Standard and Poor’s this week announced that is has lowered its’ credit ratings for Deutsche Bank from stable to negative citing market conditions in the aftermath of the EU Referendum which may lead to further complications for the banks reforms.
It claimed that the German Banks restructuring and business model will be put at risk if operating conditions remain ‘adverse’ meaning that execution plans will not be made effectively.
S&P said:
“Although market conditions may recover somewhat from the weak first quarter of 2016, ultra-low interest rates and generally subdued client trading activity may persist for the foreseeable future. These pressures affect the entire sector but we believe they are particularly unhelpful for Deutsche Bank as it seeks to strengthen capital and maintain its franchise while fundamentally restructuring its business model and balance sheet.
Although it is not our current base-case scenario, we see a risk that the achievement of Deutsche Bank’s targets under Strategy 2020 may be challenged if operating conditions remain adverse.”
Despite Moody’s downgrade of Deutsche Bank’s long-term senior debt ratings down to BAA2 and long term deposit ratings to A3 in May, S&P stated that they will keep the banks BBB+ credit rating for its long term unsecured debt.
In early 2014 the bank first came under scrutiny for its oversized derivative exposure and high leverage as well as high profile moves within its top-end employment structure.
The bank has since outperformed the worst of predicted scenarios and started to implement a rigorous restructuring plan to secure its stability. However, first quarter earnings have missed targets, prompting new lowering of credit ratings.
Credit ratings guide investors and give clear analysis of the credit-worthiness and associated risks in an issuer’s ability to meet their commitments. The lower credit rating and continuing low interest rates are likely to impact the performance of Deutsche for the foreseeable future which have promoted credit agencies to lower their ratings.
Deutsche Bank is expected to stick to its plans announced in October which will see a reduction in jobs, suspension of dividend payments and exit from up to 10 countries in order to stabilise risk assets.
Shares in Deutsche Bank reduced by 3.25% in the later stages following the statement at €12.73
20/07/2016