The ratings reflect the fact that the bank has now restructured and is running under more normal operating, profitability and prudential metrics. It also indicates the still high risk profile of the bank’s non-core portfolio and the problematic financial track record since the merger with Dresdner in 2008. Scope’s positive outlook on the ratings takes account of the fact that Commerzbank is now on the right de-risking track and that continuous run-down of the non-core portfolio at or below the revised EUR 75 bn target by 2016 (vs. EUR 116 bn now) is likely to improve further the bank’s credit fundamentals.

In line with Scope’s bank rating methodology, the ratings of Commerzbank do not incorporate any additional notches for government support, as the agency considers a potential state-bailout scenario to be increasingly unlikely as European Union banking systems move towards a resolution and recovery framework which includes creditor bailins.

Aside from the positive impact on the rating of Commerzbank’s de-risking path, an important rating driver according to Scope is the attractiveness of the restructured bank’s business model: a domestic-centered universal bank with a strong focus on the Mittelstand and private clients, supported by a scaled-down investment bank. If the strategy has been clearly articulated, Scope noted that its execution has been delayed by (i) the deterioration of Eurohypo’s credit quality from 2008 onwards, (ii) the financial and sovereign crisis in Europe, and (iii) the management of the government’s silent participation which was reimbursed five years after the first intervention in November 2008.

A key challenge for the bank remains regaining market share in its core domestic market and translating it into higher revenues – not easy given the prevailing structure of the German banking system (with the predominance of public-sector and cooperative networks).

On a positive note, Scope noted that Commerzbank’s balance sheet metrics have improved considerably since 2008. For example, the loan-deposit ratio has declined from 130% to 89% at end-2013; both liquidity and capital have strengthened considerably.

The agency cited any tangible evidence that Commerzbank is successfully pursuing de-risking through consistent non-core asset reduction as a positive rating-change driver, which also underpins the positive outlook on the current ratings. A convincing improvement in retail revenues would also represent a positive, as Scope pointed out that a higher earnings capacity (helped also by Commerzbank’s cost reductions since 2008) would enable the bank to better absorb the negative cash flow of the non-core portfolio.

Both the rating drivers and the rating-change drivers are detailed in Scope’s research on Commerzbank which supports the ratings.

The following ratings were assigned:
- Issuer Credit-Strength Rating (ICSR) at BBB+, with a positive outlook. The ICSR represents a credit opinion on a bank’s ability to meet its contractual financial commitments on a timely basis and in full while remaining a going concern.
- Senior unsecured debt rating at BBB+, with a positive outlook.

In the near future Scope will rate Commerzbank’s short-term debt, as well as subordinated securities and capital instruments.

Scope said that the ratings assigned today to Commerzbank, as well as to 17 other large European banks, represent the first step in its rating coverage of the banking industry. The ratings assigned to Commerzbank are (i) based on public information, (ii) not solicited by the issuer and (iii) with issuer participation in the process.

The methodology used for the rating assessment is “Bank Rating Methodology” published in February 2014. The methodology used for the financial-forecast part of the rating analysis is “Forecasting Bank Financials” published in February 2014. These methodologies are available on www.scoperatings.com.