Scope Ratings has today downgraded Deutsche Bank AG’s Issuer Rating to BBB+ from A- and the bank’s short-term rating to S-2 from S-1 (see complete list of ratings affected at the end of the press release). All ratings now have a Stable Outlook; before this rating action, all Deutsche Bank’s ratings had a Negative Outlook. The rating downgrade reflects Scope’s view that Deutsche Bank’s business-model and financial recalibration remains less reassuring, and likely to remain so for some time, which could affect a return to healthier profitability and to more sustainable business volume growth.

The rating agency added that the current dynamics of the global wholesale and investment banking markets – driven primarily by technology, changed client behaviour, less demand, and heightened regulations – are less likely to facilitate Deutsche Bank’s difficult road toward adjusting its business model and restoring healthier profitability metrics, to be more in line with those of global peers. Equally, the group’s retail franchise, while potentially improving (which could be helped by Postbank’s integration in Deutsche’s own retail and commercial bank franchise), appears not to be at par with similar franchises of other large European banks with ratings in the A range. Scope added that headline risk and the risk of further legal-related expenses may continue to affect the group’s market position.

Having said that, the rating agency noted that Deutsche Bank has already made some visible progress towards group restructuring. A less complex and more transparent business model, geared to restore sustainable profitability, should help the group’s difficult road towards better efficiency.

While noting positively that the recent capital increase can shore up confidence in the bank among clients and market participants, Scope pointed to weak profitability over past quarters, which suggests a reduced ability to pursue organic capital formation for the time being.

Scope highlights, however, the positive impact of the changing management culture at the group level, towards increased cost awareness and faster decision-making processes. The agency also commented positively on the top management team’s culture of transparency, which it considers a welcome improvement. Going forward, Scope expects further cost savings to occur over a longer time frame, especially given the strong weight of compensation and benefit charges as part of the group’s adjusted cost base.

The following ratings have been downgraded:

• Issuer Rating to BBB+ from A-
• Senior unsecured debt ratings to BBB from BBB+
• Tier 2 rating to BB+ from BBB-
• AT1 rating to B from B+
• Short-term rating to S-2 from S-1

Regulatory disclosures

This credit rating and/or rating outlook is issued by Scope Ratings AG.
Lead analyst Michaela Seimen Howat, Executive Director
Person responsible for approval of the rating: Sam Theodore, Group Managing Director
The long-term issuer rating/outlook and senior unsecured debt rating for Deutsche Bank AG were first assigned by Scope on 02.04.2014, last updated on 01.09.2016. The short-term rating/outlook for Deutsche Bank AG was first assigned by Scope on 22.05.2014, last updated on 01.09.2016. The AT1 ratings/outlooks for Deutsche Bank AG were first assigned by Scope on 09.10.2014, last updated on 01.09.2016. The T2 ratings/outlooks for Deutsche Bank AG were first assigned by Scope on 19.12.2016, last updated on 19.12.2016.

Stress testing & cash flow analysis
No stress testing was performed; no cash flow analysis was performed.

Methodology
The methodology used for this ratings and rating outlooks (Bank Rating Methodology - May 2017) is available on www.scoperatings.com.
Historical default rates of Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to 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 definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rating was initiated by Scope and was not requested by the rated entity or its agents. The rated entity and/or its agents did not participate in the rating process. Scope had no access to accounts, management and/or other relevant internal documents for the rated entity or related third party.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity and third parties.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to publication, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Potential conflicts
Please see www.scoperatings.com. for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2017 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings AG, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings AG at Lennéstraße 5 D-10785 Berlin.

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