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Deutsche Bank cuts pension return assumptions

GERMANY – Deutsche Bank has cut its expected long-term rate of return on its pension assets due to market conditions – and says further pension contributions might be needed.

The German bank said it used an average expected rate of return of 6.7% as one of its “key assumptions” when it estimated its 2002 net pension costs. The figure is down from the 8.1% assumption used in 2001. And it assumed a discount rate of 5.7%, down from 6.4% a year earlier.

“The discount rate and expected long-term rate of return on assets was reduced due to current market conditions,” it said in its 2002 annual report. It measures its plan assets using the projected unit credit method.

And it said that further pension contributions might be needed. Its 2003 contributions would be determined by an actuarial valuation. “Contributions might be required in the future upon measurement of plan obligations.”

“Pension costs can change due to variations in the key assumptions underlying the actuarial calculations,” it notes. “Market conditions and interest rates significantly impact future assets and liabilities of our pension plans.”

In December last year the bank contributed 3.9 billion euros to a segregated pension trust to fund its German pension plans. The assets were transferred to a “legal, independent trustee” via a so-called contractual trust arrangement in a move designed to take them off the bank’s balance sheet. Deutsche Asset Management manages the assets.

The chairman of the bank’s executive committee, Josef Ackermann, said in a letter to shareholders that the 2003 financial year has “got off to a good start for Deutsche Bank”. “We have improved the quality of our balance sheet and strengthened our core capital.”

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