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IPE special report May 2018

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DZ Bank creates CTA for pension liabilities

GERMANY – DZ Bank, the central bank for German co-operative banks, has removed €1bn in pension liabilities from its balance sheet in order to fund them via a contractual trust arrangement (CTA), industry sources say.

The sources, who spoke on the condition of anonymity, told IPE that DZ Bank was very far along in the process of building the CTA. They noted that the bank was currently selecting asset managers to invest the CTA’s assets.

DZ Bank in Frankfurt has refused comment.

In recent years many large German companies, including more than 20 traded on the Dax-30 equity index, have established CTAs to fund their pension liabilities.

Once the pension liabilities are removed from the balance sheet, the company typically commissions an asset-liability study on which the CTA’s asset allocation is based. This is followed by the selection of asset managers.

It is not clear whether the pension liabilities to be funded by the CTA originate only from DZ Bank or from the DZ Bank group. The group includes numerous financial service arms, including Union Investment, one of Germany’s largest asset managers, an insurer, a building society and a mortgage bank.

According to DZ Bank’s annual report for 2004, the group’s on-balance sheet pension liabilities totalled €987m, of which those of the bank were €479m. The annual report also said the group employed 23,307 people full- or part-time at the end of 2004, while DZ Bank itself employed 4,146.

In a related development, other industry sources said progress was being made on the CTA being built by E.ON, a Düsseldorf-based energy conglomerate. In early August E.ON said that it would outsource up to €5.4bn in pension liabilities and fund them via the CTA. E.ON’s capital markets team in Munich is overseeing the project.

According to the sources, who asked to remain anonymous, Watson Wyatt’s new German investment consultancy has drawn up an ALM study for E.ON’s CTA. As a result, asset manager selection for the CTA could begin this spring the sources said, adding that E.ON had not decided on a consultant for that phase.

IPE reported in October that Watson Wyatt was vying with FERI, Germany’s biggest investment consultant, for the CTA mandate from E.ON – one of the biggest in the industry. Earlier, Watson Wyatt had recruited Torsten Köpke, a FERI manager who had handled the E.ON account.

"We cannot comment on any asset-liability studies that have been commissioned by E.ON,” FERI Institutional Advisors (FIA) managing director Jurgen Olbermann told IPE. “We can only point out that our close business relationship with the firm continues."

Watson Wyatt and E.ON could not be reached for comment.


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