2017 Integrated Report – Departure into a new era

Capital markets and taxes

Scope: interest rate and currency developments, taxes

The expansion of our international business entails currency risks. This risk, however, is largely limited to the so-­called translation risk, since usually there is a high regional congruence between the production and sales markets. We use primary and derivative financial instruments as one means of countering interest rate and currency risks from our operating business. Their use is only permitted for hedging purposes in DB Group. There is a risk that these hedging measures will not pay off, or not in the way expected.

To prevent counterparty default risk from financial and energy derivatives, we conclude credit support agreements (CSA) for all longer-term hedges.

Due to the long-term capital employed, we also use long-term, fixed-interest financial instruments. As a result, only new issues are exposed to the risk of rising interest rates. We apply a conservative planning approach to deal with risks arising from capital market performance or a deterioration in credit ratings.

Pensions and similar retirement benefit obligations are partially covered by plan assets from stocks, real estate, fixed-income securities and other investments. Value losses in these assets directly reduce the cover of pension obligations by plan assets, potentially resulting in DB Group having to provide additional cover.

In addition, there are potential risks from back-tax payments from tax audits that are in progress and from amendments to tax laws.