Scope Ratings said that recent changes to § 46f KWG in Germany introduce contractual subordination for banks’ debt instruments issued after 21 July 2018. These instruments will rank pari passu with the outstanding senior unsecured debt of German banks, which has been structurally subordinated in insolvency or resolution based on the earlier Subordination Law, effective since January 2017, and will also be MREL/TLAC-eligible. At the same time, German banks are now able to issue unsecured debt equivalent to preferred senior which will not be eligible for MREL/TLAC.

The regulatory changes highlighted above enable Scope to apply fully its bank rating methodology (last updated in May 2018) when rating the different categories of senior unsecured debt issued by EU banks. Specifically, the rating of the new non-preferred senior remains one notch below the respective German bank’s Issuer Rating, thus in line with the existing senior unsecured debt ratings. On the other hand, the newly-assigned ratings for German banks’ senior-preferred equivalent debt is one notch higher, thus aligned to the respective bank’s Issuer Rating.

This rating action is based on the approach highlighted earlier by Scope (May 2018) (link).

Commerzbank’s preferred senior-equivalent unsecured debt is rated at A, with Stable Outlook.

Cash flow analysis & stress testing
No cash flow analysis was performed. No stress testing was performed.

Methodology
The methodology used for this rating(s) and/or rating outlook(s) Bank rating methodology 2018 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 rated entity and/or its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain.
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 the issuance of the rating or outlook action, 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.

Regulatory Disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Chiara Romano, Senior Analyst
Person responsible for approval of the rating: Sam Theodore, Group Managing Director
The ratings/outlooks were first released by Scope on 26.07.2018.

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
© 2018 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, 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 GmbH at Lennéstrasse 5 D-10785 Berlin.

Scope Ratings GmbH, Lennéstrasse 5, 10785 Berlin, District Court for Berlin (Charlottenburg) HRB 192993 B, Managing Director: Torsten Hinrichs.