Moody’s places Deutsche Bank on review ahead of possible downgrade and forecasts delay in improving profitability
Ratings agency Moody's has placed Deutsche Bank on review and may downgrade the company and some of its affiliates.
Moody's said the move was "prompted by the rising execution hurdles facing Deutsche Bank in its efforts to strengthen and stabilise profitability over the next three years" and cited Deutsche's recent weak performance within its capital market operations. The German bank's boss John Cryan said last week that the group will not be profitable in 2016.
"Deutsche Bank's diminished performance in the most recent two periods is a function of both environmental and firm-specific factors," said Peter Nerby, a Moody's senior vice-president.
Since changing leadership last June and recalibrating its strategic plan last November, the operating environment has worsened for Deutsche Bank, according to Moody's.
This has increased "the already high level of execution challenges the group faces in addressing its structural cost issues and achieving its new strategic plan". Moody's forecasts that revenue and expense headwinds "may delay an improvement in profitability and achievement of Deutsche Bank's interim cost-to-income targets".
"The scale of the firm's reengineering task, the potential for further weak revenue, and the risk of incremental
litigation charges also create uncertainty, further increasing the execution challenge," Moody's added.
The ratings agency's review will focus on the details of the bank's execution plan for 2016 and 2017 and the extent to which it will have to be adapted "given challenges in the operating environment".