Deutsche Bank AG had its credit rating cut by Moody’s Investors Service, which said the German lender faces mounting challenges in carrying out its turnaround.
The bank’s senior unsecured debt rating was lowered to Baa2 from Baa1, Moody’s said in a statement. That left the grade two levels above junk. The firm’s long-term deposit rating fell to A3 from A2, Bloomberg reported.
“Deutsche Bank’s performance over the last several quarters has been weak, and substantial operating headwinds, including continuing low interest rates and macroeconomic uncertainty, will challenge the firm,” Moody’s said in the statement.
Chief Executive Officer John Cryan’s planned overhaul of the bank, laid out in October, ran into an industry-wide slump in trading and investment banking, as well as interest rates that have gone from low to negative in parts of Europe and Asia. Net income fell 61% in the first quarter, leaving the company at risk of a second straight annual loss this year as it tries to resolve legal cases.
Results so far and the challenges ahead, including a chance of further slumps in retail and market-linked businesses, will probably force Deutsche Bank to balance restructuring costs with the need to amass capital for stiffened regulatory requirements, Moody’s wrote.
“The plan they’re trying to execute is a good plan for the bondholder in the long run, but they face some pretty challenging headwinds when you look at the current operating environment,” Peter Nerby, a senior vice president at Moody’s, said in a phone interview. “They’re working on it, but it’s tougher than it was.”
Moody’s had said in March that it was reviewing Deutsche Bank. The company’s rating is now stable because of long-term benefits to creditors if it’s able to achieve restructuring goals, Moody’s said.
