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25 Jan 2016
Action reflects the introduction of legislation that subordinates certain creditors to depositors in resolution from 2017
New York, January 25, 2016 -- Moody's Investors Service has today upgraded Deutsche Bank AG's
long-term deposits to A2 from A3 and downgraded its long-term
debt to Baa1 from A3. All short-term ratings were upgraded
to Prime-1 from Prime-2. The rating agency has assigned
a negative outlook to the bank's debt and deposit ratings.
Please click on http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_187285
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Today's action reflects the changes in protection offered to depositors
and senior creditors, as captured by Moody's Advanced Loss Given
Failure (LGF) analysis. The changes in protection result from the
subordination of certain senior unsecured debt obligations relative to
other senior liabilities, including deposits, in Germany's
insolvency legislation which will take effect from January 2017.
The changed rank ordering in bank resolutions implies a higher severity
of loss in resolution for senior unsecured debt instruments because these
will no longer benefit from their current pari passu status with junior
deposits. Conversely, for junior deposits, the new
law implies a lower severity of loss as these will benefit from the subordination
of debt instruments. Please see related press release entitled,
"Moody's upgrades German banks' deposit ratings and downgrades
senior debt ratings,"
(https://www.moodys.com/research/Moodys-upgrades-German-banks-deposit-ratings-and-downgrades-senior-debt--PR_342472)
released on January 26, 2016 CET time for further details.
Moody's has also assigned a negative outlook to Deutsche Bank's
debt and deposit ratings, reflecting the near-term execution
challenges relating to the firm's new strategic plan, which
is pressuring the bank's creditworthiness. The plan is intended
to result in a simpler and more stable business mix, with lower
leverage and a more conservative return-on-equity target,
all of which would benefit bondholders. However, execution
risk will remain high for the next two years, according to the rating
agency.
"Deutsche Bank's new strategic plan is still in its early
days and a negative outlook reflects heightened creditor risks until management
clears some of the business- and litigation-related hurdles
they face," explains Peter Nerby, the lead analyst for
Deutsche Bank at Moody's.
Moody's believes that Deutsche Bank's weak profitability is
structural. Heightened competition and low interest rates limit
the profitability of German banking, and Deutsche Bank must also
contend with the expense of maintaining a global capital markets footprint.
Its profitability challenge has been exacerbated by new regulation,
which can benefit creditors but has also reduced flexibility and raised
costs, as well as ongoing litigation and legacy costs. Furthermore,
despite significant reengineering efforts since 2012, Deutsche Bank's
costs have remained high. Cost-cutting alone will not be
enough to strengthen and stabilize profitability meaningfully, in
Moody's view. To address its profitability problem,
the bank intends to turn over the balance sheet more quickly and increase
revenue streams from less capital intensive businesses. This would
also help compensate for revenue attrition expected from exiting certain
markets and activities and shrinking the client base.
Although the outlook on the ratings is negative, a conclusive achievement
of the new strategic plan that leads to significantly improved financial
results could lead to upward rating pressure in the medium term.
Alternatively, failure to make steady progress to strengthen and
stabilize results could lead to further rating pressure.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. 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,
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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 upgrades Deutsche Bank AG's deposit rating and downgrades debt rating; outlook negative
No Related Data.
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