New York, May 06, 2014 -- Moody's Investors Service has today placed on review for possible downgrade
Deutsche Bank AG's A2 supported long-term debt and deposit
ratings, its C- bank financial strength rating (mapping to
a baseline credit assessment of baa2) as well as the bank's subordinated
debt, junior subordinated debt and capital instruments. The
firm's Prime-1 short-term ratings as well as the ratings
of the subsidiaries listed below were also placed on review for possible
downgrade.
RATINGS RATIONALE
The review for possible downgrade follows Deutsche Bank's announcement
of a 34% decline in net income for the first quarter of 2014.
The first quarter is typically strong for Deutsche Bank and the earnings
decline highlights the continuing obstacles facing the bank as it executes
its 2015+ strategic plan. Management is attempting to strengthen
profitability and rebalance the bank's earnings mix in the face
of heightened regulatory and litigation costs, the continuing drag
of its legacy portfolio and weak market conditions within DB's banking
and capital markets franchises. These headwinds have been persistent
and some are structural in nature.
"Deutsche Bank faces considerable execution challenges in strengthening
and stabilizing its profitability and generating acceptable shareholder
returns, particularly given our view that its reliance on capital
markets businesses leaves it with limited strategic flexibility,"
said Peter Nerby, Moody's Senior Vice President and lead analyst
for Deutsche Bank.
Moody's said that improvement in Deutsche Bank's earnings
and capital generation is important because it also faces continuing challenges
on the capital and leverage front. Although the firm raised equity
in mid- 2013, its Basel 3 Common Equity Tier 1 ratio decreased
to 9.5% at the end of Q1 2014. Furthermore,
the CET1 ratio could deteriorate by a further 30 basis points if new derivative
valuation regulations are adopted. Deutsche Bank estimated a CRD4
leverage ratio of 3.2% at 1Q 2014, though this equals
2.5% net of certain Tier 1 instruments that will no longer
qualify under the new rules. The firm's need to reduce its
leverage could impede its ability to generate earnings growth --
making its efficiency targets, and earning its cost of capital,
even harder to achieve.
Moody's said if a downgrade were to occur it would likely be limited
to one notch. The review will focus on i) Deutsche Bank's
options to improve efficiency, rebalance the earnings mix,
and earn its cost of capital, ii) the bank's capital and leverage
position and how these may develop in light of its earnings challenges,
and iii) prospects for run-off of the non-core legacy portfolio
and overall firm asset quality that will also influence the firm's
profitability and capital formation.
Moody's also placed the ratings of Deutsche Bank Trust Corporation
(DBTC) and its subsidiaries under review for possible downgrade.
DBTC houses a significant share of Deutsche Bank's US operations.
The review will assess linkages with Deutsche Bank including the potential
affect of the parent company's challenges on the business franchise
of DBTC.
AFFECTED RATINGS
The ratings of the following entities were placed on review for downgrade.
Please refer to www.moodys.com for a detailed list of affected
credit ratings.
- Deutsche Bank AG
- DB UK Bank Limited
- Deutsche Bank AG, London Branch
- Deutsche Bank AG, New York Branch
- Deutsche Bank AG, Paris Branch
- Deutsche Bank AG, Singapore Branch
- Deutsche Bank AG, Sydney Branch
DB National Trust Company
DB Trust Company Americas
DB Trust Company Delaware
DB Trust Corporation
- Deutsche Bank Capital Finance Trust I
- Deutsche Bank Capital Funding Trust I
- Deutsche Bank Capital Funding Trust IX
- Deutsche Bank Capital Funding Trust V
- Deutsche Bank Capital Funding Trust VI
- Deutsche Bank Capital Funding Trust VII
- Deutsche Bank Capital Funding Trust VIII
- Deutsche Bank Capital Funding Trust XI
- Deutsche Bank Capital Trust III
- Deutsche Bank Capital Trust V
- Deutsche Bank Contingent Capital Trust II
- Deutsche Bank Contingent Capital Trust III
- Deutsche Bank Contingent Capital Trust V
- Deutsche Bank Financial LLC
- Deutsche Finance (Netherlands) BV
The principal methodology used in these ratings was Global Banks published
in May 2013. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Peter E Nerby
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Franklyn Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Reviews Deutsche Bank (A2 for Deposits) for Possible Downgrade