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Derivatives

Deutsche Bank To Upsize PIMCO Fund-Linked Note

Deutsche Bank expects to upsize a principal-protected fund-linked note from USD700 million to USD1 billion in coming weeks.

Deutsche Bank expects to upsize a principal-protected fund-linked note from USD700 million to USD1 billion in coming weeks. David Hinsley, co-head of structured interest-rate sales at Deutsche Bank in London, said the deal--called PIANO for protected investment alpha notes--has attracted interest from a variety of investors, in part because of its marquis manager in the form of PIMCO.

The four tranches--two each in U.S. dollars and euros--offer 100% principal protection and high return targets. Hinsley said the protection is guaranteed by Deutsche Bank, declining to specify how it is created. LIBOR-based coupon and total-return tranches are offered in each currency. He said the coupon-paying tranches pay a floating coupon of Libor plus 100 basis points and have targeted returns of Libor plus 250 bps based on the underlying portfolio. These have appealed most to banks, while the total-return tranches have tempted insurance companies and pension funds. Both tranches have equivalent return targets at maturity. The dollar tranches have five-year maturities and the euro tranches have seven-year maturities.

PIANO is based on USD600 billion fund manager PIMCO's absolute-return funds, which have a history of market out performance. Officials at the manager declined comment.

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