Ratings agency Moody's has slashed the credit rating of Germany's biggest lender. It said it wasn't convinced Deutsche Bank would return to higher profits, as expressed in the bank's latest earnings report.
Moody's said Tuesday that Deutsche Bank's supported long-term debt and deposit ratings had been cut to A3 from A2.
The downgrade was due to the lender's "modest profitability," dragged down by litigation and restructuring costs, Moody's said.
Moreover, Deutsche Bank was still being hit by legacy losses, elevated earnings volatility and high dependence on capital markets earnings.
Moody's also downwardly adjusted the lender's standalone bank financial strength rating (BFSR) to D+ from C-.
"We are expecting modest earnings and a heavy reliance on capital markets revenues at Deutsche Bank for the foreseeable future and this drove the downgrade, despite the recent capital raise," said Peter Nerby, Moody's lead analyst for Deutsche Bank.
Revenue and expense headwinds would continue to depress the bank's business until late 2015, Nerby added.
The ratings downgrade came as the Frankfurt-based banking giant reported a 29 percent drop in net profit for the second quarter to 237 million euros ($318 million) from 334 million euros on the year.
Despite a 16 percent rise in pre-tax earnings driven by major cost-cutting, Deutsche Bank's total revenue fell 4 percent to 7.9 billion euros quarter-on-quarter.
Co-Chief Executives Jürgen Fitschen and Anshu Jain put out a statement describing current banking conditions as complex, saying, "The world's economies are growing at different speeds, and this may cause differences in the pace at which interest rates normalize, creating opportunities."
New allegations surfaced over the weekend linking Deutsche Bank to a group of international lenders, including HSBC and Canada's Bank of Nova Scotia, which are accused of conspiring since 2007 to fix the price of silver.
The case is the latest in a series of scandals affecting Deutsche Bank. Allegations range from wrongdoings in the US subprime mortgage crisis to colluding to fix benchmark interbank interest rates, such as Libor and Euribor.
uhe/cjc (Reuters, dpa, AFP)