Moody's just issued a brief report on the back of Deutsche Bank's Euro6 billion pre tax loss announced last week, focusing more on the underlying re-engineering challenges than the quantum of the loss. The rating agency says the bank continues to face significant challenges in its operations, notably corporate banking and private client businesses.
If the bank continues to make progress on its restructuring, bondholders and its rating may benefit, according to the rating agency. However the bank, while benefiting from less leverage and a more stable business mix going forward, also faces a challenge in executing this plan while continuing to generate profits. Moody's has said the effectiveness of the plan's execution may well drive changes in Deutsche's creditworthiness over the next several years. DB is currently rated A3 positive.
On the good news front, the goodwill impairment linked to the loss is non-cash, the CT1 should remain around 11%, (versus 11.4% last quarter), and thirdly a planned cut in the dividend for 2015 should preserve cash. Bondholders and counterparties alike are important stakeholders in any bank and ratings are, whether we like it or not, an indicator of health. So this is an important developing story over the next year. It also very much underscores the challenges facing banks in their restructuring programmes and the game of banking twister, where multiple competing objectives occur (lend, pay dividends, but raise capital, restructure, etc).
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