Fitch cuts Deutsche Bank's rating as turnaround stalls

FRANKFURT • Deutsche Bank CEO John Cryan is facing increasing scepticism he can revive growth at the lender as it struggles to win back clients and market share after last year's slump.

The bank had its long-term credit grade cut one level on Thursday by Fitch Ratings, which said Deutsche Bank will take longer to revive growth under a turnaround plan unveiled in March. That came a week after Autonomous Research said the bank may be "beyond repair" unless there is a "miracle" boom at its once-mighty bond-trading business.

Mr Cryan is struggling to boost earnings as the lender undertakes its third revamp in as many years. He brought the bank back from the brink late last year by settling misconduct lawsuits and raising €8 billion (S$12.8 billion). His plan to restore "modest growth" by pivoting Europe's largest investment bank to corporate clients and emphasising its German roots was thwarted when the lender suffered its weakest revenue in 31/2 years in the second quarter.

"We no longer expect revenue to demonstrate any clear signs of franchise recovery this year, and we expect necessary further restructuring costs to continue to erode net income," Fitch analysts said in a statement Thursday.

The company's stock fell 0.3 per cent to €14.33 and has declined 7 per cent this year, the second-worst performer in the 46-member Stoxx 600 Banks Price Index. The company's 6 per cent perpetual bonds were little changed.

Fitch said low volatility and persistently low interest rates, especially in Europe, continue to weigh on the bank's top line, and it will take longer to reverse a loss in market share the bank experienced at the end of last year, when some clients stopped doing business with Deutsche Bank amid speculation about its capital strength. The integration of its Postbank consumer banking unit, which Mr Cryan decided to keep after he could not find a buyer, will result in more restructuring expenses, it said.

The German bank's rating was reduced to BBB+, the third-lowest investment grade at Fitch, from A-, while its outlook was set at stable.

Fitch raised UBS Group to A+ from A, citing operational improvements such as better risk controls, and confirmed the rating for Credit Suisse Group at A-.

S&P Global raised Deutsche Bank's rating to A-from BBB+ in March, citing a retroactive change in German law that will protect senior creditors. The bank's credit has been rated Baa2 by Moody's Investor Services since May last year.

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A version of this article appeared in the print edition of The Straits Times on September 30, 2017, with the headline 'Fitch cuts Deutsche Bank's rating as turnaround stalls'. Print Edition | Subscribe