The new Chief Executive Officer of Deutsche Bank AG, Christian Sewing, has suffered a new setback in his efforts to reinvigorate Europe's largest investment bank, as S & P Global Ratings downgraded the lender's creditworthiness.
"The updated strategy of Deutsche Bank sees a deeper restructuring of the business model than we expected so far," S & P said on Friday in a statement lowering the rating by one notch to BBB +, the third lowest investment grade. While management is taking "hard" measures to restore profitability, the bank appears to be in for a period of persistent underperformance relative to its competitors, many of which have now completed their restructuring.
Sewing said in a letter to employees after the downgrade The Bank's financial strength is "beyond doubt" even though it has to implement its strategy "quickly and consistently". In the Corporate & Investment Bank, "we have a clear strategic direction and we are well on the way to implementing what we have done recently." The decision could increase the bank's business costs and increase the operations for sewing, the John Cryan was replaced by a mandate in April to speed up a plan to realign Deutsche Bank's European home market and away from Wall Street. S & P had initiated its review following the appointment of Sewing, stating that the repeated changes in leadership at the Bank pose questions about its long-term direction in the context of chronic low profitability.
The lender's stock closed Thursday at a record low after reports that US regulators had the business of Deutsche Bank in the country on a list of problem banks
S & P said that Rating outlook, which reflects its view that management will seriously and overly implement its strategy, will show progress over its 201
The cost of insurance against a default of senior debt of Deutsche Bank, as reflected in its The 5-year credit default swap on Thursday rose to a good 150 basis points, from just over 70 at the beginning of the By comparison, spreads for BNP Paribas SA and Barclays Plc, two of their largest regional competitors, were 53 and 103 basis points, respectively.
The rating agencies expect "a rapid and decisive restructuring of activity", Deutsche Der The Bank's Chief Financial Officer, James von Moltke, said in an analyst interview at the end of April, "The goal is clear to increase our margins and improve sustainable profitability, which from a credit point of view we regard as positive overall." Read more: German Bank Cuts Fail to Fix Business as a CEO Race
A reduced credit rating typically increases a bank's borrowing costs and thus its total fin costs and may affect long-term transactions such as interest rate swaps. Companies like Deutsche Bank rely on strong balance sheets to underpin their trading and derivatives businesses. Goldman Sachs Group Inc. analysts, led by Jernej Omahen, recently argued that the loss of S & P's A rating would cost the bank dearly.
"Another aversion to the counterparty could occur in a downgrade, especially among those customers who are" automatic "rating" triggers as part of their risk policy, "says the Goldman Sachs report, which in turn could boost market share The analysts argued that on a positive note, they argued, the bank still has an exceptionally strong cash reserve.
The downgrading of S & P is leading to a downturn in Deutsche Bank's performance Moody's long-term senior unsecured rating for Deutsche Bank is Baa 2. At the time of Sewing's appointment, Moody's had all of his ratings for Deutsche Bank's debt confirmed, but the rating of its deposit and senior debt ratings changed from A3 to negative from stable.
– With support by Ross Larsen and Nick Baker