TEXT-Fitch affirms Deutsche Bank at 'A+'/Stable
(The following statement was released by the rating agency)
Oct 10 - Fitch Ratings has affirmed Deutsche Bank AG's
Issuer Default Rating (IDR) at 'A+' with a Stable Outlook, Short-term IDR at 'F1+' and Viability Rating (VR) at 'a'. At the same time, the agency affirmed the Support Rating at '1' and Support Rating Floor (SRF) at 'A+'. The ratings of Deutsche Bank's main subsidiaries have also been affirmed, as were the ratings of all issues. A full list of rating actions is at the end of this rating action commentary.
The rating actions on Deutsche Bank have been taken in conjunction with Fitch's Global Trading and Universal Bank (GTUB) periodic review. Fitch's outlook for the industry is stable. Positive rating drivers include improved liquidity, funding, capitalisation and more streamlined businesses, all partly driven by regulation. Offsetting these positive drivers are substantial earnings pressure, regulatory uncertainty and heightened legal and operational risk.
RATING ACTION RATIONALE Deutsche Bank's IDR is at its SRF and therefore based on support from the German authorities. The affirmation of the IDR, Support Rating and SRF reflect Fitch's unchanged view that there is an extremely high probability that Deutsche Bank would receive support from the authorities because of the bank's systemic importance domestically and internationally. Deutsche Bank is Germany's largest bank.
The affirmation of the VR, which at 'a' is one notch below the bank's Long-term IDR, is based on Fitch's view that the bank is likely to strengthen capital ratios quickly to achieve its target 10% Basel III common equity tier 1 (CET1) ratio on a 'look-through' basis earlier than end-2015 to bring this more into line with peers, while continuing to adequately control the risks in its investment banking operations. Market risk exposure, as measured by several metrics, has declined over recent quarters, and the bank's strategy concentrates on reducing its risk exposure, while at the same time improving performance.
RATING DRIVERS AND SENSITIVITIES - IDRS, SUPPORT RATING, SRF AND SENIOR DEBT The Stable Outlook on Deutsche Bank's Long-Term IDR reflects Fitch's view that sovereign support for the bank will continue to be available in the medium term.
Deutsche Bank's IDRs, Support Rating, SRF and senior debt ratings are sensitive to a change in Fitch's assumptions about the availability of sovereign support for the bank. In this context, Fitch is paying close attention to ongoing policy discussions around bank support and 'bail in', especially in Europe. An upgrade of Deutsche Bank's IDRs is unlikely given Fitch's expectation of diminishing sovereign support for banks generally in Europe and globally.
Any downgrade of Deutsche Bank's SRF would lead to a downgrade of the bank's IDRs. In line with Fitch's criteria, the bank's Long-term IDR is the higher of the VR and the SRF.
RATING DRIVERS AND SENSITIVITIES - VR Deutsche Bank's VR reflects the group's strong franchise in German commercial banking, with excellent access to domestic large and mid-sized corporates. In addition, the acquisition of Deutsche Postbank (Postbank) has increased its retail customer base, with good access to retail funding. The group is also one of the largest global investment banks with strong franchises in key segments. The bank has an excellent franchise in foreign exchange and other fixed income segments, complemented by strong league table positions in equity products.
The VR is based on Fitch's expectation that Deutsche Bank's planned reduction of risk-weighted assets (RWA), primarily in the investment banking operations, will proceed. Together with the further reduction in legacy assets, this should reduce exposure to credit and market risk. However, the bank's corporate banking and securities businesses will continue to be the main risk taker in the bank, which is reflected in its VR. Deutsche Bank's VR would come under pressure if the group does not achieve its planned RWA reduction, or if it increases its trading risk exposure, which Fitch currently does not expect.
Deutsche Bank's capitalisation is weaker than most of its global peers' with a 'look-through' Basel III CET1 ratio of below 7% at end-June 2012 and high adjusted leverage. The VR factors in Fitch's expectation that the bank will materially strengthen its capitalisation by end-March 2013 and after that will continue to report capital ratios in line with its peers.
The agency would downgrade the VR if capitalisation, as measured by the Fitch core capital ratio, which at end-June 2012 stood at 9.2%, or by the 'look-through' Basel III CET1 ratio did not improve to levels in line with peers and remain there over time. The bank targets a 'look-through' CET 1 ratio above 8% by end-March 2013 and of above 10% by end-2015 and Fitch expects swift material progress in strengthening capitalisation between these two dates. The VR would also come under pressure if adjusted leverage increased further from its current high level.
Fitch considers Deutsche Bank's profitability targets to be ambitious. Its VR is sensitive to core, sustainable earnings deteriorating below peers, but Fitch does not expect this to be the case once the upfront reorganisation costs around Postbank have been dealt with.
Deutsche Bank's VR also reflects the group's strong funding profile, which benefits from a good customer deposit base, and the bank has managed to access wholesale funding and achieve good pricing throughout the financial crisis. The group's liquidity is managed globally and a strong liquidity reserve is maintained. At end-June 2012, the liquidity reserve amounted to EUR205bn, equal to over 170% of unsecured short-term wholesale funding.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital issued by Deutsche Bank and its subsidiaries are all notched down from Deutsche Bank's VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles. Their ratings are primarily sensitive to any change in Deutsche Bank's VR.
SUSBIDIARY AND AFFILIATED COMPANY RATING DRIVERS AND SENSITIVITIES Postbank's IDRs are equalised with those Deutsche Bank, which indirectly holds 94.1% of Postbank's shares. Fitch views Postbank as core to Deutsche Bank's ambition of strengthening its domestic retail banking. Fitch views the control and profit and loss transfer agreement between DB Finanz-Holding GmbH (not rated, a wholly-owned subsidiary of DB) and Postbank, which was irrevocably validated by a German court in September 2012 as a very strong indication of support.
The IDRs of the other rated subsidiaries are also equalised with Deutsche Bank's to reflect their core role within the bank's operations and their integration in the parent bank.
As the IDRs of the subsidiaries are equalised with those of Deutsche Bank to reflect support from their ultimate parent, they are sensitive to changes in the parent's propensity to provide support, which Fitch currently does not expect, or from changes in Deutsche Bank's IDRs.
The rating actions are as follows:
Deutsche Bank Long-term IDR: affirmed at 'A+'; Outlook Stable Short-term IDR: affirmed at 'F1+' Viability Rating, affirmed at 'a' Support Rating: affirmed at '1' Support Rating Floor: affirmed at 'A+' Senior Debt, including programme ratings: Long-term: affirmed at 'A+'; Short-term affirmed at 'F1+' Senior market-linked securities: affirmed at 'A+emr' Subordinated market-linked securities: affirmed at 'A-emr' Subordinated Lower Tier II Debt: affirmed at 'A-'
Long-term IDR: affirmed at 'A+'; Stable Outlook Short-term IDR: affirmed at 'F1+' Support Rating: affirmed at '1' Senior Debt, including programme ratings: affirmed at 'A+'/'F1+' Subordinated Lower Tier II Debt: affirmed at 'A-' Unsecured guaranteed bonds issued by former DSL Bank: affirmed at 'AA'/'AA emr' PB Finance (Delaware); Inc: Commercial paper: affirmed at 'F1+'
This rating action has no impact on the 'AAA' rating of the outstanding covered bonds issued by Postbank.
Deutsche Bank Securities Long-term IDR: affirmed at 'A+'; Outlook Stable Short-term IDR: affirmed at 'F1+' Support Rating: affirmed at '1' Deutsche Bank Trust Company Americas Long-term IDR: affirmed at 'A+'; Outlook Stable Short-term IDR: affirmed at 'F1+' Support Rating: affirmed at '1' Senior debt, including programme ratings: Long-term affirmed at 'A+'; Short-term affirmed at 'F1+' Subordinated Debt: affirmed at 'A-' Deutsche Bank Trust Corporation Long-term IDR: affirmed at 'A+'; Outlook Stable Short-term IDR: affirmed at 'F1+' Support Rating: affirmed at '1' Senior debt, including programme ratings: Long-term affirmed at 'A+'; Short-term affirmed at 'F1+' Subordinated Debt: affirmed at 'A-' Deutsche Bank Australia Ltd. Commercial Paper affirmed at 'F1+' Deutsche Bank Financial LLC Short-term IDR affirmed at 'F1+' Subordinated Debt: affirmed at 'A-' Commercial Paper: affirmed at 'F1+'
Deutsche Bank Capital Funding Trust I: affirmed at 'BBB-' Deutsche Bank Capital Funding Trust IV: affirmed at 'BBB-' Deutsche Bank Capital Funding Trust V: affirmed at 'BBB-' Deutsche Bank Capital Funding Trust VI: affirmed at 'BBB-' Deutsche Bank Capital Funding Trust VII: affirmed at 'BBB-' Deutsche Bank Capital Funding Trust VIII: affirmed at 'BBB-' Deutsche Bank Capital Funding Trust IX: affirmed at 'BBB-' Deutsche Bank Capital Funding Trust X: affirmed at 'BBB-' Deutsche Bank Capital Funding Trust XI: affirmed at 'BBB-' Deutsche Bank Contingent Capital Trust II: affirmed at 'BBB-' Deutsche Bank Contingent Capital Trust III: affirmed at 'BBB-' Deutsche Bank Contingent Capital Trust IV: affirmed at 'BBB-' Deutsche Bank Contingent Capital Trust V: affirmed at 'BBB-' Deutsche Postbank Funding Trust I (Germany): affirmed at 'BBB-' Deutsche Postbank Funding Trust II (Germany): affirmed at 'BBB-' Deutsche Postbank Funding Trust III (Germany): affirmed at 'BBB-' Deutsche Postbank Funding Trust IV (Germany): affirmed at 'BBB-' ProSecure Funding Limited Partnership (LP Jersey): affirmed at 'BBB-'
Additional information is available on
. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15 August 2012, are available at
. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria (New York Ratings Team)