 75 bps 75 bps 100% 75 bps $750,000

L + 150 bps 150 bps 100% 150 bps $1,500,000

L + 225 bps 225 bps 100% 225 bps $2,250,000

Incremental Tier 1 Capital Required (b) Annual Leverage Charge ($) (c) Annual Leverage Charge (bps) Total Annual Capital Charge ($) Total Annual Capital Charge (bps)

$3,003,003 $600,601 60 bps $1,350,601 135 bps

$3,003,003 $600,601 60 bps $2,100,601 210 bps

$ 3,003,003 $600,601 60 bps $2,850,601 285 bps

$300,300 $60,060 6 bps $135,060 14 bps

$300,300 $60,060 6 bps $210,060 21 bps

$300,300 $60,060 6 bps $285,060 29 bps

LR impact (currently less visible due to later enforcement date)

Cumulative impact

For Illustrative Purposes Only

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(a) (i) Banks' Funding Cost, less (ii) return on re-investment investment of liquidity buffer (assumed to be Libor flat) (b) Based on 33.3x LR limit (c) Assumes 20% target Return on Equity (ROE)
Source: BIS, Deutsche Bank

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Estimating Basel 3 impact on drawn spreads

Regulator and industry impact studies forecast an increase in lending spreads ranging from 15 bps to over 500 bps; this wide range is indicative of the remaining uncertainty around the implementation and impact of Basel 3

Spectrum of Estimated Lending Spread Increases (bps)

IIF

40

568

Key Questions:
S&P * 20 164

1. Will banks ROE targets remain unchanged or be forced to decrease? 2. Will banks be able and/or willing to fully passthrough increased Basel 3 compliance costs to clients? 3. Or, will competitive landscape restrict banks ability to pass through higher costs?

McKinsey

25

75

OECD

35

64

BIS 15

20

50

100

150

200

250

300

Deutsche Bank

(a) Basel 3 impact on lending spreads assumes a 3% increase in regulatory Tier 1 capital ratio (b) Linear extrapolation used (where applicable) for comparison purposes * Assumes a 9.5% CT1R and 10.5% Tier 1 Ratio Source: McKinsey Global Institute, BIS, OECD, IIF, S&P

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Impact on bond market supply

Historical FI New Issue Volumes Divided by Tenor

Expected Impact: Banks to decrease reliance on short-term (1-3 yr) funding in favor of longer-term 5 yr) issuance IG investors may face potential market void for shorter-term maturities if banks shift to longer-term funding Potential Opportunity: Corporates should seek to fill market void by issuing shortterm (up to 3-yr) fixed and/or floating-rate paper
<1 Year 800 700 600 US$ Bn 500 400 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 1-3 3 Yrs 3-5 Yrs 5-7 Yrs 7-8 Yrs > 10 Yrs

(1)

2009

2010

2011

Net Stable Funding Ratio (NSFR) to have biggest impact on banks issuance patterns NSFR incentivizes banks to shift to longer-term longer funding For ASF, only senior debt with >1-year >1 maturities can be included Since 2008, banks issuance of <3-year <3 debt has decreased substantially, partly in anticipation of new regulatory guidelines

Deutsche Bank

(1) Excludes government-guaranteed issuance

Source: Thomson Reuters

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Impact on bond market demand

Breakdown of 2011 IG Credit by Rating

Expected Impact: Increased bank demand for highlyrated (AA- and higher) non-financial corporate debt Decreased bank demand for unsecured debt of other financials Potential Opportunity: Highly-rated corporates should seek to capitalize on increased bank demand during order book building Liquidity Coverage Ratio (LCR) to have biggest impact on banks demand for IG credit Only non-financial financial corporate debt rated AA and higher can be included as High Quality Liquid Assets (HQLA) Such highly rated corporate debt represents ~7% ($~40 bn) of the IG market Quantitative Impact Study (QIS) (1) conducted by BIS estimated potential shortfall of EUR 1.73 trillion due to LCR
Deutsche Bank
(1) QIS results based on YE2009 figures across a global sample of 223 banks Source: Deutsche Bank CMTS Syndicate, BIS

Breakdown of Investors in IG Credit

Hedge funds, ~5% Banks and other,~5%

Other Financials, 23.4%

AA- and Higher Corporates, 6.6% AA- and AA Higher Financials, 14.3%

Other Corporates, 55.7%

Real money funds / insurance, ~90%

Banks currently represent < 5 % of IG demand Historically, banks demand has favored other FI debt over corporate debt However, unsecured FI debt is ineligible as HQLA Expect shift in banks buying patterns from FI to non-financial corporate debt

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Appendix IV

3. Impact on Derivatives Markets

Basel 3s focus on Counterparty Credit Risk

S&P estimates a 46x 6x average increase in risk weightings / capital charges as a result of new capital charges and revisions to existing RWA rules under Basel 3 Banks Capital Ratio Composition
Tier 1 Capital Credit Risk + Market Risk + Operational Risk Total On and Off-Balance Balance Sheet Assets RWA RWA RWA

New Definition of Tier 1 Capital

Tier 1 Capital Ratio

Credit Risk Focus of Basel 3

Market Risk Remains the same as Basel 2

Op. Risk Remains the same as Basel 2

Four Key Changes to Credit RWA

1. Credit Valuation Adjustment (CVA)

New capital charge introduced on derivatives exposures to cover mark-to-market mark volatility in counterparty credit spreads Increased margin period of risk for OTC derivative transactions Expected exposures on OTC derivatives calculated using stressed assumptions, including increased charges for wrong-way wrong risk Multiplier applied to exposures to large or unregulated financial institutions

Will impact OTC derivatives transactions

2. Margin Period of Risk (MPR) 3. Stressed Parameters 4. Correlation Assumptions

Deutsche Bank

Source: Basel Committee on Banking Supervision, S&P

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Impact on OTC derivatives

Description Credit Valuation Adjustment (CVA)(1)

Implications for Derivatives Counterparties 1. Pricing of derivatives transactions should now reflect either: i. Cost of hedging CVA exposure (e.g. CDS); or ii. Banks required hurdle rate on incremental RWA created by CVA charge 2. Longer transaction tenors lead to higher CVA capital charges 3. Higher volatility in CDS leads to higher CVA capital charges 4. Expect increased use of master agreements that permit regulatory netting 5. Expect shift from uncollateralized trades to mutual CSAs 1. Favor daily re-margining agreements 2. Avoid illiquid collateral and highly complex transactions

Pre-Basel 3: Capital charges only for default risk (and ratings migration) No charges required to capture a deterioration of a counterpartys credit profile

Basel 3: Introduces explicit capital charge add-on for Credit Valuation Adjustment (CVA) on all OTC derivatives transactions CVA risk charge calculated using normal and stressed market assumptions According to BIS, during the financial crisis, ~2/3 of banks accounting losses attributed to counterparty credit risk were caused by mark-tomarket adjustments from rising credit spreads (i.e. CVA), and only 1/3 were due to actual defaults Margin Period of Risk (MPR)

Increase in MPR from 5 10 days to 20 days for complex and/or illiquid collateralized trades If daily re-margining, no changes

Deutsche Bank

(1) CVA fair value adjustment to mark-to-market market derivatives for counterparty credit risk
Source: Basel Committee on Banking Supervision, S&P, Deutsche Bank

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CVA mitigants and alternatives

Uncertainty sits with dealer CVA Hedges Dealer hedges CCR in the market Recognized hedges include: Single-name / contingent CDS Description Other equivalent instruments directly referencing counterparty Index CDS (only grant partial relief due to basis risk) Uncertainty sits with client Collateral Posting (CSA) Client enters into 2-way Credit Support Annex (CSA) with dealer CSAs typically only variation margin (VM) requirements Central Clearing Client faces central clearing counterparty (CCP) instead of dealer Initial Margin (IM) and VM concepts apply

Key Variables

Evolution of clients credit profile over time (i.e. CVA)

VM required to be posted by client over term of transaction Clients funding cost for such required collateral

VM required to be posted by client over term of transaction Clients funding cost for such required collateral

Pricing to reflect level and volatility of clients CDS Pricing also subject to dealers cost of funds (since dealer likely to face collateral posting requirements on hedge) Dealers procurement of CDS for capital charge relief could materially increase CDS levels of counterparties

Pricing to reflect reduction/absence of CVA charge CSA thresholds matter Non-zero CSAs still carry CVA charge (albeit smaller than uncollateralized trades) Margin periods matter Daily re-margining provides greatest cost relief

Pricing to reflect absence of CVA charge However, banks must capitalize charge for credit exposure to CCP Risk weight equal to 2% of Exposure at Default (EAD) for qualifying CCPs Significant uncertainty remains regarding timing, implementation and scope of central clearing

Implications for Clients

Deutsche Bank
Source: Basel Committee on Banking Supervision, Deutsche Bank

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CVA illustrative example

Pricing comparison for BBB rated client

No CSA Example #1: 5y Fixed/Floating IRS1 Pre-Basel 3 Capital Charge 3 Basel 3 CVA Capital Charge 3 Aggregate Capital Charge 4 1.5 bps 1.5 bps 3 bps Example #2: 5y EUR/USD CCS2 7 bps 6 bps 13 bps 2-way CSA Collateral Posting < no risk to bank > < no risk to bank > 0 bps

Direct Costs to Client

Cost of Funding Indirect Costs to Client Variation Margin Liquidity Demands

0 bps Does Not Exist Known (Zero)

0 bps Does Not Exist Known (Zero)

0 bps 5 Exists Unknown

(1) Client pays floating rate, receives fixed rate (2) Client pays USD, receives EUR (3) Capital charges based on the following industry metrics: Return on Capital target of 15% and Tier 1 Capital Ratio target of 10% (4) Excludes additional credit charges banks may impose for counterparty default risk (5) Expected cost of funding assuming symmetrical distribution of future potential exposures (i.e. 50/50 probability of client clie posting/receiving collateral)

Deutsche Bank
Source: Basel Committee on Banking Supervision, Deutsche Bank

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Margin Period of Risk (MPR) overview

Pre-Basel 3 Margin Period of Risk (MPR) Time period from (i) the last exchange of collateral covering a netting set of transactions with a defaulting counterparty, until (ii) that counterparty is closed out and the resulting market risk is re-hedged Supervisory floors (i.e. minimum holding periods) established depending on type of transaction Securities Financing Transactions (SFTs) includes repostyle transactions Other collateralized trades A capital charge is calculated based on the expected markto-market movements during the MPR Current MPR standards: MPR floor for SFT = 5 days MPR floor for all other netting sets = 10 days

Basel 3 If daily re-margining, re no changes MPR floor of 20 days will apply for the following: Netting sets where the number of trades exceeds 5,000 Netting sets containing illiquid collateral or OTC derivatives that are not easily replaced Illiquid collateral and OTC derivatives that are not easily replaced to be determined in the context of stressed market conditions where multiple price quotations cannot be obtained without moving the market or reflecting a market discount within 2 or fewer days MPR to be adjusted if 2 or more margin call disputes have occurred on a netting set over the previous 2 quarters that have lasted longer than the set MPR

Deutsche Bank
Source: Basel Committee on Banking Supervision, Deutsche Bank

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Appendix V

4. Impact on the Global Economy

Basel 3 economic impact studies

Numerous Basel 3 impact studies have been published since August 2010 (BIS, OECD, Fed, IIF, etc.), quantifying the potential effects on credit and GDP growth While helpful for illustrative purposes, the results of these studies should be viewed as highly preliminary and inexact given the number of unknown variables involved The real economy (GDP) is impacted through 3 main channels: 1) Reduced lending volumes 2) 3) Increased interest costs Enhanced financial system stability Fed
February 2011

OECD Date Published

February 2011

IIF
September 2011

BIS
October 2011(1)

Increase in Lending Rates

U.S.: 64 bps EU: 54 bps

NA

U.S.: 243 bps EU: 328 bps

Transition Period: 15-20 bps Long Run(1): 39 bps

Impact on GDP (annual growth)

U.S.: (-0.6%) EU: (-1.1%)

Global: (-0.4%)

U.S.: (-1.1%) EU: (-3.9%)

Transition Period: (-0.2%) to (-1.0%) (Global) Long Run(1): +0.3% (Global)

Deutsche Bank

Linear extrapolation used (where applicable) for comparison purposes (1) Long Run estimates based on August 2010 BIS study Source: BIS, McKinsey Global Institute, OECD, IIF

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Impact on economic growth

The slowdown in global output growth projected by recent impact studies ranges between 0 2.4%

Estimated Negative Impact on GDP Growth

10%
BIS 0.0% -0.5% -1.0% -1.0% -1.5% -2.0% -2.5% -3.0% -2.4% -1.3%
(Transition Period)

DB Real GDP Growth Forecast

2010 2011E 2012E

-0.2%

OECD -0.1%

IIF

8%
-0.5%

Annual GDP % Growth

6% 4% 2% 0% Asia-ex Japan -2% U.S. UK EU

According to various impact studies, the economic effects of Basel 3 can range from marginal to significant Median estimate (~1% reduction in annual GDP growth) would have vast ramifications for global economy However, the net economic impact of Basel 3 should also take into account its potential economic benefits BIS actually projects a net increase in GDP in the Long Run
Deutsche Bank
Source: Deutsche Bank Global Markets Research, IIF, OECD, BIS

Basel 3s impact on growth may create further headwinds to an already-slowing global economy DB forecasts a slowdown in global economic growth over the next year (global GDP growth of 3.2% 2012E)

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Regional economic impact

The EU region is more susceptible to GDP shocks from new Basel 3 requirements given its greater reliance on bank funding relative to the U.S.

Size of Banking Systems

$50 $45
Total Assets (USD Trillions)

Corporate Securities as % of Total Borrowing

90 Eurozone and UK U.S. 80 70 60 % 50 40 30

$45.8

$40 $35 $30 $25 $20 $15 $10 $5 $0 EU U.S. $12.1

20 10 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

The EU features a substantially higher level of bank intermediation relative to the US U.S. banking system assets total ~$12 trillion (representing ~ 80% of U.S. GDP) In contrast, EU banking system assets total ~$46 trillion (~260% of EU GDP), resulting in a significantly more pronounced expected impact from Basel 3 regulations
Deutsche Bank

Banks play a dominant role in funding European companies, while U.S. corporates rely almost exclusively on capital markets Consequently, Basel 3 impact studies estimate a substantially greater slowdown in EU GDP growth: OECD study: -0.59% in the U.S. vs. -1.14% in the EU IIF study: -1.1% in the U.S. vs. -3.9% in the EU

Source: Federal Reserve, ECB, IIF, OECD, S&P

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Potential economic benefits

More stringent capital and liquidity requirements imposed by the Basel 3 framework are expected to dramatically reduce the frequency and probability of future banking crises

Reduced probability / frequency of banking crises

350 300
Number of Years Before Next Crisis

Implied frequency of a banking crisis

Implied probability of a banking crisis

8% 7%
Probability of a Crisis

250 200 150 100 50 0 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%
Tier 1 Capital Ratio

6% 5% 4% 3% 2% 1% 0%

The probability and frequency of a banking crisis decreases proportionately to increases in regulatory Tier 1 capital ratios Higher capital buffers improve banking sector resilience to economic instability Banks better equipped to withstand market crashes BISs Basel 3 study suggests that benefits of a more stable financial system outweigh economic costs (projecting increased annual GDP growth ranging from 0.31% - 1.87%)

Deutsche Bank

Source: IIF, BIS

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Appendix VI

5. Positioning for Basel 3

Funding Strategies and Solutions for Corporates

Spectrum of capital markets-based markets solutions

In Tabs A-D, D, we present 4 alternatives that leverage the capital markets to meet clients funding and liquidity needs An issuers credit rating will help determine which alternatives may be feasible and/or priceprice efficient for that issuer

Rolling Short-Term Notes (Tab A) AA- and higher corporates

Short-Term Term Bonds (FRN & Fixed) (Tab B)

Bilateral CDS-based Funding (Tab C)

Bilateral CDS-based Letter of Credit (LC) (Tab D)

A category corporates

BBB category corporates

Sub-inv grade corporates

Deutsche Bank

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Deutsche Bank

Tab A
Rolling Short-Term Term (RST) Notes

Overview
Description
Rolling Short Term Notes (RST-Notes): Notes): Designed to create effective long-term funding for an issuer, but at substantially lower short-term rates Tenor: Final maturity of 5-6 6 yrs; initial maturity of 13 months Size: Up to $1+ bn for strong issuers (market limited to highly-rated highly issuers (A1/P1) Characteristics: Investors elect periodically (e.g. monthly or quarterly) to extend the initial maturity another 1-3 1 months If investors elect not to extend, their RST-Notes RST are exchanged into notes with a final maturity of 10-12 months from such date Coupons on rolled notes step-up up annually to a slightly higher pre-determined pre spread to Libor Can be structured to include a par call option, exercisable after 5th year Illustrative RST-Note Note Program (monthly extension example)
13 month LIBOR floater 13 month LIBOR floater 13 month LIBOR floater 13 month LIBOR floater

RST Notes are designed to create a low cost term funding by targeting money market fund investors, serving as an alternative to CP for highly rated corporates

10

11

12

13

14

15

16

Months from initial issue date RST-Notes election period Rolling 13-month 13 maturity of RST-Notes

Deutsche Bank

33

Key Considerations

Key Benefits All-in cost to the final program maturity (5-6 yrs) should be substantially lower than equivalent term funding rates, as no investor term premium is required Pre-determined coupon step-up schedule significantly flatter than an issuers vanilla floating-rate curve No incremental back-up liquidity required for rating agency purposes A rolling 13-mo. maturity should allow an issuer to classify RST Notes as long-term debt (assuming monthly extensions) Allows issuer to access money market investor base Transaction history dating back to 1998, with a very high historical investor extension participation rate

Key Considerations Introduces short-term liquidity risk into issuers capital structure Long-term debt classification less certain if issuer elects quarterly extension periods

Deutsche Bank

34

Legal, accounting and tax considerations

Detail
RST Notes can be issued in a public, 144A or CP offering (using a 4(2) program). Documentation and due diligence is equivalent to a regular term issuance(a) Legal / Documentation Subsequent extensions of RST Notes are not considered to be a new issue of securities for SEC purposes Other updated offering materials and/or additional underwriting due diligence are not required for the extension, as investors are treated as continuing their initial investment decision

RST Notes with monthly extensions can be recorded as long-term long debt on an issuers quarterly financial statements, given the rolling 13-month month maturity RST Notes with quarterly extensions roll into 10-month 10 maturities, and may require classification as short-term debt Accounting No mark-to-market requirements as the RST Notes extension feature should not be treated as a separable derivative contract subject to FAS 133, because the underlying is an interest rate adjustment and involves no risk to full principal recovery Interest expense for each period should be accrued on each tranche of RST Notes based on its yield to maturity

RST Notes may be characterized alternatively for tax purposes as either a single long-term long security (by assuming exercise of investors extension options) or as a series of 13-month 13 securities that are periodically extended Tax In either case, extensions of the RST Notes should not trigger taxable gain or loss for the issuer or investors Interest expense for each period should be accrued on each tranche of RST Notes based on its yield to maturity (same as GAAP)

Deutsche Bank

(a) Some 4(2) CP documentation may need to be modified to provide for notes issued with a maturity up to 13 months

Deutsche Bank is not acting and does not purport to act in any way as your advisor. We therefore strongly suggest that you seek s your own independent advice in relation to any legal, tax, accounting and regulatory issues relating to the merits or otherwise of the products and services discussed.

35

Deutsche Bank

Tab B
Short-Term Term Bonds (FRN & Fixed)

FRN market overview

Financial) Annual IG Corporate (Non-Financial) Issuance Volumes Demand for shortterm FRNs has increased in 2011, providing a good incremental source of 18-month to 3year liquidity and investor diversification
45 40 35 30 25 20 15 10 5 0 2005 2006 2007 2008 2009 2010 2011

Breakdown by Issuer Ratings (2011 Issuance)

BBB 19% AAA 4% AA 15%

US$ Bn

A 62%

Recent FRN Corporate (Non-Financial) (Non Issuance

Issuer Ratings
A2 / A A1 / A+ A2 / A A1/A+ A2/A A1/A+ A3/BBB+ A3/A-

Date
12/12 /11 12/01/11 9/19/11 9/26/11 9/13/11 9/07/11 9/07/11 8/17/11

Size ($mm)
200 500 350 100 350 300 600 400

Maturity
12/11/13 06/06/13 9/22/14 9/29/14 9/19/14 9/12/14 9/13/13 8/23/13

Spread
3mL+30 3mL+45 3mL+53 3mL+92 3mL+155 3mL+55 3mL+120 3mL+75

Deutsche Bank

Source: IFR, Deutsche Bank

37

term bond market overview Fixed-rate, short-term

Annual IG Corporate (Non-Financial) Financial) Issuance Volumes

80

Breakdown by Issuer Ratings (2011 Issuance)

AAA 3% BBB 44%

Issuance of shortterm (~3-yr), fixedrate notes has increased substantially over the past 3 years as companies seek to capitalize on historically low short-term rates

70 60 US$ Bn 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011

AA 8%

A 45%

Recent Fixed-Rate, Rate, Short-Term Short Corporate (Non-Financial) Issuance

Issuer Ratings
A2/A Baa1/AA2/BBB+ Baa1/BBB+ A2/A A2/A A2/A A3/A-

Date
12/12/11 12/06/11 12/06/11 12/05/11 12/01/11 11/29/11 11/29/11 11/29/11

Size ($mm)
400 750 650 500 650 1000 600 575

Maturity
12/15/14 12/01/14 12/09/14 12/08/14 12/05/14 12/01/14 12/02/14 12/15/14

Coupon
1.125% 2.400% 2.625% 2.375% 1.700% 0.875% 1.250% 1.400%

Deutsche Bank
Source: IFR, Deutsche Bank

38

Deutsche Bank

Tab C
Bilateral CDS-based based Funding Alternative

Overview

DB can provide a bilateral, CDS-based CDS credit facility to companies seeking alternative sources of funding/liquidity; Companies can elect funded or undrawn structures

Description
Alternative funding source to traditional bank loan and bond markets
CDS Spread (bps)

Illustrative CDS Curve

250 200 150 100 50 0 1 2 3 4 Tenor (yrs) 5 7 10

Available in funded and unfunded (i.e. revolver) forms Unfunded structure provides incremental source of guaranteed liquidity Floating-rate term funding structure with pricing linked to a companys 1-year CDS credit spread Up to 10-year maturity, with annual coupon reset based on then-current 1y CDS level Can elect longer tenor (e.g. 3-year) at time of drawdown Prepayable at par on each annual coupon reset date

Deutsche Bank
Source: DB Credit Solutions and Credit Structuring

40

Coupon mechanism

Coupon Re-Set Re Calculation

12m Libor(a) 1y CDS Fixed Spread DB Liquidity Cost(b) Re-set annually All-in Coupon Re-set annually

Re-set formula

Re-set annually

Re-set annually

Fixed for term of deal

a) Companies may elect quarterly Libor re-sets re and/or incorporate Libor caps b) Based on DBs internal cost of funds

Deutsche Bank
Source: DB Credit Solutions and Credit Structuring

41

Key considerations

Key Benefits Short-term funding that does not use relationship bank capacity Competitive pricing vs. long-term funding Take advantage of steepness of companies CDS curves Forward CDS spreads typically exceed realized credit spreads No financial covenants required Pre-payable at par annually Enables a company to express bullish view on its own credit Precedent transaction history Private transaction limits disclosure requirements Avoid potentially negative signal to market if incremental liquidity is needed May not require bifurcation under US GAAP due to closely related nature of linking cost of funding to a companys own credit spreads

Key Considerations Company exposed to potential widening of 1y CDS spreads at each annual coupon re-set date FMV termination payment if prepaid intra-year Company to pay if CDS tightens; DB to pay if CDS widens For unfunded (revolver) structure, [3]-day advance notice required as Condition Precedent to each draw to enable DB to procure CDS in the market Rating agencies may not give 100% liquidity credit to unfunded structure (i.e. may impose haircuts) DB has option to terminate following a Succession Event (per ISDA definition)

Deutsche Bank
Source: DB Credit Solutions and Credit Structuring

42

Summary of indicative terms

Overview of Structural Alternatives
Funded
Borrower Size / Tranches(a) [Companys CDS-referenced entity] Up to $[1]bn, depending on CDS liquidity Staggered issuances may be required Senior Unsecured Notes (the Notes) Standalone / Eurobond (MTN) documentation Not applicable 1 year from issuance, with Extension Option until Maximum Maturity Date [0.50]% [ ]m Libor + 1y Borrower CDS Spread + 1.50% + DB Liquidity Cost Not applicable Not applicable

Unfunded
[Companys CDS-referenced entity] Up to $[1]bn, depending on CDS liquidity Senior Unsecured Credit Facility Not applicable Each drawn tranche will mature 1 year from draw date, with Extension Option until Maximum Maturity Date [0.50]% [ ]m Libor + 1y Borrower CDS Spread + 1.50% + DB Liquidity Cost Individually set for each draw [0.375]% per annum Minimum: $[20]mn / Maximum: $[250]mn On each potential draw date, Calculation Agent will provide an Interest Rate quote, and Borrower can decide whether to draw at such rate Draw amounts may affect pricing due to CDS liquidity constraints [3] Business Days before Initial Maturity of each drawn tranche; On each Coupon Reset Date, Calculation Agent will provide an Interest Rate quote, and Borrower can decide to extend each drawn tranche for 1 year Up to 10 yrs DB will have right to demand repayment of drawn amounts in circumstances where a Succession Event has occurred or is about to occur and where CDS is envisaged to be split into a different or more than one successor At par on each Coupon Reset Date; Subject to unwind costs if prepaid at any other time

Structure / Documentation Listing Initial Maturity Upfront Fees Interest Rate Undrawn Fee Minimum / Maximum Draw

Coupon Reset Date / Extension Option

[3] Business Days before Initial Maturity; On each Coupon Reset Date, Calculation Agent (DB AG) will provide an Interest Rate quote, and Borrower can decide to extend Notes for 1 year Up to 10 yrs DB will have right to put Notes back to Borrower in circumstances where a Succession Event has occurred or is about to occur and where CDS is envisaged to be split into a different or more than one successor At par on each Coupon Reset Date; Subject to unwind costs if prepaid at any other time

Maximum Maturity Date DB Put Option

Prepayment

(a) Staggering of issuances dependent on liquidity constraints for 1y CDS and other applicable market conditions

Deutsche Bank
Source: DB Credit Solutions and Credit Structuring

43

Deutsche Bank

Tab D
Bilateral CDS-based based Letter of Credit Facility

Overview
DB offers a market-based based alternative letter of credit (LC) solution to companies seeking to fulfill their traditional LC needs DBs bilateral LC facility (DB-LC) LC) does not use traditional bank credit lines, instead utilizing the pricing and depth of the CDS market Description Size Tenor Up to $500m in LCs to support the Companys collateral posting needs depending on market conditions and CDS liquidity Up to 5 year maturity LCs issued for 364 days with automatic renewal during the 5-year 5 Facility term Pricing Transparent and fixed for the 5 year term based on a companys CDS levels Company controls the size and price of the facility by controlling DBs purchases of CDS Ramp Up Period Structure allows the company the flexibility to choose a Ramp-up Ramp Period for execution The company and DB work together to purchase the required amount of CDS Company submits limit orders to DB specifying the CDS amounts and maximum price DB carefully manages purchases to minimize impact on companys CDS levels Accounting Documentation / Disclosure There should be no balance sheet impact unless an LC is drawn, and interest expense should be tax deductible Standard LC documentation Disclosure requirements should be similar to any other credit facility

A CDS-based Letter of Credit facility does not utilize capacity under existing credit lines, while offering greater flexibility and lower cost than capital markets alternatives

Deutsche Bank
Source: DB Credit Solutions and Credit Structuring

45

Structure overview

1
DC-LC facility facility DB-LC

2
CDS premium 100% hedge of issued LC exposure

Client
LC issuance fees (CDS cost + spread)

CDS market

Reimbursement of LC draws

4 1
LC beneficiaries
LCs issued at Companys request

Description
1. DB enters into a stand-alone alone bilateral credit facility with the company that allows for the issuance of LCs to specified Beneficiaries, Benefic subject to the agreed upon standard terms and conditions 2. The DB-LC LC issuance capacity is built up through DBs purchase of CDS during the Ramp-up Ramp Period. The total outstanding amount of CDS purchased is the amount of LCs available to be issued by DB under the structure The company may be as active as it wishes during the ramp-up period, providing daily or weekly limit orders or monitoring daily price reports; orders can be started / terminated / amended at any time 3. Company pays a fixed running spread (based on its CDS level) to DB on the available LC amount 4. Company may request DB to issue LCs at any time and is required to promptly (i.e. same day) reimburse DB for amounts drawn under the LCs
Deutsche Bank
Source: DB Credit Solutions and Credit Structuring

46

Sample indicative terms

Facility Borrower Issuing bank Letter of credit facility

[Companys CDS-referenced entity] Deutsche Bank AG, NY or one of its affiliates Amount: Up to $500 m Maturity: 5.0 years Issuance Fee: Term CDS rate + [50-75] bps(a) Up to $500m on the Facility closing date ~2 weeks 3 months from the Facility closing date, depending on market liquidity. If the Company would like to begin the Ramp-up Period prior to closing, the Company can do so at its option after signing both a Commitment Letter and Fee Pricing Agreement for the transaction The LC Availability Amount will be increased as agreed upon by the Borrower and Deutsche Bank during the Ramp-up Ramp Period following the closing date, and the maximum aggregate LC amount will not at any time exceed $500m (Maximum LC Availability Amount) 1.00% of the LC commitment amount An amount equal to the LC availability amount multiplied by a per annum rate equal to [TBD]% (based on the average expected CDS C cost + [50-75] bps) Based on the terms of the Borrowers existing term bank credit facilities If Deutsche Bank funds any drawn amount under an issued LC, the Borrower is obligated to pay that amount (each, a Reimbursement Obligation) to the Administrative Agent on the same Business Day on which the Issuer notifies the Borrower of such LC Drawing (the LC Reimbursement Date) Standard conditions precedent including but not limited to: (a) receipt of all internal approvals including credit, risk, legal, leg and compliance, (b) signed binding documentation acceptable to Deutsche Bank, and (c) receipt of all fees and expenses

LC commitment amount Ramp-up period

LC availability amount Structuring fees Annual Facility fees Financial covenants Reimbursement obligations Conditions precedent

Deutsche Bank

(a) Term CDS rate is the weighted average of the CDS premium rates for the aggregate CDS purchases executed by Deutsche Bank Source: DB Credit Solutions and Credit Structuring

47

LC and alternatives Comparison of DB-LC

Key Benefits Traditional LC Often structured off existing credit facility pricing, availability, and duration Typically lowest cost alternative May allow funded loan if underlying agreement provides for a drawn facility

Key Considerations Difficult to source incremental capacity in current and future (Basel 3) environment Decline in availability and increased pricing on renewed facilities due to market conditions and overall bank credit appetite May not provide for funded loan if standalone, bi-lateral LC LCs require beneficiaries to issue standing draw instructions to be used upon occurrence of a Companys Credit Event (i.e. auto-draw) Likely more expensive due to CDS-based pricing vs. subsidized credit facility pricing DB-LC does not provide for funded loans LCs only Early cancellation of committed capacity is subject to make whole prepayment fees

DB-LC

Based on market CDS, not revolver capacity, freeing up liquidity under a companys traditional revolver Up to 5 year term with fixed, transparent pricing based on purchased CDS LCs may be issued for the benefit of any of the companys affiliates or subsidiaries No balance sheet impact unless an LC is drawn, and interest expense should be tax deductible Documentation based off existing credit facility Financial strength of issuing bank (DB rated Aa3 / A+) Proven structure (10+ facilities extended to date totalling over $7bn)

Deutsche Bank
Source: DB Credit Solutions and Credit Structuring

48

Deutsche Bank

Tab E
Alternatives to Current CP Back-stop Back Programs

Overview of potential alternatives

Below we present three potential solutions aimed at mitigating the higher cost / reduced availability of CP back-stop back facilities; DB can work with our clients to explore these (and other) ideas in more detail Solution 1) Bifurcation of Revolving Credit Facilities(1)
Two documentation alternatives: a) Establish a sub-limit limit for CP Back-stop Back use within existing revolving credit facilities (facility could not be drawn to repay CP above the sub-limit sub amount); or b) Document two distinct facilities one for CP Back-stop, the other for GCP (with distinct pricing for each)

Description

2) Synthetic Contingent Liquidity Facility

An SPV issues term bonds into the capital markets, guaranteed by a corporate sponsor Bond proceeds are re-invested invested in UST money market funds Corporate sponsor enters into an agreement with SPV, whereby it can draw on the cash in exchange for delivering new senior bonds to the SPV Corporate sponsor pays a running premium to the SPV, which (together with interest on the collateral) cover coupon payments on the SPV bonds SPV bonds remain off-balance balance sheet (and off-credit) off for the corporate sponsor unless it draws on the proceeds

3) Callable Commercial Paper (2) Program

(for A-1/P-1 or better names only)

Establish a new CP program where issuance is limited to CP with a final maturity of 60 days or longer, with issuer call option on Day 30-45 If CP is called, company would refinance with new CP under the program If CP is not called, company would pay a step-up step penalty rate (to incentivize it to call) If company does not call, and cannot refinance, existing CP would mature on final maturity date lateral liquidity facility from DB would back-stop back the new CP program (requiring >30-day notice to draw) A bi-lateral

Deutsche Bank

(1) (2)

Documentation and administration process around sub-limits needs to be developed further Market and infrastructure (e.g. DTC) will need to develop further to allow for sizable issuance

50

Source: Deutsche Bank

Deutsche Bank

Tab F
Mechanics of a Credit Support Annex (CSA)

Mechanics of CSAs

Implementing a CSA
Basel 3 imposes new capital charges on banks for counterparty credit risk in OTC derivatives, resulting in increased transaction costs Execution of a 2-way CSA can significantly mitigate such costs A Credit Support Annex (CSA) to an ISDA Master Agreement provides for counterparties to post collateral (typically cash or Treasuries) against the mark-to-market mark of the derivatives portfolio A party who is out-of-the-money money by an amount greater than a predetermined threshold posts to the other party collateral equal to excess of the market value over the threshold The threshold represents the maximum uncollateralized exposure, and may be zero In the event of default, the non-defaulting defaulting party liquidates collateral to cover the termination cost of the ISDA

Illustrative Collateral Posting Example (w/Threshold)

40 20 0 (20) (40) (60) (80) (100) (120) Feb-06 Jul-06 Nov-06 Mar-07 Jul-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Sep-09

(a)

$mm

Jan-10

May-10

Sep-10 Threshold

Feb-11

Posting to counterparty under CSA

Deutsche Bank

Posting from counterparty under CSA

Swap mark-to-market

(a) Collateral posting requirement on a $500mm 10y swap executed in Feb 2006, assuming a CSA threshold of $15mm Source: Deutsche Bank Global Markets

52

Key considerations

Key Benefits Reduce bank counterparty credit risk Operational costs

Key Considerations

Improve credit and balance sheet charges imposed by bank counterparties

Funding cost on posted collateral Since a company earns interest on posted collateral, posting is an economic cost only if the opportunity cost of funds is greater than the rate earned (typically fed funds)

Reduce potential impact of FAS 157 counterparty valuation adjustments

The potential cost of posting can be reduced further by: Executing CSAs with positive thresholds Distributing derivatives transactions among counterparties to avoid mark-to-market concentrations If feasible, trading out of offshore subsidiaries with access to excess cash

Deutsche Bank

53

Deutsche Bank Deutsche Bank Capital Markets and Treasury Solutions Capital Markets and Treasury Solutions

Deutsche Bank

Appendix VII

Appendix A: Additional Basel 3 Information

Implementation timeline

2012
Risk Coverage
Counterparty Risk

2013
Introduction

2014

2015

2016

2017

2018

2019

Core Tier 1 Ratio Tier 1 Ratio Total Capital Ratio

2.0% 4.0% 8.0%

3.5% 4.5% 8.0%

4.0% 5.5% 8.0% 20%

4.5% 6.0% 8.0% 40% 70%

4.5% 6.0% 8.0% 60% 60%

4.5% 6.0% 8.0% 80% 50%

4.5% 6.0% 8.0% 100% 40%

4.5% 6.0% 8.0% 100% 30%

Capital

Capital Base

Phase-in reg. deductions Instruments no longer qualify for Tier 1/Tier 2 90%

80%

Conservation Buffer

0.625%

1.25%

1.875%

2.50%

Capital Buffers

Countercyclical Buffer G-SIB Buffer

Phased in at discretion of national regulator 1.0% - 3.5% surcharge introduced in parallel with conservation and countercyclical buffers (1) Observation Observation Monitoring Parallel running Introduction Introduction Disclosure Introduction

Liquidity

LCR NSFR Leverage Ratio

Leverage

Roll Out
Deutsche Bank
(1) G-SIBs will be allocated into 4 buckets based on their scores of systemic importance, with various levels of additional loss absorbency requirements applied to each bucket Source: Basel Committee on Banking Supervision, DB GTB Asset and Liability Management

Fully Effective

55

Basel 3 capital requirements

The new Basel 3 framework substantially increases minimum capital requirements, and redefines Tier 1 capital to exclude hybrid instruments and other securities

Higher Core Capital Ratio Requirements

Common Equity
18.0%
16.5%

Tier 1

Total Capital

16.0%
14.5%

14.0% 12.0% 10.0% 8.0% 6.0% 4.0%

2.0%

13.0% 11.0% 9.5% 8.5% 7.0% 6.0% 4.5% 4.0% 8.0%

13.0%

10.5%

8.0%

2.0% 0.0% Current Basel III

Minimal Capital Requirement

Current
Conservation Buffer = 2.5%

Basel III

Current

Basel III
G-SIBs Buffer = 1.0% -3.5%

Countercyclical Buffer = 0.0% - 2.5%

Deutsche Bank

G-SIB: Global systemically important banks Source: Deutsche Bank, BCBS Press Release

56

Basel 3 capital requirements

Stricter Definition of Core Capital

Tier 1 Common Equity (CET1)

Common shares, minority interests and retained earnings are the only qualifying elements Hybrid securities excluded under Basel 3

Additional Tier 1 (AT1)

Instruments classified as liabilities for accounting purposes and have loss absorption feature built in Dated, cumulative instruments no longer qualify as Tier 1

Tier 2 Capital

Primarily comprised of dated subordinated debt Diminished importance given Basel 3s focus on Tier 1

Tier 3 Capital

Dated, subordinated debt issued to satisfy market risk requirements Eliminated from capital under Basel 3

Deutsche Bank

G-SIB: Global systemically important banks Source: Deutsche Bank, BCBS Press Release

57

Deutsche Bank Deutsche Bank Capital Markets and Treasury Solutions Capital Markets and Treasury Solutions

Deutsche Bank

Appendix VIII

Appendix B: Glossary of Terms

Glossary of terms

Key Benefits
ASF AVC BCBS BIS CCP CCR CME CSA CVA EAD EBA EPE FI Available Stable Funding Asset Value Correlation; correlations among assets Basel Committee for Banking Supervision Bank of International Settlements Central clearing house Counterparty Credit Risk Chicago Mercantile Exchange Credit Support Annex; Rules governing the mutual posting of collateral in a derivatives transaction Credit Valuation Adjustment Exposure at Default; Total value of exposure at time of default European Banking Authority Expected Positive Exposure; Weighted average of positive exposures over tenor of transaction Financial Institutions

Deutsche Bank

59

Glossary of terms (contd)

Key Benefits
HQLA IIF IMF LCR LGD LR MAG MPR NSFR OECD PD RSF RWA High Quality Liquid Assets; Low credit / market risk, high liquidity assets with low correlation to risk assets International Institute of Finance International Monetary Fund Liquidity Coverage Ratio; Tests a banks ability to survive acute short-term short stress (30-days) Loss Given Default; Expected recovery value upon default Leverage ratio; Measure of exposure relative to capital Macro Economic Assessment Group Margin Period of Risk; Time period from last exchange of collateral covering a netting set of transactions with a defaulting counterparty until that counterparty is closed out and market risk is re-hedged re Net Stable Funding Ratio; Tests a banks long-term term funding ability (1-year) (1 Organization of Economic Co-Operation and Development Probability of Default; Likelihood of a counterparty defaulting Required Stable Funding Risk Weighted Assets

Deutsche Bank

60

Disclaimer
The information herein is believed to be reliable and has been obtained from sources believed to be reliable, but we make no representation or warranty, express or implied, with respect to the fairness, correctness, accuracy, reasonableness or completeness of such information. inf In addition we have no obligation to update, modify or amend this communication or to otherwise notify a recipient in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. We therefore strongly suggest sugges that recipients seek their own independent advice in relation to any investment, financial, legal, tax, accounting, or regulatory issues discussed disc herein. Analyses and opinions contained herein may be based on assumptions that if altered can change the analyses or opinions expressed. expres Nothing contained herein shall constitute any representation or warranty as to future performance of any financial instrument, credit, credit currency rate or other market or economic measure. Furthermore, past performance is not necessarily indicative of future results. This communication is provided for information purposes only. It is not an offer to sell, or a solicitation of an offer to buy bu any security, nor to enter into any agreement or contract with Deutsche Bank AG or any affiliates. Any offering or potential transaction that may be related to the subject matter of this communication will be made pursuant to separate and distinct documentation and in such case the information inform contained herein will be superseded in its entirety by such documentation in final form. Because this communication is a summary only it may not contain all material terms, and therefore this communication in and of o itself should not form the basis for any investment decision. Financial instruments that may be discussed herein may not be suitable for all al investors, and potential investors must make an independent assessment of the appropriateness of any transaction in light of their own objectives objec and circumstances, including the possible risks and benefits of entering into such a transaction. By accepting receipt of this communication co the recipient will be deemed to represent that they possess, either individually or through their advisers, sufficient investment expertise to understand the risks involved in any purchase or sale of any financial instrument discussed herein. If a financial instrument is denominated in a currency other than an investors currency, a change in exchange rates may adversely affect the price or value of, or the income inc derived from, the financial, and any investor in that financial instrument effectively assumes currency risk. Prices and availability of any an financial instruments described in this communication are subject to change without notice. Securities and investment banking activities in the United States are performed by Deutsche Bank Securities Inc., member NYSE, NYSE FINRA and SIPC, and its broker-dealer dealer affiliates. Lending and other commercial banking activities in the United States are performed by Deutsche De Bank AG, and its banking affiliates. This communication and the information contained herein is confidential and may not be reproduced reprod or distributed in whole or in part without our prior written consent. (C) 2009 Deutsche Bank AG. For more information contact Tom Joyce (212-250-8754)
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