Deutsche Bank rating cut by Fitch as turnaround stalls

John Cryan is struggling to boost earnings as the lender undertakes its third revamp in as many years.
John Cryan is struggling to boost earnings as the lender undertakes its third revamp in as many years.PHOTO: REUTERS

FRANKFURT (BLOOMBERG) - John Cryan is facing increasing skepticism he can revive growth at Deutsche Bank as the lender struggles to win back clients and market share after last year's slump.

Deutsche Bank had its long-term credit grade cut one level by Fitch Ratings Thursday (Sept 29), which said the lender will take longer to revive growth under a turnaround plan unveiled in March. That came a week after Autonomous Research said the lender may be "beyond repair" unless there's 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. The CEO brought the bank back from the brink in late 2016 by settling misconduct lawsuits and raising 8 billion euros (S$12.7 billion). His plan to restore "modest growth" by pivoting Europe's largest investment bank to corporate clients and emphasizing its German roots was thwarted when the lender suffered its weakest revenue in 3 1/2 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," the Fitch analysts wrote in a statement Thursday.

The company's stock fell 0.3 per cent to 14.33 euros 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 couldn't find a buyer, will result in more restructuring expenses, Fitch 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 2016.

The struggle is not lost on Mr Cryan himself who said in July that the bank needs to focus more on generating revenue after its drive to reduce costs.