Scope Ratings has today downgraded the Issuer rating of Deutsche bank from BBB+ to BBB, lowered the preferred senior unsecured debt rating from BBB+ to BBB, and the senior unsecured debt rating from BBB to BBB-. Deutsche Bank’s AT1 securities were downgraded by 1 notch to B- from B and the Tier 2 instruments to BB from BB+. The Outlook for all long-term ratings has been changed from Negative to Stable (a complete list of the ratings affected is provided at the end of this press release).

The ratings downgrade of Deutsche Bank reflects Scope’s view that the road to successful business model recalibration and a return to sustainable profitability is still steep and fraught with uncertainties. Deutsche Bank’s strategy as a global universal bank is increasingly under scrutiny, especially the US operations, which struggle to meet their costs and have suffered material reputational damage from a string of litigations and regulatory interventions.

Although Deutsche Bank has been reducing costs in line with its Strategy 2020, the cost/income ratio has not improved due to the ongoing erosion of the revenue base, leaving the bank very little buffer to absorb the volatile investment banking revenues. Nevertheless, cost cutting has cut the losses and Scope’s stable outlook is based on the expectation that Deutsche Bank maintains a minimum level of recurring profits from here in line with management targets.

The EUR 8bn rights issue in 2017 improved the bank’s capital position. However, weak profitability and litigation costs over past two years has limited internal capital generation. In addition, while risk-based capital ratios are stable, the bank has yet to reach the incoming leverage ratio requirements.

Further restructuring of the retail banking franchise could provide upside to the ratings in the medium to long-term if Deutsche Bank achieves efficiency and profitability gains in the highly competitive, low-margin German market.

Another positive change driver would be a decisive restructuring of the investment bank and the asset management unit that resolves the key structural weaknesses of the global business model.

On the downside, Scope remains concerned that litigation and regulatory disputes could negatively affect customer relations while higher-than-anticipated legal charges undermine capital generation.

Any further deterioration of the bank’s profitability and a lack of progress in the areas of cost reduction and efficiency gains will again put downward pressure on the bank’s ratings and the viability of its global investment banking strategy.

Below is the complete list of ratings Scope has assigned to Deutsche Bank:

• Issuer rating downgraded to BBB from BBB+
• Senior preferred debt rating downgraded to BBB from BBB+
• Senior non-preferred debt rating downgraded to BBB- from BBB
• Tier 2 rating instruments downgraded to BB from BB+
• Additional Tier 1 rating instruments downgraded to B- from B
• Short-term debt rating of S-2 (no rating action)

All ratings have a Stable Outlook.

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

Methodology
The methodology used for this rating(s) and/or rating outlook(s) Bank Rating Methodology is available on www.scoperatings.com.
Historical default rates of the entities rated by 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 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 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 Dierk Brandenburg, Managing Director
Person responsible for approval of the rating: Pauline Lambert, Executive Director
The issuer rating/outlook was first released by Scope on 02.04.2014. The issuer rating/outlook was last updated on 06.06.2018.
The senior unsecured debt rating/outlook was first released by Scope on 02.04.2014. The senior unsecured debt rating/outlook was last updated on 06.06.2018.
The preferred senior-equivalent unsecured debt rating was first released by Scope on 27.07.2018
The AT1 rating/outlook was first released by Scope on 09.10.2014. The AT1 rating/outlook was last updated on 06.06.2018.
The Tier 2 rating/outlook was first released by Scope on 19.12.2016. The Tier 2 rating/outlook was last updated on 06.06.2018.

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
© 2019 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.

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