Deutsche Bank’s DB ratings have been placed under review for an upgrade by Moody's Investors Service. These include A3/P-2 long- and short-term deposit and long-term senior unsecured debt ratings as well as its Baa3 junior senior unsecured debt ratings and ba1 Baseline Credit Assessment.
The bank’s efforts to achieve balanced and sustainable business model, without impacting its solid capital and liquidity buffers, support the upgrade of its standalone credit profile. Also, the company’s quarterly performance has been showing improvement.
Deutsche Bank boasts regained earnings strength, reduced capital and leverage exposure consumption as well as decline in operating costs, strong liquidity and reduced dependence on confidence-sensitive market funding. Per Moody’s, these have allowed the bank to self-finance its strategic overhaul without any significant impact on its key capital ratios.
The ratings agency seeks to review the possibility of the company maintaining current levels of revenue and earnings growth. In particular, it will review the bank’s ability to maintain robust capital markets revenues in a less favorable market environment, without increasing its risk appetite.
Deutsche Bank’s potential to increase earnings in retail and corporate banking segments, amid low rates, will also be examined. Further, the review will focus on the magnitude of risk exposures within the bank’s generally well-diversified loan book, in particular exposures to sectors that have been most affected by the pandemic, such as commercial real estate, aviation and leisure.
The review for upgrade of the bank’s long-term ratings reflects the review of its ba1 BCA. For deposits and senior unsecured debt, this continues to lead to three notches of rating uplift from the bank's ba1 Adjusted BCA. For junior senior unsecured debt, Moody's Advanced loss given failure analysis continues to lead to one notch of rating uplift from the bank's ba1 Adjusted BCA.
What Can Trigger an Upward Ratings Move?
Ratings can be upgraded if Moody’s is of opinion that Deutsche Bank is likely to make continued progress toward meeting its medium-term target. Particularly, its ability to sustain adequate profitability while continuing to invest to strengthen its technology platform and controls and risk management infrastructure will lead to higher ratings.
Moody's assessment of the bank's ability to keep contained loan loss charges and maintain a prudent and well controlled risk appetite that is aligned with its corporate governance priorities could also contribute to an upgrade.
What Can Trigger a Downward Ratings Move?
Ratings downgrade can happen if the bank fails to move toward its strategic milestones, particularly with respect to achieving sustainable revenue generation, realized cost saves and related de-risking costs in its non-core unit.
The ratings could also be downgraded if earnings were strained by sustained market headwinds or additional litigation costs that materially exceed existing reserves. In addition, the ratings could be downgraded should the company experience a material risk management failure or material deterioration in asset quality, liquidity or capital.
Shares of Deutsche Bank have gained 33.2% over the past six months, outperforming 24.6% growth recorded by the industry.
Currently, the stock carries a Zacks Rank #3 (Hold). You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some of the other finance stocks whose ratings have been placed under review for downgrade by Moody’s Investors Service are U.S. Bancorp USB, HSBC Holdings HSBC and BancorpSouth Bank BXS.
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