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Deutsche Bank hit by ratings downgrade

Following massive turmoil in Germany's flagship lender recently, ratings agency Standard & Poor's has cut the bank's credit rating. Negative comments on Deutsche Bank also came from Moody's.

Ratings agency Standard & Poor's (S&P) on Tuesday downgraded several British and German banks, including Deutsche Bank, saying it considers government support for these banks to be uncertain.

The rating arm of McGraw Hill Financial lowered the creditworthiness of Deutsche Bank to "BBB+," three notches above junk territory.

"We now hold the view that Germany's enhanced and effective resolution framework has cast uncertainty over whether the government would provide extraordinary support to German banks,"

S&P said in a statement

.

In a special reference to Deutsche Bank, the ratings agency said it considered the lender's ratio between its risk-weighted assets and its additional loss-absorbing capacity (ALAC) as "unlikely to be sufficient for a notch-up" in the next four years.

Deutsche Bank, the largest German lender, has struggled to restore an image tarnished by a raft of regulatory and legal problems. The financial institution has recently been facing probes into alleged manipulation of benchmark interest rates and derivatives, tax evasion and money laundering.

Last month, it was fined a record $2.5 billion (2.2 billion euros) for its involvement in manipulating the interbank lending rate Libor.

On Sunday, the bank's two co-CEOs, Anshu Jain and Jürgen Fitschen, said they would be stepping down amid falling shareholders' confidence. They are to be replaced by British banker John Cryan, a former chief financial officer at Swiss bank UBS.

Watch video 03:40

Deutsche Bank – Change at the Top

Moody's chimes in

Ratings agency Moody's said Tuesday the surprise change in the bank's top leadership "accentuates the risks… and creates more worry for the bank's bondholders."

"This abrupt management change...highlights the urgency and the difficulty of the re-engineering task facing Deutsche Bank," Moody's said in a research report.

Moody's also noted that Cryan appeared to be a "sensible choice," but the bank's failure to name an internal successor hinted at a "weak succession pipeline, and recruiting outsiders was inherently more risky than choosing qualified insiders."

"These changes heighten the uncertainty regarding the feasibility of successfully executing the new strategic plan," the credit rating agency said, although successful implementation could be beneficial for bond holders.

uhe/ng (Reuters, dpa, AP)

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