Why Did Moody’s Downgrade Deutsche Bank?
By Rebecca Keats | May 31, 2016 4:10 pm EDT
Moody’s downgrades Deutsche Bank’s ratings
In a worrying move for investors, Moody’s Investor Service (MCO) cut Deutsche Bank’s debt and deposit ratings. In April 2016, the rating agency downgraded Deutsche Bank’s debt rating, but this time, it cut debt as well as deposit ratings.
Why Did Moody’s Downgrade Deutsche Bank?
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The bank’s senior debt was downgraded to just two notches above junk status. The bank’s deposit rating was cut from A2 to A3, senior unsecured debt rating from Baa1 to Baa2, senior unsecured debt rating to Baa2 from Baa1, standalone baseline credit assessment (BCA) of baa3 to ba1, and counterparty risk assessment of A2 to A3. Further, its short-term counterparty risk assessment was reduced to Prime-2 from Prime-1. Moody’s also assigned a negative outlook to the bank’s ratings and expressed concerns on its near-term strategic plan “Strategy 2020.”
Investors, however, didn’t seem worried. Shares rose ~7% last week.
Rationale for the downgrade
The main reason for the downgrade is the operational issues facing the bank in terms of implementing its plan to return to profitability in the next two to three years. Weak capital operations have led to deteriorating profits at the bank, and the company reported losses for 2015. Further, Moody’s expects low interest rates and global uncertainty to hurt customer volumes and revenues for the bank’s retail banking, asset management, and institutional businesses.
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This COULD be indicating that with losing SERVICING RIGHTS they will in turn be losing profitability derived from servicing those MB TRUSTS
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