Scope Ratings has today changed to Negative from Stable the Outlook for Deutsche Bank AG’s A- Issuer Credit Strength Rating (ICSR) and senior unsecured debt ratings, the Outlook for the bank’s S-1 short-term ratings, as well as the Outlook for the bank’s BB rating for additional Tier 1 (AT1) securities.

According to Scope, the rating outlook change reflects its view that Deutsche Bank’s business model and financial recalibration, while already under way, may lead to less clear-cut outcomes in the short- to medium-term. This is due both to (i) the complexity and magnitude of the task being undertaken by the new top management team in place since last year, as well as (ii) the evolving and less predictable market dynamics which can easily heighten uncertainties, thus raising hurdles for the timely execution of strategic decisions.

Scope expects 2016 to remain a more challenging year for Deutsche Bank’s overall profitability. The bank has embarked on an ambitious but unavoidable effort to adjust its business model towards less volatility, less risk, and more predictability. The agency expects deleverage and de-risking to continue through this year and well beyond it, which should inherently affect the group’s overall earnings capacity. Scope also highlighted the ongoing challenge of litigation risks stemming from past activities, with the expectation of some further financial repercussions. In this context, the agency pointed to the EUR 5.5bn litigation provisions as of end-2015. It added that it will look at half-year 2016 statements to observe the impact of these challenges on financial results.

Scope also mentioned that the disposal of Postbank is expected to take materially longer than initially planned, given the ongoing difficulties of the German mass retail bank to generate reassuring levels of profitability. On the other hand, the disposal of the stake in Hua-Xia Bank (China) was successful, generating, on a pro-forma basis, a welcome one-off capital boost

While changing the rating outlook to Negative from Stable, Scope Ratings pointed out that it continues to view Deutsche Bank as a significant player in its core markets – although desirably at a more reduced scale. In this respect, based on evidence so far, Scope highlighted the positive impact of the changing management culture in Deutsche Bank towards increased cost awareness and faster decision-making processes. Also, the agency commented positively on the new top management team’s willingness to be publicly open about the several challenges along the way, which is invariably an essential first step towards successfully addressing them.

The following ratings had an Outlook change to Negative from Stable:

• Issuer Credit-Strength Rating (ICSR): A-
• Senior unsecured debt ratings: A-
• AT1 ratings: BB
• Short-term ratings: S-1

Regulatory disclosures
Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

Responsibility
The party responsible for the dissemination of the financial analysis is Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs (CEO), Dr. Stefan Bund and Dr. Sven Janssen.

The rating analysis has been prepared by Michaela Seimen Howat, Executive Director
Responsible for approving the rating: Sam Theodore, Managing Director.

Rating history for ICSR:
Date; Rating action; Rating
02.04.2014; First assignment; A-
20.05.2014; Outlook change - Positive; A-
30.04.2015; Outlook change - Stable; A-
15.04.2016; Outlook change - Negative; A-

The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months. A rating change is, however, not automatically ensured.

Information on interests and conflicts of interest
The rating was prepared independently by Scope Ratings without a mandate (unsolicited rating) but with participation of the issuer.

As at the time of the analysis, neither Scope Ratings AG nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings AG or any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of Information for the rating
Website of the rated entity/issuer, Annual reports/quarterly reports of the rated entity/issuer, Current performance record, Detailed information provided on request, Data provided by external data providers, Interview with the rated entity, External market reports, Press reports / other public information,

Scope Ratings considers the quality of the available information on the evaluated company to be satisfactory. Scope ensured as far as possible that the sources are reliable before drawing upon them, but did not verify each item of information specified in the sources independently.

Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entity was given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, or to appeal the rating decision and deliver additional material information. Following that examination, the rating was not modified.

Methodology
The methodologies applicable for this rating “Bank Rating Methodology” (May 2015) & “Bank Capital Instruments Rating Methodology” (July 2015) are available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s credit rating, definitions of rating symbols and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

Conditions of use / exclusion of liability
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