S&P cuts troubled Deutsche Bank's rating

business June 01, 2018 14:46

By Agence France-Presse
Frankfurt am Main

Ratings agency S&P on Friday downgraded Deutsche Bank's long-term credit rating, as Germany's biggest lender presses ahead with a major revamp aimed at returning to profitability after years of losses.



Standard & Poor's downgrade of Deutsche's long-term credit rating -- from A- rating to BBB+ -- comes a day after the US Federal Deposit Insurance Commission classified Deutsche among its "problem banks".

The Federal Reserve has also branded the bank as being in "troubled condition".

Deutsche's newly appointed chief executive Christian Sewing has tried to reassure investors that the bank is ready to do what it takes to return to profitability after years of losses.

Deutsche last month announced it would slash 7,000 jobs around the world as part of its revamp.

S&P acknowledged in a statement the bank's efforts to return to profitability.

However, the rating agency said the lender would still have to work hard to recover its edge over its competitors.

Making matters harder for Deutsche is the volatility on the international stage, with trade war threats looming larger than ever now that the United States has announced steep tariffs on steel and aluminium imports from key partners around the globe.

"While we consider (Deutsche's) management is taking tough, although likely inevitable, actions and proposes a logical strategy to successfully restore the bank to more solid, sustainable profitability over the medium to long term, the bank appears set for a period of sustained underperformance compared with peers, many of whom have now finished restructuring," S&P said.

Back from the brink

"We see significant execution risks in the delivery of the (bank's) updated strategy amid a continued unhelpful market backdrop, and we think that, relative to peers, Deutsche Bank will remain a negative outlier for some time," it added.

"Notably, while much of the heavy-lifting should be completed in 2018, Deutsche Bank's restructuring will likely only start bearing fruit in 2019, and only fully by 2021," it said.

Deutsche's shares on Thursday plummeted to their lowest ever level on the Frankfurt stock exchange, by 7.2 percent to 9.07 euros.

As trading got under way Friday, the bank's stocks rebounded 1.8 percent.

S&P appeared confident that Deutsche will eventually manage to pull itself back from the brink.

It removed Deutsche from CreditWatch negative -- effectively a warning for further downgrade in the future -- and said the ratings outlook was now stable.

At the same time, it said it was unlikely to upgrade its long-term issuer credit rating in the next 18 months, because it did not expect the efforts being made to start paying off until 2019.