New York, May 23, 2016 -- Moody's Investors Service has today downgraded the ratings of Deutsche
Bank AG and affiliates, including the bank's long-term deposit
rating, to A3 from A2, its senior unsecured debt rating to
Baa2 from Baa1, its standalone baseline credit assessment (BCA)
to ba1 from baa3, and its counterparty risk assessment to A3(cr)
from A2(cr). Deutsche Bank's short-term ratings and
short-term counterparty risk assessments were also downgraded to
Prime-2 from Prime-1 and to Prime-2(cr) and Prime-1(cr),
respectively. Today's rating action reflects the increased
execution challenges Deutsche Bank faces in achieving its strategic plan.
Moody's also downgraded the ratings of US--based Deutsche Bank
Trust Corporation and its trust company affiliates. These trust
companies' long-term deposit ratings were downgraded to A2
from A1, their long-term issuer ratings were downgraded to
Baa2 from Baa1, their standalone baseline credit assessment was
downgraded to baa1 from a3; their long-term and short-term
counterparty risk assessments were downgraded to A3(cr) from A2(cr) and
to Prime-2(cr) and Prime-1(cr) respectively. The
Prime-1 short-term deposit ratings of these trust companies
were affirmed.
The outlook on the ratings is now stable, reflecting the potential
long-term benefits to creditors of Deutsche Bank's five-year
strategy plan through 2020 once achieved. It also reflects actions
taken by the management team to preserve capital and liquidity during
the restructuring process. This rating action concludes Moody's
review for downgrade of Deutsche Bank and its subsidiaries which began
on 21 March 2016.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_190083
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
RATIONALE FOR RATINGS DOWNGRADE
Deutsche Bank is engaged in a multi-year undertaking to simplify
its businesses, fortify its controls, strengthen its balance
sheet and stabilize its earnings. Once substantial progress has
been made, Deutsche Bank will have a reduced risk profile,
more balanced earnings and operate with more conservative levels of leverage.
Accomplishing these objectives will be positive for Deutsche Bank's
creditors, and the newly appointed management team is diligently
attempting to execute this plan.
However, the rating downgrade reflects increased risks to Deutsche
Bank's ability to successfully execute this ambitious, creditor-friendly
plan. Deutsche Bank's performance over the last several quarters
has been weak, and substantial operating headwinds, including
continuing low interest rates and macroeconomic uncertainty, will
challenge the firm. These forces will likely result in periods
of subdued customer volumes and revenues within Deutsche Bank's
retail, asset management and institutional franchises, in
Moody's view. Moody's expects that such revenue weakness
could hinder or delay Deutsche Bank's ability to make progress on
its plan, as this would be contingent on the firm's ability
to balance the impact of plan-related expenses on its internal
capital generation against the firm's growing regulatory capital
requirements.
"Deutsche Bank's new management team is executing in a disciplined
way, but the headwinds have stiffened, reducing the firm's
operating flexibility", said Peter Nerby, a Moody's
Senior Vice President.
These challenges have been evident in revenue pressures facing Deutsche
Bank over the past two quarters. Looking ahead, continuing
headwinds could limit management's ability to address one of the
bank's key credit challenges - to improve its structurally
weak profitability and internal capital generation by 2018. Moody's
estimates that the firm is unlikely to achieve its targeted profitability
improvements unless there is a material and sustained improvement in the
operating environment.
RATIONALE FOR STABLE OUTLOOK
At the same time, the outlooks on Deutsche Bank's ratings
are stable, reflecting the potential long-term benefits to
creditors of the five-year plan through 2020. Deutsche Bank
maintains a sound liquidity position which is supportive of the bank's
credit fundamentals while management is deploying many operating and financial
tools to execute this multi-faceted re-engineering.
Recent actions include the implementation of a more comprehensive account
opening process, the decommissioning of many legacy systems and
the closure of onshore operations in Russia.
The stable outlooks also reflect actions taken by the management team
to preserve capital and liquidity during the restructuring process,
such as suspending the dividend on its common stock and accelerating asset
sales. These are important actions to maintain prudent cushions
above regulatory minimums, if profit generation is limited in 2016
and 2017.
The downgrades to Deutsche Bank Trust Corporation and its trust company
affiliates reflect the close linkages of the franchise value and client
base of these operations to those of the parent Deutsche Bank.
At the same time, the baa1 baseline credit assessments of the trust
companies remain three notches above those of Deutsche Bank, reflecting
strong regulatory ring-fencing, which preserves the capital
and liquidity position of these entities as well as a lower risk profile
focused on operational and wealth management services within these entities.
What Could Change the Rating -- Up?
Steady progress toward improving profitability and reducing tail risks
in the form of outstanding litigation and the run-off of legacy
positions as well as material progress in rebuilding the information technology
environment of the bank, could lead to a rating upgrade.
What Could Change the Rating -- Down?
The current ratings incorporate the possibility for a modest loss and
substantial litigation costs in 2016 and the potential for limited profitability
in 2017. Further downward pressure could occur if capital ratios
weaken substantially or if liquidity declines sharply.
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_190083
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Methodology, Publication Date
• Unsolicited Ratings
• Non Participating Issuers
• Person Approving the Credit Rating (PACR)
• Releasing Office
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 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 downgrades Deutsche Bank's ratings (senior debt to Baa2, long term deposits to A3 and counterparty risk assessment to A3(cr)); outlook stable
